Will likely spectrum price cut help telcos avoid plight of aviation sector?

Telecom Minister Ravi Shankar Prasad has said the government is considering pricing reforms, which some in the industry took to be a hint at a possible reduction in the 5G spectrum sale price. The government is expected to start the auctions this year, according to reports.

Telcos have been pressuring the government to cut the 5G spectrum prices because they are in a financial quagmire, partly because of the high capital costs including the exorbitant spectrum costs, a report on the Business Standard website says. Intense competition leading to aggressive pricing led by Mukesh Ambani's Reliance Industries-led Jio Infocom has hit the profitability of all top players. Since its launch in 2016, Reliance jio has gained market share with a free-call regime charging only for data. It currently has about 29 percent market hare having overtaken Bharti Airtel earlier this year to be placed behind only the market leader Vodafone Idea at 32 percent.

The telecom companies have suffered from their return on investment taking a knock forcing Jio to abandon its avowed stand of not to price voice. Jio announced a 6-paise per minute charge on voice calls terminating in other networks in an apparent attempt to force the Telecom Regulatory Authority of India (Trai) to abolish the interconnect usage charges (IUC) that the terminating network has to pay to the call originating network. The issues that plague public sector telecom provider Bharat Sanchar Nigam Limited (BSNL), which is headed down the privatization path, are also linked to the general situation in the sector, some say.

Industry observers compare the situation in the telecommunication sector with that of aviation where stiff competition has forced companies to keep prices low. On the other hand, high fuel prices and other operating costs affect their profitability. The situation has resulted in broad swaths of red on the balance sheets of most airlines except the market leader IndiGo. The fate of budget airline Kingfisher Airlines and full-service operator Jet Airways was sealed by high operating costs, apart from financial imprudence, according to industry circles. Even the current government push for Air India privatization is blamed to a large extent on the issues ailing the sector that has caused the decline of the national carrier.

The annual India Mobile Congress that Prasad inaugurated on Monday, where he hinted at a possible re-look at the spectrum prices, also reflected the telcos' general disillusionment with the way the market is going, the report suggested. While last year's conference had the exciting presence of Jio's Mukesh Ambani and Bharti Airtel's Sunil Mittal, their absence was particularly noted. To Prasad's attempt to cheer up the stakeholders by saying the government was in the process of taking reform steps in spectrum pricing, Vodafone Idea Chairman Kumar Mangalam Birla said, "We seek an enabling regulatory environment so that we can make the necessary investment in this sector."

Bharti Enterprises co-vice chairman and managing director Rakesh Bharti Mittal said that the industry wanted spectrum at the right price, the report said. "We need large quantities of the spectrum at the right price as the prices set by Trai are seven times higher than the global prices," Mittal said.

Trai had recommended a pan-Indian base price of Rs 492 crore per MHz for 5G radiowaves. The regulator, however, reduced the reserve price of the premium 700 MHz spectrum, which had gone unsold in the 2016 auctions, by more than 40 percent to Rs 6,568 crore per MHz from Rs 11,485 crore.

While the operational issues linger, regulatory bottlenecks like the delay in settling the Huawei in controversy in the 5G spectrum trials also has not helped ease the uncertainties. There have been suggestions that the government may ease out Huawei following US pressure after Prime Minister Modi's recent meeting with US President Donald Trump. The US has blacklisted Huawei on grounds of national security over alleged spying for the Chinese security forces and urged other nations to follow it. To ensure that the ban was complete, Washington has threatened to blacklist all companies seen to do business with Huawei. Some in the Indian telecom industry tend to view the US push against Huawei as a fallout of the US-China trade wars set off by Trump.