The Telecom Spectrum Auction has generated provisional amount of Rs.1090 billion at the end of the 18th day which is the 110th round of auction where 89% of the spectrum has been provisionally allocated to bidders. The Government of India is the beneficiary of this provisional amount although the receipt of the same would be in tranches. The telecom companies would have to face rising costs as the amount has to be paid to the Government of India. What lies ahead for the Telecom industry after such a big auction amount is incurred as expense? Let us look at what kind of financial dynamics that lies ahead for the Telecom Industry in India.
The Federal Communications Commission of the US reported that the latest spectrum auction has accumulated a record-breaking USD 44.9 billion in revenues. The spectrum bands auctioned here are highly useful in the deployment of 4G LTE services.
India has one of the most expensive Telecom Spectrum auctions in the World. The spectrum bands for deployment of 3G and 2G services is expected to garner more than the estimated USD 16 billion in revenues. The spectrum for 4G LTE services has still not been launched in India but if at all it had to be launched, it would also garner high amounts of revenues comparable to some of the developed countries in the World.
India is the second largest and one of the fastest-growing telecom markets in the World by customers but falls behind when it comes to the amount of revenue generated from subscribers in comparison to other countries. This is observed from the fact that the average revenue per user (Arpu) across Europe is around USD 20-40 while in the US, it is closer to USD 50-70, for wireless communications services. In India, Arpus are less than USD 3.
India has the highest number of telecom companies leading to increased competition. The tariffs for the services provided by the Telecom Companies are highly competitive and thus very low in the Indian context. The prices would be expected to rise for the calling and data services provided by the Telecom Companies in India as low tariffs would not be sustainable in the long run. Indian Telecom companies would also be piling on more amount of debt as larger auction fees would lead to higher borrowing automatically. The Telecom Companies have a total current debt to the tune of USD 40 billion. Increased debt would lead to higher debt servicing costs for the Telecom Companies and it would thus become necessary to raise tariffs to overcome additional costs.
Consolidation in the Telecom Industry is an expected possibility as unsustainable tariffs, higher costs after spectrum auctions would lead to smaller players being merged with larger players for survival. The financial dynamics of the Telecom Industry is thus expected to change to some extent and larger players would benefit in terms of rising economies of scale and higher share of revenues in the longer term. The positive aspect of rising tariffs would be a rise in the revenues for the Telecom Companies in the time to come. If consolidation happens in the near future for these companies it would mean larger revenue share for some of the big players in the industry.