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Spectrum costs become sticking point in India's 5G plan

Review of base price to soothe debt-laden companies

The telecom department has asked the regulator to review all its recommendations related to the spectrum sale, including the reserve price of 5G airwaves.   © Reuters

MUMBAI (NewsRise) -- As Indian telecommunication companies continue to balk at the price of spectrum for ultra-fast fifth-generation networks, the government appears to be softening its stance, suggesting better participation at an auction of airwaves due by year end.

The telecom department has asked the regulator to review all its recommendations related to the spectrum sale, including the reserve price of 5G airwaves, a top department official told reporters late Thursday. The current recommendations are not aligned to the government's plan to create a digital India, the official said.

The directive follows months of public campaigning by the country's indebted telecom operators as well as lobby groups, who claim that India's reserve price for spectrum is much higher than that of many other countries.

That's put New Delhi in a bind. While the airwave auctions have become a valuable source of revenue for the cash-strapped government, the high prices are also deterring participation.

For example, at the last auction in 2016, the government raised just a fraction of its $84-billion target. Nearly 60% of the bandwidth on offer was unsold, with even the cash-rich Reliance Jio Infocomm holding off on bidding for the premium 700-megahertz band. Last August, the telecom regulator slashed the base price of that band by almost 43%.

This time, the Telecom Regulatory Authority of India has recommended a reserve price of 4.9 billion rupees ($70.6 million) per unit of spectrum in the basic 3,300-3,600 megahertz band for national coverage.

Bharti Airtel, the second-largest player by subscriber numbers, recently described the price as "exorbitant." Bharti has said it will need at least 75 megahertz to roll out 5G services, which means an outlay of $5.25 billion.

Gopal Vittal, Bharti's chief executive for India, told analysts in a conference call late last month that the company would "look seriously at 5G" only if the government brought down the reserve price.

In a show of support, the Cellular Operators Association of India, a lobby group which counts major telecom companies as members, said that none of its members would bid at the auction at current prices.

COAI could not be reached for comment on the government's latest move.

According to brokerage CLSA, India's reserve price is four times that of South Korea's, while COAI says it is six times the global average.

CLSA estimates the current reserve price means companies get just a 7% return on investment even assuming additional margins from the 5G network are as high as 70%. The brokerage said it would be negative for operators to spend so much on a project offering limited returns.

That's especially relevant for Bharti and Vodafone Idea, the market leader. Both have seen their profits and revenue crumble, thanks to a crippling price war triggered by the entry of Jio in 2016, which wiped out many players in the industry, leaving just three. Meanwhile, the companies' debt has surged, partly due to the high prices they've paid in the past for spectrum and their more recent investments in 4G.

Bharti's debt at the end of March stood at $16 billion, while Vodafone Idea's totaled $17 billion.

Both have suggested the government delay the auction of airwaves, saying India lacks the infrastructure, including a nation-wide fiber network necessary to support 5G.

However, the latest "review process will facilitate the auction," said Rajiv Sharma, co-head for institutional research at SBICAP Securities. "The regulator's proposed reserve price is unreasonable...We expect the government to eventually bring down the prices by 30% to 35%," he said.

--Dhanya Ann Thoppil

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