Ignore the telcos: Tariffs won't rise more than 2-4 paise a min

New Delhi: Have the big daddies of telecom been crying wolf without sufficient analysis? Most operators have warned of significant tariff increases if the spectrum pricing proposals of the Telecom Regulatory Authority of India (Trai)- which has recommended a reserve price 1.08 times that of the 3G auction prices set in 2010 - are accepted.

One operator said on Thursday that Trai’s contention that tariffs would have to rise by only 1.5-2 paise per minute as an oversimplification. He said the hikes would be in “rupees, not in paise”. A telecom consultant said that tariffs are sure to rise, more so as rollout obligations begin. He termed some of the current tariff plans that offer one paise per minute as simply unviable.

[caption id=“attachment_291043” align=“alignleft” width=“380” caption=“Bharti will save Rs 8,000-9,000 crore over the next 10 years through lower spectrum usage charge, which is to be cut from a revenue share of 3-8 percent to just 1 percent.”]  [/caption]

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A report by Gaurav Malhotra of CitiGroup Global Markets on Friday morning pegs tariff increases at a much more reasonable level. “Lower spectrum charge and deferred payment help moderate the hit. Revenue per minute hike needed to offset P&L impact is 4 paise cumulative for Bharti through FY26 (when the last licence gets renewed), imputing a 1 percent per year hike. It will need a cumulative 10 p hike to be value neutral, i.e. 2 percent annually. This is relatively reasonable, specially in (the) context to inflation (longer term) at 5 percent. The staggered increase also means that any hit on usage elasticity should be marginal. Besides, risk of price arbitrage seems low as the industry is likely to get consolidated given high entry/running costs. For Idea, required revenue per minute increase is cumulative 5 paise for P&L and 11 paise to be value neutral.”

A report in The Economic Times earlier this week quoted Trai Chairman J S Sarma as saying the higher prices to be paid for spectrum would translate into a mere 1.5 to 2 paise per minute jump in call tariffs annually over the 20-year period of the spectrum licence. At present, voice tariffs range from 40-80 paise per minute in the 14-player telecoms market in India.

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The Times of India on Friday punched more holes in the telcos’ contention of prohibitive cost of operations if Trai’s recommendations were accepted. It says Bharti, Vodafone, Idea and Reliance Communications would gain Rs 1,20,000 crore in the next 20 years in the circles where old licences will expire between 2014 and 2016, provided their revenues grow at 12 percent each year.

But a Mumbai-based analyst said that Bharti will save Rs 8,000-9,000 crore over the next 10 years through lower spectrum usage charge, which is to be cut from a revenue share of 3-8 percent to just 1 percent. In the last three quarters, its average spectrum usage charge was 5.6 percent of adjusted gross revenue (AGR). He said Idea will save Rs 2,500-3,000 crore over the same period. “But this saving will be nullified by high renewal charges for both. The incremental cost, over and above these savings, for Bharti and Idea work out to Rs 3,000-4,000 crore each”.