At current prices, the spectrum has gone out of the reach of a highly debt-ridden telecom industry.
One obvious way out is to lower base prices and allow the bidding to happen on revenue share. Companies which offer a higher future revenue share get more spectrum.
The government’s ongoing spectrum auction looks like yielding a mouse: over Rs 5,63,000 crore worth of spectrum is on offer, including the super-premium 700 Mhz band, but bids at the end of the fourth day (5 October) had barely reached the treetop at Rs 63,000 crore.
No one is touching the high-priced 700 Mhz (priced at Rs 11,485 crore per Mhz) with a bargepole. Bidding is said to be concentrated around the 1,800 Mhz, 2,100 Mhz, 2,500 Mhz, 2,300 Mhz and 800 Mhz bands, and that too to fill gaps in operators’ current circles. No one is bidding skyhigh.
While Rs 63,000 crore is nothing to sniff at, the fact is high-priced spectrum is now reaching its natural limits of growth in demand. Not because spectrum is not needed, but because pricing has gone out of the reach of a highly debt-ridden telecom industry.
At last count, the industry had over Rs 3,80,000 crore of debt on its books, and the current auction will surely take it past the Rs 4,00,000 crore mark. The industry’s spirit may be willing, but the flesh is weak on balance-sheet risks.
While debt is forcing consolidation in the industry, with Aircel and Sistema merging with Reliance Communications, the industry continues to have at least two more players than what current voice and data tariffs can support. The weakest links in the telecom sector are Tata Teleservices and Telenor, neither of which has critical mass in terms of customers. The entry of Reliance Jio will push at least one of the two out.
But even if consolidation speeds up, the debt issue remains paramount. RBI Governor Urjit Patel mentioned telecom as one of the five most stressed sectors for bank lending.
At some point, the government has to realise that the health of the telecom sector is closely linked to the banking sector. When spectrum becomes excessively costly, it is banks who have to lend more to ensure its purchase.
Put another way, when government rakes in huge spectrum revenues, the money for it comes from its other pocket, government-owned banks. While no one is saying that any telecom company is going to go bust in the near future, high spectrum prices are becoming a problem.
We need a way out where spectrum is priced reasonably without showing the industry any special favours.
One obvious way out is to lower base prices and allow the bidding to happen on revenue share. Companies which offer a higher future revenue share get more spectrum. This will ensure that spectrum is paid for only after the customer base in built and revenues are generated rather than upfront.
It is time to rethink how spectrum should be priced. A Raja’s way was wrong, but there is no reason to head in the opposite direction of prescribing extortionate prices for spectrum. A middle path is needed.