GSMA warns of Trai spectrum pricing fallout

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New Delhi: The London-based GSM Association, or GSMA, has warned that an unrealistic reserve price for 700Mhz spectrum suggested by the Telecom Regulatory Authority of India (Trai) could lead to larger amounts of unsold airwaves, creating a challenge to the government’s stated goal of connecting rural India.

“The GSMA is very concerned by Trai’s recommendation to set a starting price of $1.7 billion per MHz for pan-Indian 700Mhz spectrum,” the GSMA said in a statement

“India has one of the lowest Average Revenues Per User (Arpu) across the world ($2.45 at the end of 2015). Combined with so far limited revenue contribution from data services, competitive pressure on operators’ revenues and high capital expenditure to upgrade networks, this makes it more challenging for operators to recover from high spectrum prices,” according to John Giusti, chief regulatory officer, GSMA.

Referring to the fact that in 2014, the mobile industry contributed 6.1% to India’s GDP, the statement further said that the more the telcos are forced to spend in spectrum, the less capital is available to roll out new networks.

The letter cited the example of Australia where similar unrealistic high reserve price resulted in a valuable portion of the 700MHz spectrum being left unsold and unused.

“High reserve prices and an unrealistic predetermination of spectrum value could also reduce the willingness of potential bidders to buy the spectrum,” the statement said.

Last week, credit ratings agency Fitch said that the top four telcos, Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd and Reliance Communications Ltd may hesitate to bid for 700MHz spectrum, given their stretched balance sheets and need to preserve cash in light of impending competition from the entry of Reliance Jio Infocomm Ltd, later this year.

“As such, the price for 700MHz spectrum could exert further pressure on participating telcos’ balance sheets and cash flow, and limit their ability to invest in capex over the medium term,” Fitch said in a statement on 29 January.

“Consequently, the 700MHz spectrum auction planned in 2H16 (second half of 2016) may not be attractive to telcos, given limited device availability and that telcos possess alternative spectrum (850MHz/1800MHz/2300MHz) to roll out 4G services,” the statement added.

Reliance Jio, after having invested about $15 billion on spectrum and networks, has access to the pan-India 800MHz spectrum.