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India Today / Archive / Business / November 26, 2012 / Story
DHIRAJ NAYYAR NOVEMBER 16, 2012 | UPDATED 10:26 IST

Killing The Telecom Goose

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Govt's re-auction of cancelled telecom licences in the 2G case turned out to be a flop show
TAGS: Kapil Sibal | P. Chidambaram | 2G scam | TRAI | EBITDA | 2G auction | A Raja | Sunil Mittal | Bharti Airtel Telecom Minister Kapil Sibal (left) with Finance Minister P. Chidambaram in New Delhi.

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By 5 p.m. on November 12, it had become apparent that the Government's re-auction of the 122 telecom licences cancelled by the Supreme Court in the 2G case was a flop. After 14 rounds of bidding that carried on after the Diwali break to the second day on November 14, the Government netted only R9,408 crore, against its target of R28,000 crore. The lucrative circles of Delhi, Mumbai and Karnataka had found no bidders. Remarkably, the mood at the Telecom Regulatory Authority of India's (TRAI) office in New Delhi's Old Minto Road was not sombre. Officials had been permitted to leave early to celebrate Diwali. The outcome was not a surprise, either to TRI officials, or to their colleagues in the Department of Telecom a few kilometres away. "We were expecting this," said a senior telecom official. The Government's primary motivation while designing the auction was to avoid any perception of scandal. The best way to do that, in the Government's view, was to set a very high reserve price, to prove beyond reasonable doubt that the Government intended to increase its revenue. "There is no doubt that they wanted to cover their backs from even the Click here to Enlarge remotest prospect of scandal," confirmed a telecom official. In the end, the high reserve price of R14,000 crore for a pan-India licence-seven times the rate A. Raja charged in 2008-set by an EGOM headed by Finance Minister P. Chidambaram in August 2012 was an overkill. There was no scandal. But the Government failed to maximise revenue. It continued to strangle the telecom sector in its death noose. The major telecom companies had expressed disinterest in the auctions in advance. No company applied for a pan-India licence. Market leaders Bharti Airtel and Vodafone only bid for additional spectrum in very limited circles. Reliance and Sistema opted out of bidding altogether. On November 7, Sunil Mittal, chairman of Bharti Airtel, had predicted that the auction would be over on day one because the "reserve price is too high". Mittal was wrong about day one. The auction lasted two days. But he was spot-on about the reserve price. The reality is that private telecom companies, battered by falling profit margins, and burdened by rising debt, cannot afford the price the Government wants to charge. The downward trend of the industry is captured by the fate of its market leader. Bharti Airtel has recorded a fall in its net profit for 11 quarters in a row, a period of almost three years.

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servicing the debt burden was that much harder. Take a look! Mani Ratnam's film in lip-lock dispute It seems to be a season of controversies in Kollywood! Big B live in concert Amitabh Bachchan will sing at a concert dedicated to police personnel who lost their lives in the 26/11. Unfortunately. but put a huge debt burden on companies. His 2008 decision to give 122 new licences at throwaway prices led to a more than doubling of telecom operators in each circle from around five to 13. PBIT margins fell from 29 per cent to 16 per cent and the return on capital fell from 28 per cent to 18 per cent. Instead. cash flows are affected. First look: Shortcut Romeo Here's the first look of Neil Nitin Mukesh starrer Shortcut Romeo. their funding is stretched now." Sarma's Salvo Despite that.html 2/9 . He needed to preserve 1800 MHz spectrum for his proposed re-farming exercise expected to begin in 2014. was still limited to four to five players per circle. Dita Von Teese strips to promote lingerie Burlesque queen Dita Von Teese has flaunted her sensational body in the latest images. an independent telecom analyst. ambitious telecom companies spent a lot of money investing in a service where real positive returns are still some way in the future. EBIDTA margins of the sector fell from 42 per cent to 34 per cent. the Indian market is not ripe for valueadded data services. Effectively. it recommended the re-auction of only 5 MHz. One key to success during this time was that competition. Under re-farming.000 crore. The point of inflexion was reached at the time the Government put 3G spectrum up for auction in 2010. Sarma's remit. Depreciation and Amortisation)-for the industry rose from 30 per cent to 42 per cent between 2004 and 2007. Even as profit margins were being squeezed between 2008 and 2012. a grouping of GSM operators. Rajan Mathews. Sarma overstepped his mandate with his recommendations for the sector in April 2012. director general of the Cellular Operators Association of India. The real boom years for India's telecom industry were between 2004 and 2007. Vodafone and Idea would have to vacate all the highly efficient 900 MHz spectrum they currently hold. Aamir kicks off women deaddiction event At the event. The profit before interest payment and taxes (PBIT) margin rose from 16 per cent to 29 per cent and the rate of return on capital employed (ROCE) grew from 10 per cent to 28 per cent in this period.intoday. It doesn't include the intangible damage done to the sector by the creation of uncertainty because of the scam aspect of Raja's decisions. for telecom companies. all the gains from 2004-2007 were completely erased. According to TRAI data. indiatoday. although much higher than in the pre-2002 era. But their overbidding was not surprising given the limited data points the companies had. Aamir spent time interacting with senior doctors and officials. Who's the hottest in Race 2? Here's fans' verdict on who's the hottest among the three bold babes in Race 2. Taxes. at the time. That brought a healthy mix of competition and decent profit margin.000 crore. The industry paid out R1 lakh crore to the Government for precious spectrum. once their licence expires in 2014 and After controversial magazine interview.6 MHz of spectrum in the 1800 MHz band (that was cancelled with the licences). SRK trends on Twitter In his interview.in/story/2g-re-auction-of-telecom-licences-turned-out-to-be-a-flop-show/1/229447. John prefers bikes to babes! Dishy dude and bike lover John Abraham has revealed that he prefers bikes to hot babes. Sarma created an artificial scarcity and set the reserve price at an exorbitant R18." According to Prasad. which was later reduced by an egom to R14. SRK gives an insight into the life of a Muslim in the post-9/11 world. All this is just the excessive competition effect on industry financials. It helped the Government's fiscal deficit. when subscriber base grew from 30 million to 165 million. Given that the period since the 3G auction has been one of high interest rates. the average operating profit margins-EBITDA margin (Earnings Before Interest.S. falling revenue stream is also becoming an issue. "In hindsight. Click here to Enlarge "Less than 20 per cent of the revenues for telecom companies come from data services that include SMSs. adding. Logically. Clearly. TRAI should have recommended the re-auction of 26. According to TRAI data. The scenario changed completely once Raja took over as telecom minister in 2007. This competition gave a huge boost to subscriber base (up from 165 million to over 800 million) and brought average tariffs down sharply over the next five years. telecom companies would have been looking at a brighter financial future in 2012-13 and 2013-14 until the then TRAI chief J.1/29/13 T he Roots of the Rot Govt's re-auction of cancelled telecom licences in the 2G case turned out to be a flop show : Business . Profits grew too. Sarma had a reason for offering only 5 MHz for auction. it was clearly a mistake. telecom companies went into a debt overdrive. the first-in operators like Bharti Airtel.India Today Jennifer Lawrence's gown rips at SAG Awards Jennifer was left in an embarrassing spot when her gown ripped apart. was to recommend the roadmap for the 122 cancelled 2G licences alone. the user base of 3G has failed to grow exponentially like the user base for voice services. between 2007 and 2011. admits that telecom companies may have got it wrong." says Mathews. "The literacy level in English is too low at the moment. Says Ravi Visvesvaraya Prasad." explains Prasad. 'Dancing is harder than being naked' Kristen Stewart says she found going nude for 'On The Road' easier than doing the dancing scenes. But it did great damage to the financial viability of the entire sector. "Because of that (overbidding).

Industry estimates suggested a rise of closer to 30 paise per minute. the Assam circle (reserve price R8. It is unsurprising that at least the old operators did not bid aggressively in this auction. the Bihar circle (reserve price R44. who plays Doctor Patel in Silver Linings Playbook.intoday. Invest in lower cost. Future Strategies The failure of the latest auction is of little consolation to an industry which is bleeding financially. Vodafone estimated an additional cost of R10. But even with that concession. beating Salman. Those operators who were latecomers to the industry like Reliance and Tata would then also be eligible for 900 MHz.html 3/9 .35 crore over first weekend Race 2 might have opened to mixed reviews.84 crore) and Madhya Pradesh (reserve price R53. Just that one move to a less efficient bandwidth. It cannot expect much from the Government. In addition to re-farming. Ironically. Ek Thi Daayan team to visit Maha Kumbh Ekta Kapoor is set to take Emraan Hashmi and Huma Qureshi to Allahabad to attend the Maha Kumbh. the debts of the older telecom companies will mount. Starry red carpet It was surplus of fashion and style flaunted by Bollywood celebs at the recently held Stardust Awards. Argo. That would have meant paying a very high price-one in this auction and the other as a one-time fee based on this auction. What is certain is that consumers will have to pay a higher price.2 crore) had attracted eight bids. but the film seems to be minting money at box office. Anupam Kher attends SAG Awards Anupam Kher. Hike in tariffs: The former TRAI chief Sarma had estimated that tariffs would rise by only 2-3 paise per minute because of his reserve price recommendation. Ashton Kutcher. the Government's own decision to impose a one-time fee on excess spectrum may have doomed the auction to a complete failure. However. move to the less efficient 1800 MHz bandwidth. Hrithik hotter than Khans! Hrithik has topped the chart of Sexiest Male Celebrities. Tech-savvy Aaradhya! Only a little over a year old.4 MHz that they were given for free in the early 2000s.which requires new infrastructure including more towers-could send the capital costs of some operators soaring.67 crore) seven bids. Lawrence.99 crore) circle six bids each. West Bengal (reserve price R25." says a senior TRAI official. "The impact is likely to be 8 paise per minute. Aaradhya chooses to tune into rhymes of her choice on the iPad all by herself. Is Ram Leela poster copied? As per the buzz.000 crore. Again. less penetrated circles: At the end of day one. The Government later diluted Sarma's recommendations.in/story/2g-re-auction-of-telecom-licences-turned-out-to-be-a-flop-show/1/229447. Shah Rukh. attended the 19th SAG Awards. B-town beauties line up for Big B's kiss From PC to Vidya. Mila Kunis moving to London? The couple is househunting in the flash Marylebone area. allowing operators to keep 2.000 crore from refarming.1/29/13 Govt's re-auction of cancelled telecom licences in the 2G case turned out to be a flop show : Business . Race 2 collects R51. Delhi (reserve price indiatoday. Akshay. shares Big B. the ladies took turns to offer their cheeks to Big B at an award ceremony. The 900 MHz would then be auctioned at a later time for a higher price. Idea estimated it at R17. It needs to find strategies of its own. the older operators also have to pay a one-time fee for the spectrum in excess of 4.India Today instead. The reality is likely to lie somewhere in the middle. in an otherwise lacklustre auction. telecom officials insist that the tariff hikes have little to do with the reserve price but are linked to the high debt accumulated by companies while bidding for 3G. The one-time fee will be based on the price discovered in the recent November auction.33 crore).5 MHz of the 900 MHz bandwidth. Day-Lewis win at SAG SAG's lead-acting honors went to Jennifer Lawrence for her role in Silver Linings Playbook. the Ram Leela poster is inspired from the poster of American TV show Revenge. and the Jammu and Kashmir (reserve price R6. the truth would lie somewhere in between the versions of industry and Government.

will reap the benefits in the second half of this decade. fit to be PM: BJP MP Ram Jethmalani Supreme Court rejects Delhi gangrape trial transfer petition Live with Modi or live without BJP: Yashwant Sinha raises pitch for Gujarat CM as PM. Mumbai.html 4/9 . Idea Cellular first pioneered the strategy of going deep into the interiors of a state (Maharashtra) to gain maximum traction in one place rather than spreading out thin. Ash. Bigg Boss winner Juhi Parmar a mom now Juhi Parmar. A senior telecom official termed this "the Idea strategy". Karnataka is that there is already saturation in these circles. "It may even go down to six. improved Blackberry 10 Sensex dips 31 points in early trade ahead of RBI policy meet | Rupee down 4 paise against dollar in early trade TOP STORIES Narendra Modi a 100% secular leader.1 crore) had no bids. It has revised its permissible limit for a merged entity from a 35 per cent market share to a 60 per cent market share. The next three years are critical for the telecom industry. will banks pass on the good news? Get ready for the new. This is the reason why circles such as Bihar and North-eastern states are receiving more bids. Pune-based Jasraj Joshi wins Sa Re Ga Ma Pa 2012 The 29-year-old had impressed the judges and audience alike. TRAI chief Rahul Khullar said he expected the number of players in each circle to reduce from 13 to about eight or nine. Red carpet: SAG Awards 2013 Here are the snapshots of this glamorous event. CRR by 25 basis points each. indiatoday.India Today SAG Awards 2013: Complete list of winners A complete list of winners at the 19th annual Screen Actors Guild Awards. who is married to Sachin Shroff.45 crore) and Karnataka (reserve price R330. Consolidation: Speaking at an Indian Investment Forum meeting in New York in September. Since the auction is only for 1800 MHz-spectrum used for voice callsit does not make business sense to bid for such spectrum. Spotted: Anushka at a promotional event Anushka Sharma was at the launch of the Valentine's Day collection of a jewellery brand. According to calculations made by TRAI. dares JD(U) to quit NDA on secular stand Argo wins Producers Guild Awards Argo continues to shake up the Oscar race by taking the top honor at the Producers Guild. That may just be the only piece of help the industry will receive from the authorities as it tries to recreate the boom years of mid-2000. SAG Awards: Dick Van Dyke honored for lifetime achievement He picked up that honor at 19th annual Screen Actors Guild Awards. . Only the fittest and nimblest companies that survive the next two years of tumult. Na m e : Pla ce : E-m a il : En t er t h e Code Sh ow n : TOP STORIES FROM BUSINESS RBI cuts repo rate. Mumbai (reserve price R678.1/29/13 Govt's re-auction of cancelled telecom licences in the 2G case turned out to be a flop show : Business .With Shravya Jain Do you like this story? 1 0 CLICK HERE FOR MORE NEWS » ADVERTISEMENT Post com m en t s on t h i s st or y Com m en t : Bollywood babes sizzle at an award function Bollywood actors Shah Rukh Khan and Priyanka Chopra bagged two awards each. Stars get candid at Stardust Awards 2013 Take a trip back stage of the recently held Stardust Awards 2013.in/story/2g-re-auction-of-telecom-licences-turned-out-to-be-a-flop-show/1/229447.intoday. It will only return to profitability in 201415. has been blessed with a baby girl. R693 crore)." he said. TRAI is in favour of consolidation." says Mathews. the industry as a whole will record losses in 2012-13 and 2013-14. Abhi snapped at Ambani wedding Aishwarya Rai Bachchan and Abhsihek Bachchan snapped at Ambani family wedding. "The main reason why no one bid for circles such as Delhi.

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