The 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.
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.
Also Read: Spectrum Data Sheet
We believe that the operators have been silently and steadily been hiking their tariffs over the past few months leading to the auction to improve their financial condition and also in anticipation of an inevitable fall in tariffs due to the entry of a new player in the market. We believe there will be no immediate difference in the tariffs post auction as operators will play the wait and watch game trying to figure out the launch strategy of Reliance Jio. If Jio launches with a disruptive pricing for its products and services, the operators will reduce their tariffs at the cost of shrinking their profit margin but retaining their market share of subscriber base. If Jio launches services at the prevailing market price then the operators will form a cartel and induce a wave of further tariff hikes.
Do you think the upcoming auction will lead to a hike in voice and data tariffs? Let us know your views and opinions through your comments.