Why Jaitley's telecom revenue target may be tough to achieve

Finance Minister Arun Jaitley has set a high target from the sale of telecom assets.

In his maiden Budget, Jaitley has increased the target revenue from the sector by Rs 6,517 crore (Rs 65.17 billion) to Rs 45,471 crore (Rs 454.71 billion).  

However, the revised target, 16.7 per cent higher than stated in the interim Budget in February, looks unrealistic.  

During the year ending March 2015, Jaitley aims to get Rs 45,471 crore (Rs 454.71 billion) from one-time spectrum charges, auction of 1800-MHz, 900-MHz and 800-MHz spectrum, and the licence fees and spectrum usage charges that the department of telecommunications (DoT) collects annually from operators.

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The government hopes to get about Rs 30,000 crore (Rs 300 billion) from auctions of the 1800-MHz, 900-MHz and 800 MHz bands.

To meet this target, the Government will have to generate at least Rs 90,000 crore (Rs 900 billion) from the auctions, as the government would only get roughly a third of the value of spectrum prices, as companies pay in installments.

Even if the government is targeting Rs 25,000 crore (Rs 250 billion)  from auction proceeds this year, it will have to generate more than Rs 75,000 crore (Rs 750 billion) in the coming auctions.

The February auction generated Rs 61,162 crore (Rs 611.62 billion)and the government got less than a third or Rs 18,296 crore (Rs 182.96 billion) for the year ended March 2014.

Also, companies get a two-year moratorium for the second installment.

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The government has in the past always set high targets for receipts from telecom; it also had failed to achieve that target in most years.

In the year ended March 2012, it got Rs 16,551 crore (Rs 165.51 billion) from other communication services against a target of Rs 29,649 crore (Rs 296.49 billion).

In the year ended March 2013, the Budget target was Rs 58,217 crore (Rs 582.17 billion) and it got Rs 18,902 crore (Rs 189.02 billion). 

However, in the year ended March 2014, the government reached its target of Rs 40,847 crore (Rs 408.47 billion) from telecom, as it managed to get 61 per cent more than the Budget target of Rs 11,343 crore (Rs 113.43 billion) from the auction.

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 “Given that the auction in February covered 900-MHz renewals in major metros, it is unlikely that the next auction will generate higher proceeds, unless the government decides to auction further spectrum in new bands, which is unlikely,” said Mohammad Chowdhury, partner, PwC India.

Spectrum renewal

The government is certainly expecting aggressive bidding for the 900-MHz spectrum band, as 29 licences in 18 telecom zones are coming for renewal.

However, the next auction will not have high reserve price circles — Delhi, Mumbai and Kolkata.

In February, DoT had auctioned 385.2 MHz of spectrum in the 1800-MHz band, of which 307.2 MHz were sold.

It had sold all spectrum in the 900-MHz band in the Mumbai, Delhi and Kolkata circles in the February auction.

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This time, there will be 184 MHz of spectrum in the 900-MHz band available for auction, as 29 licences will be due for renewal in 18 telecom zones in 2015-16 and 104 MHz airwaves will be available for auction.  

The Telecom Regulatory Authority of India (Trai) had  recommended a reserve price at Rs 2,685 crore (Rs 26.85 billion) for 1 MHz of pan-Indian airwaves, opposed by the operators.

Also, the 800-MHz band received very poor response in the previous auctions.

The Government has sought Trai suggestion on the reserve price for 900-MHz spectrum in all circles.

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Beside incumbent operators needing to renew licences, operators have been constantly looking to increase their spectrum holding in each circle, to boost their potentially remunerative high-speed data services.

While Bharti Airtel and Idea Cellular would try to retain spectrum in the circles where their licences are expiring in the 900-MHz band, they are likely to pick up spectrum in the 1800-MHz band in all those circles.

All the incumbent players did the same thing in the previous auction, this February.

DoT has asked Trai for its recommendations on valuation and pricing of spectrum in all the circles where it would have to conduct auctions. There are 29 licences that would expire across 18 circles in 2015-16.