Rakesh Mehta Assistant Research Manager, Fullerton Securities & Wealth Advisors.
B&E: Much was expected from the EGoM. But with just 23% slash in the reserve price, what are your thoughts?
Rakesh Mehta (RM): Telcos were expecting drastic reduction in reserve price for the 1,800 MHz spectrum by around 80%. But in the EGoM, the price was reduced by around 20% to Rs. 140 billion for 5 MHz spectrum. I think the major reasoning was the flexibility given to the operator to pay the stated amount in 10 years and in instalments (operator needs to pay one third of the amount in the first year, followed by a two year moratorium and the balance over the next seven years). Moreover, the operators are free to offer any service on this spectrum (mobility service, data service et al), mortgaging of spectrum et al.
B&E: What are your expectations on the upcoming auction?
RM: The top five operators have seen a decline in revenue per minute over the last two years. Moreover, due to 3G auctions, balance sheets are too leveraged with very less option to raise additional loan at attractive costs. Telcos planning to participate need to work on the pricing and business model. There will be pressure from incumbent operators that they will overbid for the spectrum so that it is unviable for new operators. On the contrary, incumbent operators will have to be ready to pay higher charge for spectrum re-farming. The government is confident that the auction will be successful even at a reduced base price of Rs. 140 billion as some telcos have hinted that they will bid aggressively, taking the final price to Rs.200 billion.
B&E: Much was expected from the EGoM. But with just 23% slash in the reserve price, what are your thoughts?
Rakesh Mehta (RM): Telcos were expecting drastic reduction in reserve price for the 1,800 MHz spectrum by around 80%. But in the EGoM, the price was reduced by around 20% to Rs. 140 billion for 5 MHz spectrum. I think the major reasoning was the flexibility given to the operator to pay the stated amount in 10 years and in instalments (operator needs to pay one third of the amount in the first year, followed by a two year moratorium and the balance over the next seven years). Moreover, the operators are free to offer any service on this spectrum (mobility service, data service et al), mortgaging of spectrum et al.
B&E: What are your expectations on the upcoming auction?
RM: The top five operators have seen a decline in revenue per minute over the last two years. Moreover, due to 3G auctions, balance sheets are too leveraged with very less option to raise additional loan at attractive costs. Telcos planning to participate need to work on the pricing and business model. There will be pressure from incumbent operators that they will overbid for the spectrum so that it is unviable for new operators. On the contrary, incumbent operators will have to be ready to pay higher charge for spectrum re-farming. The government is confident that the auction will be successful even at a reduced base price of Rs. 140 billion as some telcos have hinted that they will bid aggressively, taking the final price to Rs.200 billion.
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