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5G networks

Indian telecom players protest push for pricey 5G spectrum auction

Country risks being left behind as top operator rejects regulator's proposal

People in front of a board promoting the 5G network at a trade show in New Delhi in 2018: India's upgrade to 5G depends on a compromise being struck in the coming months between industry and the government.   © Reuters

NEW DELHI -- India's beleaguered telecom industry has taken a strong stance against the government's plan to hold a fifth-generation spectrum auction in a few months, complaining that the pricing is too high and the sale too early.

Telecom companies and their lobby groups want the sale to be deferred by at least three or four years, while the government has been bullish about holding the auction as early as April. Leading operator Bharti Airtel, backed by Singapore Telecommunications, this month became the first mobile carrier to formally announce that it will not bid for the 5G spectrum under the current terms.

"On the 3.5 GHz band, [the government telecoms regulator] has recommended a price of [roughly] 500 billion rupees ($7 billion) for 100 MHz of spectrum... we can't afford [this]. We believe it is too high," English language daily Business Standard quoted Gopal Vittal, Airtel's CEO for India and South Asia, as saying.

Government agency the Telecom Regulatory Authority of India set the minimum bidding price at 4.92 billion rupees per MHz. If the telecom industry was willing to accept the price, it would mean important income for the cash-strapped Indian government. But it appears the case will not be that simple.

On the other hand, if the auction is delayed by several years, as the telecom companies are demanding, India risks being left out of the global trend toward introducing 5G. In most parts of Asia, including emerging economies in Southeast Asia, 5G services will be launched in 2020.

There are two major factors behind the financial difficulties affecting India's big telecoms groups.

The entry of Reliance Jio, owned by India's richest tycoon Mukesh Ambani, in the sector in September 2016 forced many small players to shut shop as they could not compete with its disruptive pricing. Vodafone India and Idea Cellular merged to become Vodafone Idea in August 2018 to stay afloat.

The surviving companies saw their profitability deteriorate sharply due to the price war. Airtel's net profit for the year ended March 2019 was about 11% of what it was two years earlier, while its average revenue per user fell by about half over that time.

In addition to the Jio phenomenon, telecom companies have been hit by an unprecedented ruling by the country's Supreme Court in October to pay a total of 926.4 billion rupees in underpaid license fees and spectrum-use charges to the government.

Vodafone Idea alone has to pay 530 billion rupees, according to government estimates. Its parent Vodafone Group has indicated that the outlook for the company is critical in view of the huge payment.

At the end of the October-December quarter, Airtel's debt stood at 1.14 trillion rupees, while third-placed player Vodafone Idea owed its creditors about 1 trillion rupees.

"First and foremost, the telecom sector is under financial stress," said Mahesh Uppal, director of Com First, a consultancy specializing in communication regulation, policy and development, adding that it was not the right time to proceed with the 5G auction. "From the point of the seller, i.e., the government, it is not a wise time for auctions. For them, it is like selling a house during a [financial crisis]."

Rajan S. Mathews, director-general of the Cellular Operators Association of India, echoed this sentiment in an email to the Nikkei Asian Review. "With yearly free cash flows of almost all the companies in the negative and the high amount of debt liabilities to be paid by them, we do not believe that the time is right to hold 5G auctions."

If the auction is delayed by several years, as telecom companies are demanding, India risks being left out of the global trend toward introducing 5G.   © Reuters

According to Mathews, the availability of adequate spectrum is also an issue. He explained that out of the 300 MHz spectrum planned to be auctioned, 25 MHz is reserved for the Department of Space, and the Department of Defense has sought about 100 MHz. This leaves only 175 MHz for telecom operators, which is grossly inadequate.

The Telecom Regulatory Authority of India, meanwhile, defended its proposed minimum bidding price. "TRAI has recommended the reserve pricing after taking into account the feedback and comments from various stakeholders and has given that to the government," Chairman R.S. Sharma was quoted as saying by local media. "The government has also apparently accepted those reserve prices and it is for the government to decide on the timing of the auction."

New Delhi has made it clear that it is prepared to go ahead with the auction. Last week, Minister of State for Telecom and IT Sanjay Dhotre informed the Rajya Sabha, India's upper house, that a draft cabinet note had been prepared for the auction of the spectrum and that the document was under consideration.

Kazim Rizvi, founder of The Dialogue, a policy think tank based out of New Delhi, concurs. "Delaying auctions will not only hinder the digital economy targets set by the government but will also negatively impact the Indian telecom sector, [which is] currently struggling to revive itself from the ongoing existential crisis it is facing," he said.

India's upgrade to 5G now depends on a compromise being struck in the coming months between industry and the government.

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