towerThe biggest ever spectrum auction in the history of the Indian telecom industry is coming up next month and is slated to begin on 4th March 2015. The government will be putting up 380.75MHz of spectrum in the 800, 900, 1800MHz bands and 85MHz in the 2100MHz band and is expecting to garner a minimum of 80,000 crore rupees from this auction.

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Where does all this money come from and where does it go? The government utilises the money generated from the sale of natural resources like spectrum for reducing its fiscal deficit. The operators get this money in the form of loans from multiple banks and bear the burden of paying interest till they reach a breakeven point where their profit exceeds their capital and operational expenses. So when the operator has to pay for buying spectrum it translates to hike in tariffs of voice and data.

There is a conflict of opinion amongst the industry watchers and telecom analysts regarding whether or not there will be a wave of tariff hikes following the auction. According to Times of India, there will be a unanimous hike in tariffs since 8 GSM operators are participating in the spectrum auction and will want to make up for the expenditure through a marginal tariff hike. According to Forbes, however, the industry is already running at peak tariff and there is no headroom for further tariff hikes, the operators are already charging the maximum that the subscriber is willing to pay. Forbes says that the tariffs will remain constant after the auction, only difference is that a chunk of the profit margin will go to the government instead of the operator.