Limited pain seen for telcos; Voda a gainer in auction: Fitch

The five-day spectrum auction concluded on Thursday with government earning about Rs 65,789 crore, much lower than the anticipated Rs 1 lakh crore. The tepid response was because the premium spectrums - 700 and 900 MHz - did not find any bidders due to the expensive base price decided by the Telecom Regulatory Authority of India (TRAI).

Commenting on the muted auction outcome, TV Ramachandran, President, Broadband India Forum and Former DG of Cellular Operators Association of India (COAI) said it should be kept in mind that the auction needs to be market-linked. It cannot keep going upward in price, he added. 

It is important that there is market price discovery, otherwise, it is not a good sign for the progress of Digital India, he said in an interview to CNBC-TV18.

On the likely impact on balance sheets of telecom companies post the auction, Nitin Soni, Director-Asia Pacific TMT at Fitch Ratings said there will be some pressure but since bids have been lower than expected the strain could be limited. Vodafone, he believes, has benefitted in this auction as it has managed to fill up its bag with 4G spectrum and with recent equity infusion its books remains relatively unhurt.Below is the verbatim transcript of TV Ramachandran & Nitin Soni’s interview to Anuj Singhal & Latha Venkatesh on CNBC-TV18.Anuj: What is your overall take would you say that it was a bit of a damp squib, the government gets the pricing wrong? Soni: We are of the view that this definitely, there was a tepid response to the auctions. Primarily because the 700 Megahertz spectrum was priced at a very higher level which is about two times to 800 mega hertz and 2.5 to 900 MHz spectrum. So, we always thought that there will be limited participation for the 700 MHz spectrum. There were no takers for 900 as well and most of the bids were focused on 1800, 2100 and 2300 MHz. So, overall I think it is a much lacklustre bidding by telecom companies for the auctions.Latha: Who looks having come out good from this auction without tearing their balance sheet too much?Soni: Definitely, Vodafone because they have recently got a USD 7 billion equity infusion into the company. They now have a good balance sheet and that is why they are the highest bidders in the auction which has just ended. They still require more spectrum for the medium-term strategy to roll out 4G network across India, so they will in the next auction may be next year they will bid more for 4G spectrum. However, right now they have come out stronger in the auction with the larger spectrum assets.Latha: Is a lesson learnt? Do you think next time around the government will be a little more rational in its pricing and not look at this as the goose that lays golden eggs and starts killing the goose?Ramachandran: Answer is yes and no and I would like to go away from 700Mhz. And there are abundant learnings from this auction. Let us forget about 700Mhz, that has been a failure, we will come to that later. But, this is not one auction, this is an auction which consisted of 7 different auctions. 700, 800, 900, 1800, 2100, 2300 and 2500MHz and except for 1800MHz, I would reckon all are failures. Why? Because less than 50 percent was sold to all the others except in 1800MHz. 1800MHz saw 60 percent sold, but even there, I have an issue. In all the bands, the prices achieved were just reserve prices. In some cases 4 percent, 6 percent, like that above the reserve buy. That is not a market discovery. So, that is the learning we have here that we are now having successive auctions year after year, we are not getting market discovery, the real price of the spectrum. And this is not good for digital India to go like this because digital India needs spectrum amongst other things and if that is going in this way, where they actually need spectrum and it is going at this level, it is going be a price-led growth. So there, there is an issue. But in 1800 MHz there is also a great learning which is a complement to the government which after years, why 1800MHz succeeded relatively compared to the others is because of harmonisation. If they had not done harmonisation, the story would have been very different. So, the government, the announcement which is there is going to be continuous harmonisation thereafter, is good news from these learnings because going forward, we have to go that way, but we have to learn from the six failed auctions also that you cannot put bits and pieces of spectrum like you had in the incomplete 5MHz, there is no value in that product. If I bid a luxury apartment out there in the Sahara Desert or whichever desert in India, you cannot get the same value. That is what we are expecting 700MHz also. You are having a beautiful product but it has no ecosystem. You have put it in middle of nowhere. You have to see all the attributes and not just the technical attribute and that is where the mistake had happened on the reserve price, that is learning. But, what I would like to stress is the fact that going forward we have to take action on the learning which is half a dozen of them in that one. You have to go for the market price. Every auction cannot be going upward in price, that is totally unrealistic.And number two, you see 100 and 200MHz auction which has happened which is very disturbing to me in the sense that people have gone more and more for the capacity bands, 1800MHz because it is a universal LTE band. They have gone for 2100MHz, they have gone for 2300MHz. These are all higher frequency bands, they are capacity bands and not coverage bands. So, you are not going to get any relief in in-building coverage. As a consumer I am worried.