The Telecom Regulatory Authority of India (TRAI) has published its analysis regarding the effects of the controversial reserve prices for spectrum on tariffs and cellcos’ profits. The analysis sought to propose the level of tariff increase required to neutralise the increase in cost of spectrum, based on current growth rates of traffic and subscribers. The report claimed that a tariff increase of INR0.05 (USD0.0009) per minute would allow operators to be profitable within two years, whilst an INR0.10 hike in tariffs would reduce the loss-making period to a single year. The analysis was conducted to better inform the Empowered Group of Ministers (EGoM), and the cabinet when they come to make their final decision on spectrum pricing for the upcoming auction of 2G frequencies.
The analysis was strongly criticised by industry lobby group the Cellular Operators Association of India (COAI), however, calling the report ‘flawed, non-transparent and inconsistent with the market realities.’ The COAI added that the: ‘objective behind the exercise appears to be a pre-determined answer to an already arrived-at conclusion and an attempt to defend its earlier position on the matter.’ The lobby group accused the watchdog of altering its data to strengthen its conclusion, saying that the TRAI had increased its predicted traffic growth rates from its previous analysis in April 2012, from 10% for the first three years to 15%, 14% and 11%. The adjusted rates led to a ‘substantial decrease in rate per minute in the new analysis’, thereby mitigating the predicted impact of the spectrum price increase. The higher tariff was likely to cause a drop in usage per subscriber, the COAI argued, further driving up the price needed to neutralise the additional costs.
Further, the COAI pointed out that the TRAI had not fully considered the financial implications of the spectrum costs, saying that interest charges, CAPEX and OPEX had not been taken into account. Once again, the COAI accused the TRAI of weighting its assumptions in its favour, marginalising cost increases and predicting substantial revenue growth. The TRAI report omitted the cost of financing the initial years of losses, the cost of subscriber addition in terms of operational expenditure and capital expenditure for increasing capacity.