Consumer Cost of Digital India

With the high spectrum auction prices for the 4G band in India, it will be the consumer that will ultimately end up paying for Digital India.

Times of India reports that Trai's (Telecom Regulatory Authority of India) pricing recommendation on the coveted 700 MHz 4G band has sharply divided analysts and industry experts. Some experts said that the suggested starting price of Rs 57,425 crore ($8.5 billion approx) for a pan-India 5 MHz block, or Rs 11,485 crore a unit, of 700 MHz spectrum wasn't too high, given the easy financing options, the fact that this was a 20-year asset, the money telcos make currently and the ongoing data growth. But others say given stiff base price, the efficiency gains from deploying 4G on this most cost-efficient band aren't enough to offset the higher up front investments involved. Both sides though agreed that telcos will be left with higher debt levels.

"The seemingly high starting price translates to a very modest EMI payout of Rs 574 crore for a 20-year asset, which is peanuts for an industry tipped to generate Rs 3.5 lakh-crore amid the data explosion, and which also has been allowed the deferred payment route to meet spectrum liabilities," said BK Syngal, former chairman of erstwhile VSNL (now, Tata Communications), presenting a strong contrarian view. Syngal, who is now senior principal at Dua Consulting, added that Trai's pricing was "not out of line with global trends. Credit Suisse feels mobile operators might well go for selective 700 MHz purchases, tempted by "easy government financing options and acute shortage of 4G spectrum in a market seeing rapidly growing data volumes". Morgan Stanley also expects "high demand for 700 MHz spectrum from all operators," but said this could mean "more earnings risk and higher leverage for the sector".


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