The Telegraph
Wednesday , August 8 , 2012
Since 1st March, 1999
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Price pricks aspirants

Mumbai, Aug. 7: Rating agency Fitch today warned of higher tariffs in telecom because of the stiff reserve price in the coming auctions. Fitch also feared the absence of operators whose licences were taken away by the Supreme Court in the auctions.

Fitch in a report said the price of $509 million per MHz in the 2G bandwidth (1800MHz), which is used essentially for voice and text, was one of the most expensive in the Asia Pacific region. The 2G spectrum is offered at a nominal price, or with no upfront-fees, on a first-come-first-served basis in Indonesia, the Philippines, Thailand and Korea.

“We expect many of the telecom firms whose licences were cancelled by India’s Supreme Court in February not to participate in the re-auction, as most of the firms have a stretched balance sheet. Further, the cabinet decision did not provide any relief on spectrum use charges, which were left unchanged at the existing levels of 3-8 per cent of adjusted gross revenues,” Fitch said.

According to the rating agency, high spectrum pricing is likely to result in a rise in tariffs, which could be initiated by large operators.

Fitch said while three smaller operators — Etisalat, Videocon and Swan Telecom — had already exited the industry, Uninor and Sistema Shyam Teleservices were also likely to pull out either completely or in part. Tata Teleservices and Aircel may look to consolidate to strengthen their position as they have not been able to make profit so far.

Large operators such as Bharti Airtel are likely to be hit by the new spectrum pricing as it might be asked to pay a one-time charge for excess spectrum holding. Moreover, the company will have to pay up for spectrum once their licences come up for renewal from 2014/2015.

In a report by Kotak Institutional Equities, analyst Rohit Chordia said though the reserve price was 23 per cent lower than the Trai proposed price, it was not a big relief, either for players whose licences were quashed or for the incumbents.