BSE Index Analysis, Securties , Standard Experts
Telecom Sector - Unrealistic Reserve Prices
TRAI released its final recommendations on spectrum auctions and pegged the base 2G spectrum price even greater than actual 3G auction prices (1x to 4x for various bands). However, DoT may not accept these recommendations fully as (a) we expect industry opposition as the business model of new operators becomes unviable and incumbents are faced with huge cash outflows, and (b) telecom operators could pass on increased costs by increasing retail tariffs, thus impacting penetration growth.
Key Takeaways: Spectrum band prices pegged at 1x to 4x
TRAI released its final recommendations on spectrum auctions and pegged the base 2G spectrum price even greater than actual 3G auction prices (1x to 4x for various bands). However, DoT may not accept these recommendations fully as (a) we expect industry opposition as the business model of new operators becomes unviable and incumbents are faced with huge cash outflows, and (b) telecom operators could pass on increased costs by increasing retail tariffs, thus impacting penetration growth.
Key Takeaways: Spectrum band prices pegged at 1x to 4x
For key spectrum bands of 700 MHz, 900 MHz and 1800 MHz, TRAI has set the base price at ~4x, 2x and 1x that of 3G price.
Impact: Regulatory uncertainty accelerates
Makes business model of new operators unviable:
The new operators would have to shell out ~Rs 159 bn (9x the price paid in 2008) for 4.4 MHz pan India spectrum. This places a serious question mark on the willingness of any new operator to bid at the suggested reserve price, even as only one new operator can be accommodated in the upcoming auctions. This implies industry consolidation if the recommendations are implemented
We expect incumbents to stay out of this auction as RoI dynamics turn unfavorable at these high spectrum prices
Regulatory payouts linked to spectrum price^ stand increased for Bharti and Idea by 30-45% (refer pg 2) as current reserve price is higher than 3G price (the previous benchmark).
Auction of efficient 700 MHz Spectrum is delayed by 2 yrs: 4G incumbents such as RIL may have been banking on this.
We expect incumbents to stay out of this auction as RoI dynamics turn unfavorable at these high spectrum prices
Regulatory payouts linked to spectrum price^ stand increased for Bharti and Idea by 30-45% (refer pg 2) as current reserve price is higher than 3G price (the previous benchmark).
Auction of efficient 700 MHz Spectrum is delayed by 2 yrs: 4G incumbents such as RIL may have been banking on this.
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