The reserve prices recommended by TRAI for the spectrum to be auctioned in 2016 amount to INR 536,239 core (INR 5,362 billion) which equates to over twice annual annual industry revenue and around 22 times annual free cash flow of the mobile industry in India. Even with extremely optimistic revenue growth assumptions, Indian mobile operators will not generate sufficient operating free cash flow to justify the business case for purchasing the spectrum at the prices recommended by TRAI. If the prices recommended by TRAI are maintained, there is a high risk of auction failure with most or even all of the much needed 700MHz spectrum remaining unsold. As a result, auction proceeds would be well below the Government’s target and Indian consumers and businesses will not benefit from better 4G mobile broadband services.
TRAI’s recommendation of the reserve price is based on some inaccurate assumptions. Firstly, using the prices previously paid for 1800MHz as a benchmark is inappropriate. Secondly, the assumption that 700MHz is intrinsically four times more valuable than 1800MHz does not recognise difference between the business case at the time and the current business case.
India’s National Telecoms Policy 2012 and Digital India are exemplary in their vision and objectives. However, the reserve prices proposed by TRAI for the spectrum to be auctioned in 2016 are inconsistent with the policy objectives.
Stefan Zehle, CEO, Coleago Consulting Ltd
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