Will call rates rise post spectrum auction?

After 10 days of bidding, Indian telecom companies put in bids amounting to a total of about Rs 61,000 crore towards spectrum licenses.

The figure was clearly higher than analysts or even the government itself was expecting.

Which will lead to the question: with several companies being perceived as having overpaid for licenses, will the higher-than-expected impact on their outgoes affect their financials and lead them to increase call rates?

Much of the bidding that took place, especially in the 900 Mhz band, was to protect expiring licenses rather than to acquire fresh airwaves.

“In the auctions, when you bought 900 MHz or even 1800 MHz to replace some of the 900 MHz that you were surrendering, you were basically protecting existing revenues,” former Bharti Airtel CEO Sanjay Kapoor told CNBC-TV18. “That is not an economically very wise investment.”

Kapoor was of the view that operators will not be in a position to bear the extra cost burden and will pass it on to consumers. “Even banks will play hard [with telcos] considering the leverage they will have to take.”

According to rough estimates, the debt burden for Airtel and Idea are expected to rise by 33 percent and 179 percent, respectively, as a result of the auction.

Telecom Minister Kapil Sabil played it safe when he was asked if tariffs could increase as a result of, in his words, “extremely successful” auction, and said he expected prices to remain “reasonable”.

The government should help ease the financial burden of the auctions by easing the high tax/levy structure on the industry, Rajan Mathews, Director-General, Cellular Operators Association of India, was quoted by The Hindu as saying. He added it “remained to be seen” if operators had the financial resources to continue to operate profitably.

But Telecom Secretary MF Farooqui had a point when he said telecom companies knew their business better -- “if they have bid, they must have calculated the value of spectrum” -- adding that part of the reason behind the aggressive bidding would have been the “transparent environment” the government had helped create in the run-up to auction, possibly referring to the decision on spectrum usage charges, among others.