THE Indian mobile phone subscriber, who has been pampered all these years with low tariffs offered by service providers desperate to sign up new customers, is for the first time waking up to a new reality of a hike in rates.
Telecom operators have quietly started raising tariffs, especially for data services. Analysts expect overall tariffs to rise this year, especially with few players in telecom circles.
The telecom sector, which has been growing at breakneck speeds in recent years, hit a speed-breaker in 2011 and 2012, when a nasty scam (involving ministers and bureaucrats of the ruling United Progressive Alliance government) tripped its growth plans. The Supreme Court finally intervened and cancelled 122 2G licences issued under the controversial, first-come-first-served policy of former telecoms minister A. Raja in 2008.
Last year, the government’s ambitious telecoms policy also suffered a setback following the failure of its plan to auction spectrum – relating to the cancelled licences – on an all-India basis because of poor response from telecom operators. The government had set a high reserve price of Rs145 billion for the five MHz pan-India spectrum.
There were no bidders for the 800 MHz radio wave and only a few bid for the 900/1,800 MHz band used by GSM operators because of the high reserve price. The government had hoped to raise about Rs400 billion from the auction of 2G spectrum (which would have helped it in narrowing the fiscal deficit), but managed to get less than Rs95 billion. Important circles including Delhi and Mumbai, besides Karnataka and Rajasthan did not get any bids.
The disastrous auction led to some players exiting the business and others cutting down their overall business. The result: the number of operators in each circle – the Indian telecom sector is divided into various circles, generally coinciding with a large metro or a state – fell sharply from about 10 to six.
There were other disastrous policy moves that discouraged both existing players and potential newcomers, including international giants. The Department of Telecommunications (DoT) sought a whopping Rs200 billion from incumbent players, holding more than 4.4 MHz of spectrum, as one-time fees for excess spectrum that had been allocated.
But existing players have refused to pay up. Last week, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) stayed the DoT order that directed Vodafone to pay Rs35.99 billion as one-time spectrum fee till the next hearing on February 25. The DoT has wanted Vodafone to shell out Rs35.99 billion in the first installment and Rs20.93 billion in the second installment.
The DoT, however, wants the government to waive off part of the fees of state-owned Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL). Both were former monopolies, but following the opening up of the telecom sector about 15 years ago, have been losing money: in 2011-12, BSNL lost a hefty Rs88.51 billion, while MTNL’s losses added up to Rs41.1 billion.
Meanwhile, the second round of auction for spectrum will be held next month and the government has hopes of raising Rs450 billion from the exercise. An empowered group of ministers headed by finance minister P. Chidammbaram recently suggested reducing the minimum price for the sale of spectrum used by CDMA operators and the unsold airwaves of the first round by up to 50 per cent, following last year’s debacle.
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ANOTHER major issue that is hampering growth of the telecom sector is the ongoing dispute between Indian tax officials and international major Vodafone. Income-tax authorities here demanded Rs112 billion by way of taxes from Vodafone, for its 2007 acquisition of the stake of Hutchison Whampoa of Hong Kong, in its Indian telecom business.
While the Supreme Court struck down the Income-tax demand, former finance minister Pranab Mukherjee (who is now the country’s president) amended the Income-Tax Act, 1961, with retrospective affect to nullify the apex court’s order. The move was widely criticised by international groups.
Last week, Chidambaram – who is on a tour of several world capitals in a bid to attract foreign investments – said in London that he was confident that the tax dispute with Vodafone would be resolved within a month. Chidambaram has in recent months been placating global investors by easing the harsh rules introduced by his predecessor.
But Vodafone is also opposed to several other policies initiated by the government. It has described the guidelines for the second round of spectrum auction as “illegal, discriminatory and benefiting one set of players,” – namely the CDMA operators.While the industry regulator, the Telecom Regulatory Authority of India (TRAI) had recommended that both the 800 MHz and 900 MHz bands be treated at par, the government’s guidelines had fixed the reserve price of 900 MHz at three times the price of 800 MHz, it said.
“Fixing reserve price of 800 MHz band at comparatively low levels benefits a certain set of telecom operators,’’ the company said in a note to the government. According to the company, the auction of 900 MHz, set for next month, included spectrum which was currently being used by it in Mumbai, Delhi and other circles. This implied “forcible withdrawal of spectrum from existing service providers,” said Vodafone, which has sought the withdrawal of the spectrum auction guidelines.
Norway’s Telenor, which provides services under the Telenor brand in India, is also opposed to the auction in Mumbai, where it has sought a 50 per cent cut in reserve price. “We now look to the DoT and the Supreme Court for an intervention that ensures that the second round of auctions does not fail, and spectrum, being a public resource, is put to public use. Such an intervention is the only way to ensure a successful auction - which means wide participation, all spectrum sold, healthy bidding at possibly higher than reserve price,” it said in a statement.
The Cellular Operators’ Association of India (COAI), which represents GSM operators, has also asked the DoT to reconsider the ‘unsustainable’ price of spectrum. With the current prices, the only expected bidding could be described as “coercive participation,” the association wrote to the government. “Only operators having operations to save may participate under protest,” it said, demanding a 50 per cent reduction in the reserve price of 1,800 MHz spectrum in Delhi, Mumbai, Rajasthan and Karnataka circles in the upcoming auction. “Further, to maintain a level playing field and fairness in the auction, this revised price should be extended to all 21 service areas and not just the circles which saw no bidders.”
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THE setback to the telecom sector has resulted in a fall in subscriber base by nearly 35 million. But this has been attributed mainly to the introduction of mobile number portability and to the deletion of inactive telephone numbers by operators.
The Centre for Monitoring the Indian Economy (CMIE), a leading think-tank, expects the addition of nearly 50 million new subscribers in fiscal 2013-14, with most of the players focusing on the rural markets. With a tele-density of 159.5 per cent, the urban areas are already ‘over-penetrated,’ but rural areas – with a tele-density of just 40.6 per cent – offer ample opportunities for growth.
According to the TRAI, the total number of telephone subscribers in India fell to 921.47 million at the end of November 2012, as against 935.18 million a month earlier. The share of urban subscribers fell to 62.7 per cent from 63.17, and overall tele-density dropped to 75.55 from 76.75.
The mobile phone subscriber base fell to 890.6 million in November from 904.23 million in the previous month, mainly because of disconnection of inactive numbers by the operators. India is the world’s second-largest telecom market after China, which has 1.11 billion mobile phone users, accounting for 80 per cent of all telecom subscribers in the country.