The Confederation of Indian Industry (CII) has urged the government to lower the base price for 5G spectrum, stating that the high price of such radiowaves will halt accelerated growth of the sector and deter adoption of telecom services by the masses. It has urged the government to relook at the base prices for 5G spectrum by valuing them ground up, using models which factor in the current financial stress of the sector.
Further, the CII cautioned that the participation of Indian telecom companies may be severely constrained in the upcoming 5G spectrum auction due to low average revenue per user, and added that high reserve prices could further subdue this. According to the CII, India’s telecommunication sector has achieved global recognition for the speed of its growth and has the lowest tariffs in the world, which ensures access for poor users in remote geographies. High reserve prices of spectrum will halt this accelerated growth and deter uptake of telecom services by poorer sections of society.
Moreover, the CII has questioned the current spectrum pricing model arguing that using the metric of dollars per MHz per population is ‘inappropriate’ for the Indian market where telecom prices are set at very low levels and population is high. Instead, the CII has recommended the use of dollar per MHz per revenue or dollar per MHz per GDP as a metric for comparing spectrum prices across markets. The population level of the country does not translate into proportionate revenues, resulting in lower cash flows for mobile operators, the CII said. The approach of relying on last auction prices worked only when there were no distortions in the auction process, the industry body said, adding that ground-up valuation of spectrum is a better approach.
As per CII, the approach of inflating the auction prices to arrive at the reserve price has not been followed in all cases by the Telecom Regulatory Authority of India (TRAI) in the past. In some cases, the TRAI has reduced the reserve price even when the market prices in the preceding auctions were higher, the CII said.
Highlighting the financial difficulties being faced by the industry, the CII noted that since 2016, high competition in the market had led to lower realisations. This has lowered revenues to the government by about 37 per cent in the last two years. At the same time, debt due to spectrum liabilities has remained very high and with earnings before interest, tax, depreciation and amortisation having declined 28 per cent year-on-year, interest costs are now higher than EBITDA, the CII said.