Financial stress, hazy policy environment in telecom sector

CARE Ratings: Telecom sector update

Need for pragmatic policies & establishment of effective grievance redressal mechanism

In the aftermath of cancellation of 2G licenses in February 2012, there have been several new developments with respect to the government’s policy towards allocation and management of spectrum. The sector has received increased focus from all stakeholders and an extra-cautionary approach has been adopted by the decision makers with an increased focus on monetising spectrum as a resource. The aggressive bidding witnessed during 3G auctions had strengthened the view on maximum monetisation of spectrum resources. In view of emerging trends in the sector, judicial interventions and the need of the government to reign in its fiscal deficit, the regulator had come up with new guidelines on several issues including allocation of new spectrum, re-farming of the already allotted efficient spectrum, imposition of one-time spectrum fee, green telecom, and mobile tower radiation emission norms. However, the success of the regulator’s proposals have so far been impeded by a lack of clarity on implementation of its proposals and most importantly by the stringent opposition to its proposals by telecom operators supported by judicial interventions. The government had to back track and revise its proposals on spectrum allocation, may also have to restructure its plan on spectrum re-farming and is also bearing with delays in the implementation of one-time spectrum fee charge. The telecom service providers have frequently expressed disagreement with the proposals of the regulator and sought judicial intervention to address their grievances.

The implementation of these proposals on various aspects in the telecom industry will have a great impact on the current and envisaged business operations of telecom service providers. The telecom service providers have been actively approaching the judiciary for grievance redressal on various issues. Judicial pronouncements on such issues have led to virtual reversal or nullification of policy guidelines or instructions issued by the government thus adding to the policy uncertainty surrounding the sector.

After the exit of S Tel and ETISALAT from the Indian telecom market, following cancellation of licenses held by them, there are now 13 firms catering to the wireless telecom demand. Bharti Airtel is the market leader with a 21.35 percent subscriber market share as on January 31, 2013. The industry continues to be highly competitive and there has been no significant change in the competitive structure of the industry as the players who exited had relatively small scale of operations and most importantly, there have been no developments on the mergers and acquisitions front. Unfavourable policy guidelines which increase the cost of consolidation, along with lack of clarity on certain issues, have failed to provide the required framework for M & A activity in the sector, making consolidation a difficult proposition. Consolidation, if facilitated can lead to efficient utilisation of spectrum as well as confine the number of operators to a much more reasonable number in each circle.

No room for re-farming; uncertain policy environment leading to ambiguity
A total of 413.6 MHz of spectrum was vacated in the 1800MHz band as a result of the cancellation of licenses. The government had planned to auction a part of the total vacated spectrum preserving the rest for re-farming the 900MHz frequency band. In a recent order, the Supreme Court has directed that the entire spectrum vacated on account of cancellation of licenses will have to be put up for auction. DoT has decided that a separate auction will be held for the balance of Spectrum in 1800 MHz band in compliance with the direction of the Supreme Court. This is setback to the government’s plan to re-farm the entire spectrum in the 900MHz frequency band. The fate of spectrum reframing will depend on the final outcome of auctions of the entire spectrum vacated in the 1800 MHz frequency band.

Disclaimer: This report is prepared by the Economics Division of Credit Analysis & Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report.

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