Telcos say high spectrum cost may increase rates by 50 pc

Calling for a reduction in the base price for the next spectrum auction, telecom companies have said higher costs may lead to rates for calls, text messages and other services rising by up to 50 per cent.

"The value of spectrum should not be too high, which will inevitably result in significant increase in consumer tariffs, unsold spectrum and consequently, no revenues for the exchequer," Bharti Airtel said.

The telecom regulator had recommended an about 11-fold increase in the base price for spectrum from the amount paid by operators in 2008.

Bharti Airtel, Vodafone India and Loop Mobile, whose licences expire in 2014 and may see their spectrum auctioned under a refarming proposal, have told the Telecom Regulatory Authority of India that the move will lead to a significant increase in mobile tariffs.

Mobile call rates have seen an increase of up to 100 per cent over the past two years. At present, mobile call rates range between 90 paise and Rs 1.20 per minute.

Airtel said a study conducted by the Cellular Operators Association of India and PwC in May 2012 stated that consumer tariffs would go up by 26 paise if the regulator's recommendations of May 2012 were accepted.

Loop Mobile, which has services in Mumbai, said the industry may have to invest about Rs 550 billion on network modification under refarming and spend an additional Rs 118 billion annually on operational expenditure.

"New capex will be required to produce new base stations, apart from expenses related to procurement of new towers and write-off costs...This shall in turn have a negative impact on subscriber tariffs and industry estimates suggest a net increase of at least INR 0.5 per minute," Loop Mobile said.

The government had set a pan-India reserve price for 3G spectrum at Rs 3,500 crore in 2010. At last year's auction, the reserve price was Rs 14,000 crore for 5 Mhz of spectrum.Vodafone India suggested that the regulator reduce the spectrum base price by up to 84 per cent for 2G GSM spectrum from the level fixed for the March auctions. Telenor-led Telewings has suggested keeping the base price at Rs 1,650 crore, the level set in 2001.On the other hand, companies led by the Ambani brothers have opposed any reduction in spectrum price. 

Reliance Jio Infocomm, led by Mukesh Ambani, cited media reports about the apprehension expressed by the Comptroller and Auditor General that a cartel was behind the failure of the spectrum auction.

"For those circles like Karnataka, Rajasthan, Delhi and Mumbai, it will be better to follow the base price as used in earlier auctions," Reliance Jio Infocomm said. "Prices there were benchmarked to 3G auction results and therefore are representative of true economic value of the spectrum and do not warrant any revision."

It added that any other basis, such as correlating it to the sale price achieved in similar service areas, would be arbitrary and may lead to litigation.

"Such a move will also send wrong signals to the market on the policy consistency by the Government," RJI said.

Anil Ambani-led Reliance Communications said: "We do not agree with the Trai that there is any reduction in spectrum demand for 1800/900 MHz spectrum bands. The subdued spectrum demand in previous auctions was mainly on account of coordinated bidding and not because of 900MHz/1800 MHz spectrum pricing and the same has been corroborated by CAG."