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Indian operators beg regulator to press pause button on auctions

In many countries, operators are demanding that more spectrum is made available quickly, but in India, debt-laden MNOs want to press the pause button on auctions.

The established MNOs, such as Bharti Airtel, Vodafone and Reliance Communications (RCOM) are under intense pressure. They have been forced to engage in a price war with disruptive new entrant Reliance Jio (RJio), which has hit recent profits, and they are also involved in a wave of consolidation with RJio’s presence is likely to accelerate (Vodafone is acquiring Idea Cellular while RCOM is engaged in a three-way merger with SSTL and Aircel). With all this turmoil, and their high levels of debt, the last thing they need is another spectrum auction to deplete their coffers further, and possibly give RJio the chance to improve its spectrum position.

However, regulator TRAI has opened a consultation into the rules for the next major auction, which would include bands which could be used for early 5G, including 3.3 GHz and 3.6 GHz. TRAI also wants to sell licences which were left unsold after the last auction, in 2016. It indicates in its document that the operators may not want an auction this year because they are still building out their new airwaves and are going through consolidation. However, the government is pressurizing TRAI to conduct the sale before the end of 2017.

TRAI noted that the Department of Telecommunications (DoT) expects to carry out the auction this year, even though, in October 2016, around 60% of the airwaves on offer went unsold. According to the DoT, telcos owe INR3.08 trillion ($40bn) over the next 11 years through deferred payment plans for spectrum acquired at recent auctions, TRAI said in its document, and that is additional to the INR4.6 trillion they owe in loans from financial institutions.

“Due to hyper competition, concerns have been expressed about the financial health of the sector, its revenue growth and the capability of the companies to meet their contractual commitments”, TRAI said.

This debate highlights several issues which make India a tough country for MNOs, and have often limited its success in bringing innovative, high quality services to its vast base of mobile users – the second largest after China. In a country where huge areas are unserved by wireline broadband, cellular is often the primary connection for internet access, video and other services, but MNOs have struggled to secure sufficient capacity to support good quality of service.

They are hampered by extremely low ARPUs, and even 3G and 4G data services have not added the level of premium which operators had hoped for when they belatedly entered the 3G era after 2008 spectrum auctions. In those processes, and subsequent major spectrum sales, MNOs have found themselves hit with high reserve prices – making it hard to justify investment, given the low ARPUs – as well as restrictions on roaming and sharing. For instance, it took them years to persuade TRAI to allow 3G roaming, even though no operator had gained 3G spectrum in all of India’s operating ‘circles’.

The high prices they were forced to pay for 3G spectrum left them in no financial shape to bid high in the BWA auction – the first 4G allocation in India, of unpaired frequencies in 2.3 GHz. That left the way clear for an ISP called Infocomm to secure the only national coverage in 3G or 4G, and it then sold its licences to Reliance Industries, enabling that giant to re-enter the telecoms market and shake it up with low cost 4G data services.

The regulator, aware of these pressures, is asking for inputs from the industry as to the timing of the next auction, and whether it should be conducted in phases, rather than as a single huge sale like that of last autumn. That suggests the TRAI is thinking of delaying allocation at least of the 5G bands, since India is unlikely to be in the vanguard of 5G deployment and operators still have significant 4G capacity to tap.

The consultation asks for feedback on block sizes for the 3.3 GHz-3.4 GHz and 3.4 GHz-3.6 GHz bands, and questions whether block sizes for the other bands – 700 MHz, 800 MHz, 900 MHz, 1.8 GHz, 2.1 GHz, 2.3 GHz and 2.5 GHz – should remain the same as they were in the previous auction. Small blocks of spectrum have been another barrier to Indian MNOs fulfilling their broadband promises in many cases.

TRAI also wants comments on potential mandated roll-out conditions, spectrum caps and reserve prices. The DoT set a target of raising a minimum of INR5.44 trillion ($71bn) from the last auction, which actually brought in just INR657.9bn ($8.8bn). That could affect the result of TRAI’s calculation of reserve prices this time around, even if it uses the same methods as in 2016.

Another decision on which the Indian government is holding fire is the suggested privatization of one of the two state-owned telcos, BSNL. The future of BSNL and its fellow state operator, MTNL, has been in doubt for years, amid high levels of debt and poor financial performance. At one time, the two were expected to merge (they have non-overlapping territories, with MTNL operating in Delhi and Mumbai and BSNL everywhere else). Now the government is looking to privatize the latter company alone, and to slash costs by laying off up to half of the workforce of 200,000, whose wages account for 55% of earnings.

According to documents seen by Reuters, the deal is on hold because the government is pessimistic about the chances of a lucrative sale, given BSNL’s poor financial performance and the intensified levels of competition in the mobile market since the advent of RJio. The new entrant overtook BSNL to become the fourth largest MNO this spring, while BSNL’s market share has fallen from 11% to 8.78% over the past three years.

In its most recent annual report, for the year to March 31 2016, the telco reported 15% revenue growth to INR329bn (44.3bn), but a net loss of INR38.8bn ($511m). It is the second biggest loss-making state enterprise in India after Air India, and its CEO, Anupam Shrivastava, told Reuters the sale should not take place until it returns to profit – but that it could take 2-3 years because of the arrival of RJio.

Meanwhile, Bharti Airtel may not be engaged in a mega-merger like its two closest rivals, but it has made a series of small acquisitions to bolster its spectrum position, and has just closed the purchase of Tikona Digital Networks. This gives the market leader spectrum and cell sites across five of India’s telecoms circles, though DoT approval is still outstanding for the spectrum in the Rajasthan circle. Bharti has also gained Tikona’s LTE business in Gujarat, Uttar Pradesh (East), Uttar Pradesh (West) and Himachal Pradesh. In total, it will gain 20 MHz of spectrum in the 2.3 GHz band across the five circles, as well as 350 cell sites, filling gaps in its 2.3 GHz LTE holdings in Rajasthan, Uttar Pradesh (East) and Uttar Pradesh (West), and finally achieving a pan-Indian footprint in the band. In the other two circles, its 2.3 GHz holdings will be increased to 30 MHz and it will have this level of capacity in the band in a total of 13 circles.

“Airtel plans to roll out high speed 4G services on the newly acquired spectrum in the five circles immediately after the closure of the transaction,” the operator said.

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