The post-spectrum phase of Indian telecom

The same goes for Airtel, which similarly has no appetite for more spectrum. After its acquisition of Telenor in May—a deal which gave it 43.4 MHz of paired spectrum in 1800 MHz band across seven circles—Airtel’s CEO Gopal Vittal told analysts that Airtel had no need to invest in radio waves. This notion will only strengthen once the approvals for Airtel’s acquisition of Tata Teleservices are cleared.

Jio, on the other hand, has acquired spectrum from Anil Ambani-led Reliance Communications, 122 units of MHz across the 850, 900, 1800 and 2100 MHz bands. All told, the source mentioned above estimates that Airtel holds over 1,600 MHz of spectrum, while Jio is in possession of over 1,400 MHz. Vodafone Idea, meanwhile, has 1,850 MHz.

Participation in doubt

While this surfeit bodes well for the telcos, it throws a wrench in TRAI’s plans. TRAI wants another spectrum auction, which will include airwaves for fifth-generation mobile technologies—more commonly known as 5G—which can offer up to data speeds of up to 100 Mbps. TRAI has even recommended base prices for the same. But according to executives and analysts The Ken spoke to, the spectrum up for grabs is unlikely to find takers. Telcos are unwilling to participate in the auction, not only due to their ample spectrum holdings but because of what they perceive to be exorbitant spectrum prices—industry body Cellular Operators Association of India (COAI) observed that South Korea’s 5G spectrum auction was considerably cheaper. This, coupled with the debt levels of telcos, make any additional spending for spectrum unwise.

This disinterest stands in stark contrast to the situation in 2014. At the time, telcos—stung by the Supreme Court’s 2012 decision to cancel 122 telecom licences issued in 2008—bid aggressively for spectrum, driving prices through the roof. The incentive was simple, the SC’s verdict meant that companies which had been building their businesses for years faced the possibility of shutting shop.

The auction was considered a success, but there was a catch. It caused a price distortion for future auctions. Taking the 2014 results as an indicator, subsequent auctions in 2015 and 2016 saw base prices increase. The 2016 auction was even considered a failure, as the entire 700 MHz band went unsold. But the proposed 2018 auction looks set for a far worse reception, almost a repeat of the 2013 auction, which was boycotted by all telcos barring one on account of the reserve price being too high.

In the absence of the usual scramble for spectrum, telcos have other priorities. They are wagering that these, rather than spectrum, are where the real opportunity lies. In a sense, it would be true to say that the telecom industry is entering a post-spectrum phase. One where the emphasis is on better utilising existing resources. For instance, telcos want to strengthen their backhaul. Backhaul is the link between the core network and cell towers and sub-networks. These links can be made wirelessly through microwaves or optic fibre cables.

This change in focus is unprecedented in the history of Indian telecom, where spectrum has always been a driving factor. So, what does this brave new telecom sector look like? To answer that, we first need to delve into the financial health of the sector.

Debt row

In a post made in August, Parag Kar, a vice president for government affairs at telecom gear manufacturer Qualcomm, painted a gloomy picture of the financial health of Indian telcos. He estimated that operators in India make around Rs 1,60,000 crore ($24.05 billion) and pay out around 24% of that for spectrum and licence fee costs in 2018. Extrapolating to 2021, Kar estimates that the industry will make around Rs 1,85,000 crore ($27.8 billion), and will have to pay around 31% of the revenue for spectrum and licence fees. He goes on to argue that at the existing debt levels, the telecom industry simply cannot participate in the upcoming spectrum auctions.

The debt levels that Kar alluded to were touched on by an August report from financial services company Credit Suisse. The report, which looked at a number of financially stressed companies in India, featured both Airtel and Idea Cellular. Airtel, till recently India’s largest telecom operator, had an earnings before interest and taxes (EBIT) of Rs 1,580.6 crore($237.6 million) in the June 2018 quarter but paid an interest of Rs 2,549.8 crore ($383.3 million) on its debt. Idea Cellular, which recently merged with Vodafone India to form Vodafone Idea, had a negative EBIT of Rs 1,433 crore ($215.4 million) and had interest payments of Rs 1,525.8 crore ($229.4). As for the larger picture? COAI claims that, as of March 2018, the total debt of all telecom operators is Rs 7,64,000 crore ($114.83 billion).

 

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