What does Vodafone Offer for Spectrum Renewal Mean to Indian Telecom Sector ?

Vodafone Offer for Spectrum RenewalVodafone recently offered some terms and conditions to govt. for renewal of its licence/spectrum in three circles that expire in 2014. Prices offered are at a ~75% discount to last (failed) auction prices, along with a reduction in annual spectrum fee. Importantly, Vodafone believes 900MHz should be 1.3x. 1800Mhz. Vodafone’s offer for the 20-year renewal is as follows

  • The company offers to pay Rs40 bn to govt. as upfront fee (with the deferred payment option requested).
  • This assumes a 1.3x multiplier for 900MHz spectrum (vs 2x used in the last auction).
  • In return, the annual spectrum payment charge falls to flat 3% of AGR (as against 3-7% that incumbents pay currently). In other
    words, Vodafone is offering to pay a high amount to the current govt. in return for lower payouts to future governments!

For the three circles in question, Vodafone’s offer is at a 75% discount to the last auction price (which saw little/ no bidding).

We believe this act by Vodafone by itself has a little bearing on the eventual outcome of the spectrum price issue. Vodafone is likely only ‘ticking-the-boxes’ on all the formal requirements before mounting a legal battle against the government. The licence document states that the licence will be extended at the end of the 20-year term if (1) the operator applies for extension in the 19th year and (2) the terms of the extension are mutually agreed upon between govt. and the operator.

Vodafone has already applied for extension, and with the recent offer can also claim to have formally initiated the process of discussion with govt. We see a little likelihood of govt. accepting the offer in a hurry and will find ways of involving in Corruption before they are out of power.

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