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Vodafone spectrum concern

New Delhi, Dec. 25: Vodafone’s spectrum cost will be 15-to-18 times more than its rivals in Delhi and Mumbai if it is forced to participate in auctions on grounds of expiry of licences and its rivals are spared as their licences will not expire, the company said.

The government recently decided to put on the block spectrum currently held by incumbent operators whose licences are expiring in 2014.

Vodafone is one of the companies whose licences in Delhi and Mumbai are due for renewal in 2014.

The government wants Vodafone and Bharti Airtel to “compulsorily” participate in the March-end spectrum sale if they intend to continue operations in Delhi and Mumbai.

According to industry calculations, while these two cities account for 15 per cent of revenues earned by an operator, the minimum base price set by the government is over 32 per cent of the all-India reserve price for spectrum in the 1800 megahertz band.

“At such high reserve prices, for the current spectrum mix, the expected annualised spectrum cost (including annual spectrum use charges) as a percentage of annualised AGR (adjusted gross revenue) of the respective circles will be as high as 61 per cent in Delhi and 66 per cent in Mumbai,” said T.V. Ramachandran, resident director, Vodafone India.

Telecom operators pay the government a percentage of their AGR as spectrum charge.

Ramachandran said that “if we add on the other costs of running the network, fees, taxes, etc, there is absolutely no business case to take spectrum at these prices”.

Analysts contend that if the industry mood remained pensive, the government could face another round of muted response to the spectrum sale with bid rates not showing encouraging growth.

The spectrum sale in November earned the exchequer only Rs 9,400 crore against a target of over Rs 40,000 crore. The government is, however, confident of gaining over Rs 20,000 crore from the second sale.

Recently, the government reduced the pan-India reserve price to about Rs 12,000 crore from Rs 14,000 crore fixed for the November auction. The minimum bid price for Delhi and Mumbai has been revised to Rs 485.1 crore and Rs 474.9 crore, respectively.

In the November auctions, these two circles were priced at Rs 693.06 crore (Delhi) and Rs 678.45 crore (Mumbai). These rates were deemed too high to get any bids.

While Vodafone has criticised the “compulsory” nature of the current auctions, it also said that they “are willing to pay a market determined price for extension of our licences”.

 
 
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