The heads of the top three telecom operators — Bharti Airtel, Vodafone India and Idea Cellular — today sought Finance Minister Pranab Mukherjee’s “urgent and personal” intervention to stop the re-farming of spectrum proposed by the telecom regulator, saying it would have serious impact on the industry.
Mukherjee chairs the Empowered Group of Ministers (EGoM) on the telecom spectrum issue.
Based on a study by international research agency Analysis Mason, mandated by the three companies, they argued that mobile telephony rates would go up by 64p a minute if the cost of re-farming and the price of auction are passed on to consumers. The agency said as a result of re-farming, the operators would have to fork out an incremental capital expenditure of Rs 54,739 crore and incremental annual operational expenditure of Rs 11,762 crore.
“We request your most urgent, personal intervention to ensure that no further decision on re-farming (of the) 900 megahertz spectrum is taken, at the very least until a thorough consultation is carried out,” wrote Sanjay Kapoor, chief executive officer of Airtel; Himanshu Kapania, managing director of Idea Cellular, and Marten Pieters, MD and CEO of Vodafone India.
The government had distributed 2G spectrum in the more-efficient 900 MHz band to the earlier operators. The late entrants got spectrum in the 1,800 MHz band, as spectrum in the 900 MHz band had got depleted. One of the many recommendations given by the Telecom Regulatory Authority of India (Trai) for the upcoming 2G spectrum auctions said the 900 MHz band spectrum should be redistributed.
The three companies said Trai “hastily” concluded that re-farming should be carried out when the many licences of these companies expire in 2014-16. The companies argue this amounts to misinterpretation of the SC order in February, which cancelled all 122 telecom licences allotted in and after 2008 and ordered a re-auction of the spectrum. “We submit that re-farming has no nexus with the Supreme Court order,” the three CEO’s said in the letter.
The study by Mason says redistributing the 2G spectrum in the 900 MHz band will require the industry to have 286,590 base stations in the same band.
“Given that operators with 900 MHz have deployed 900 MHz base stations over years, and the transceivers to upgrade these bases stations are not available with original equipment makers, the 900 MHz base stations will need to be replaced with 1,800 MHz base stations. To provide equivalent coverage, operators will also need to deploy additional sites on 1,800 MHz to address coverage gaps due to the radius differential between 900 MHz and 1800 MHz,” said the report by Analysis Mason.
Apart from extra spending, older operators will also have to write off the existing 900 MHz assets of around Rs 22,310 crore. The study also assessed that the industry would require an additional capex of Rs 26,653 crore to deploy new towers for additional base stations.
This extra spending by operators will land on consumers’ telephone bills, as the costs would have to be passed on. In addition to re-farming spectrum, Trai had also proposed a high reserve price for the upcoming auctions, opposed by both old and new operators.
“If the incremental investment in re-farming and the costs of spectrum are passed on to consumers in the form of enhanced retail voice tariffs (rates), the overall tariff will go up as much as 64p per minute,” said Analysis Mason. Of this increase, 30p would be on account of re-farming costs and 34p from spectrum investments, it said. And, that the impact would be much higher in non-metro circles.
The companies claim if the cost of re-farming was not passed on, the Ebitda (earnings before interest taxes, depreciation and amortisation) margins of 900 MHz spectrum holders would decline about eight percentage points.
Mukherjee chairs the Empowered Group of Ministers (EGoM) on the telecom spectrum issue.
Based on a study by international research agency Analysis Mason, mandated by the three companies, they argued that mobile telephony rates would go up by 64p a minute if the cost of re-farming and the price of auction are passed on to consumers. The agency said as a result of re-farming, the operators would have to fork out an incremental capital expenditure of Rs 54,739 crore and incremental annual operational expenditure of Rs 11,762 crore.
“We request your most urgent, personal intervention to ensure that no further decision on re-farming (of the) 900 megahertz spectrum is taken, at the very least until a thorough consultation is carried out,” wrote Sanjay Kapoor, chief executive officer of Airtel; Himanshu Kapania, managing director of Idea Cellular, and Marten Pieters, MD and CEO of Vodafone India.
The government had distributed 2G spectrum in the more-efficient 900 MHz band to the earlier operators. The late entrants got spectrum in the 1,800 MHz band, as spectrum in the 900 MHz band had got depleted. One of the many recommendations given by the Telecom Regulatory Authority of India (Trai) for the upcoming 2G spectrum auctions said the 900 MHz band spectrum should be redistributed.
The three companies said Trai “hastily” concluded that re-farming should be carried out when the many licences of these companies expire in 2014-16. The companies argue this amounts to misinterpretation of the SC order in February, which cancelled all 122 telecom licences allotted in and after 2008 and ordered a re-auction of the spectrum. “We submit that re-farming has no nexus with the Supreme Court order,” the three CEO’s said in the letter.
The study by Mason says redistributing the 2G spectrum in the 900 MHz band will require the industry to have 286,590 base stations in the same band.
“Given that operators with 900 MHz have deployed 900 MHz base stations over years, and the transceivers to upgrade these bases stations are not available with original equipment makers, the 900 MHz base stations will need to be replaced with 1,800 MHz base stations. To provide equivalent coverage, operators will also need to deploy additional sites on 1,800 MHz to address coverage gaps due to the radius differential between 900 MHz and 1800 MHz,” said the report by Analysis Mason.
Apart from extra spending, older operators will also have to write off the existing 900 MHz assets of around Rs 22,310 crore. The study also assessed that the industry would require an additional capex of Rs 26,653 crore to deploy new towers for additional base stations.
This extra spending by operators will land on consumers’ telephone bills, as the costs would have to be passed on. In addition to re-farming spectrum, Trai had also proposed a high reserve price for the upcoming auctions, opposed by both old and new operators.
“If the incremental investment in re-farming and the costs of spectrum are passed on to consumers in the form of enhanced retail voice tariffs (rates), the overall tariff will go up as much as 64p per minute,” said Analysis Mason. Of this increase, 30p would be on account of re-farming costs and 34p from spectrum investments, it said. And, that the impact would be much higher in non-metro circles.
The companies claim if the cost of re-farming was not passed on, the Ebitda (earnings before interest taxes, depreciation and amortisation) margins of 900 MHz spectrum holders would decline about eight percentage points.