Telecom story

EDITORIAL

With 2G auctions behind, telecom revolution is unfolding to new tomorrow
Article Date: 
Dec 16 2012, 2109

The heat and dust raised by the high stakes telecom sector often prevents one from taking an eagle’s eye view. The recently concluded 2G spectrum auctions, much derided as a flop is actually a successful run of a new, transparent policy regime reinstituted after more than a decade. The reduction of reserve prices by 30 per cent after low bidding activity during the auctions is not an indication of the government’s failure to price spectrum correctly, but a sign that the free market will transparently decide the value of a scarce commodity like spectrum. Predictably enough, the industry has spoken out against this reduction in reserve price too, arguing that it does not make business sense for circles like Delhi, Mumbai or Kolkata which are already saturated with close to 150 per cent penetration. That figure may make for a good sound byte, but with the average Indian owning 2.2 SIM cards, penetration in terms of the number of unique mobile subscribers is closer to 25 per cent, or 380 million phones. This figure alone shows the growth potential that exists in the market for providing basic voice services, leave alone data. Demand for 1,800 Mhz may or may not exist, but liberalised spectrum (spectrum can be used for providing any voice/data service on any technology) in the vastly more efficient 900 Mhz band should see good bidding activity. Given its wider reach, which has a direct bearing on the costs incurred for setting up towers and other infrastructure, telecom companies might see more of a business case. The positives of having a policy of auctioning spectrum aside, the fact that no new player stepped up to the plate and mergers in the telecom sector have all but dried up, are signs that not all is well. Lack of new entrants and a restrictive mergers and acquisitions policy prevents fresh capital and fresh ideas from entering the market. The only losers in this are consumers who miss out on innovative services. Given that the regulator Trai is working on a new mergers and acquisitions policy, we should see a round of consolidation in the sector soon. It may be too little too late for Russian operator Sistema that operates services under the MTS brand. It will lose its operations and an investment worth $3 billion by January 18, 2013 if its curative petition that has been pending with the Supreme Court since May is not decided by then. Incumbent operators — Tata, Reliance Communications, Bharti Airtel, Idea and Vodafone may enjoy dominant positions in the market and have healthy balance sheets, but legacy issues and litigation might cause investors to pause. Excess spectrum, one-time fees, refarming and tower radiation norms, if implemented stringently, will see massive outflows of scarce capital. Amidst this gloom and doom, the Norwegian operator Telenor has a lot going for it. A separation from its tainted erstwhile partner Unitech, spectrum regained in the auctions, focus on voice services and no legacy issues are sure to make this company the one to watch out for. In his speech at the inauguration of ‘India Telecom 2012’, prime minister Manmohan Singh sought to reassure investors with the government’s policy initiatives like the national telecom policy 2012, but telecom watchers know that the gap between policy prescriptions and its implementation is large. And it needs to be bridged. Fast.

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