In the aftermath of the 2G Spectrum Scam engineered by Politicians and Cronies in the Congress Party, the near-term positive is likely to be in the form of reduced spectrum prices recommended to the Government. Moreover, with the possibility of penal powers shifting to TRAI (from DoT), the regulatory outlook is likely to improve further. Whilst we do not expect a complete end to punitive actions from the DoT, a significant reduction in spectrum reserve prices and the introduction of a unified licence policy (which may plug regulatory grey areas) are material positives in terms of regulatory outlook. These are likely to work in favour of the incumbents and lead to better capital allocation and improved returns on invested capital. An added fillip from a clearer M&A policy may add to our argument further.
Speaking at a recent conference Mr Khullar, TRAI Chairman highlighted a few industry concerns. Key excerpts include,
If you simply do not have enough 3G spectrum to give everybody throughout the country, then can we actually carry on with this regime, where you will not make more spectrum available and yet proscribe ICR?
The entire paradigm on spectrum pricing has to be revisited.
Trading of spectrum for some reason has been treated as a holy cow. Everybody is buying spectrum on auction, why don’t you let them trade.
The TRAI had previously highlighted similar concerns on the industry’s financial health in its spectrum pricing consultation paper
“Presently, there are 6-10 operators in each service area. However, because of a large number of operators in each LSA, there is cut-throat competition which has adversely affected the financial health of operators and the industry. Due to unsustainable pricing and slow revenue growth, their EBIDTA is under pressure. The current state of industry is not sustainable in the long term and measures like consolidation etc might be required to improve its financial health
Hopefully, Politicians and Cronies won’t interfere in the forthcoming Spectrum Auction. Even if they do, the Honorable Supreme Court of India is closely watching the moves and it may be left with no option but to appoint a specialized committee to conduct it smoothly.