It was expected from the incumbent telecom operators. After auction, the usual innuendo of slogans like – winner’s curse, spectrum prices are high, it will kill investors’ interests, tariffs will increase – has begun. This is the most unfortunate behavior of Indian industry.
The industry wants everything free in the name of consumers. Before I proceed further, I would like to draw a few parallels with oil and power industry. The oil barrel at one time used to be at $10. It is $100m today.
Similarly, for the power industry, the cost of coal and gas is always increasing. For the steel industry, cost of iron ore, coal and water is determined by the market.
Yes, indeed, the tariffs also increase. But then this is part of life and this option is available to telecom operators also.
A property that could be bought for a few lakh in mid 1980s costs a few crore today. Similarly, the wages that were at two to three digit levels in mid 1960s have grown to six to seven digit levels.
Therefore, it is entirely misplaced to say that the prices of spectrum in this auction are very high.
As I mentioned in my early articles, in 2001, the cost of spectrum was 80 paise per minute per customer. This has been confirmed by many others. Let us now focus our attention on the impact of latest round of spectrum auction for three metro cities. The total cost of spectrum paid is Rs 23,000 crore.
This comes to about Rs 230 crore per month for an asset acquired for 20 years. In accounting terms, because of depreciation on capex, it will show as Rs 120 crore. This comes to Rs 4 crore per day. In 2013, there was a customer base of six crore in the three metros, according to Cellular Operators Association of India (COAI). There was an average revenue per user (ARPU) of Rs 5 per day. This results in earning of about Rs 30 crore per day.
What is the problem if companies spend Rs 4 crore on spectrum, when they earn Rs 30 crore per day.
Now view it from another angle.
In 2013, minutes of usage per customer were 360 minutes per month. This translates to about 12 to 15 minutes per day per customer. This means that the cost of spectrum is only 4 paise per minute.
I challenge self styled analysts and experts to point out mistake in my calculations. If you cannot find any problem in this explanation, it is clear that someone is fooling someone. An atmosphere is being created in seeking subsidies at a later date. I do not agree that this is the expensive auction. Right price has been determined through auction and the operators have secured their future for 20 years.
Following are links of Syngal''s earlier articles and analysis on the issue:- Paid media and analysts are misleading public and the government by calling the current auction “winner’s curse”, writes B K Syngal Paid media and analysts are misleading public and the government by calling the current auction “winner’s curse”, writes B K Syngal
B K Syngal blasts Economic Times on spectrum auction coverage, wonders whether the newspaper is trying to create unnecessary panic
Are Newspapers trying to influence spectrum auction negatively so that manipulators can bring down stock prices, asks Syngal