Mobile operators contest DoT’s tariff math post-auction

Mobile operators and telecom equipment makers on Tuesday contested the Department of Telecom’s (DoT) calculation on the impact of the recent spectrum (airwaves) auction on tariff.

“We will be happy to understand the government’s calculation on the impact of the spectrum auction and the increased financial burden on the industry if tariffs are not increased in proportion to the huge payouts,” the Cellular Operators Association of India (COAI) said in a statement here.

In the latest spectrum e-auctions conducted over three weeks from March 2-24, the central government had raked in $18 billion from eight telecom operators, as the bids were amongst highest by global standards.

The industry body disputed the basis on which Communications and IT Minister Ravi Shankar Prasad stated that tariffs should not increase beyond 1.3 paise per minute, as the spectrum had been given for 20 years when the industry’s annual expenditure is expected to be Rs.5,300 crore per annum, while its current turnover is a whopping Rs.2 lakh crore.

Prasad and DoT secretary Rakesh Garg contended that if the expenditure (Rs.5,300 crore) was divided by the number of minutes being used currently for talk time or data service by users, the cost would be 1.3 paise per minute.

The industry’s analysis of the financial implications of the e-auction, however, indicates a steep increase of 12-15 percent on the present tariffs to make up for the cash outflows of the cellular operators, the COAI said.

“DoT has not factored inflation in its calculation though inevitable on a 20-year-period. At the current annual inflation rate of 6-7 percent, its impact will be a hefty sum, pushing the tariffs significantly,” it said.

The industry association also expressed concern on the government not taking into consideration the interest burden on the debt the industry will have to raise for meeting the spectrum requirements.

For network development and expansion too, the industry is faced with the issue of paying global prices for equipment.

“Though costs are massive, the average revenue per user (ARPU) is around $2.96 (Rs.186) as against the international average of $35-40, while the operators are required to pay 13-14 percent of their revenue in the form of license fee and spectrum usage charge,” the association said.

Terming the DoT’s math confusing, the association wondered how a hike of 1.30 paise per minute would address its financial woes keeping in view factors such as inflation, high spectrum costs, equipment costs and regulatory costs.