This article was authored by Lachlan Colquhoun, and was originally posted on telecomasia.net.
India’s telecoms sector is the industry’s brave new world, but at times like this it can also seem like the frontier wild west.
It’s easy to get excited by Indian telecoms, and plenty of people do. One billion mobile subscribers, 300 million internet connections and counting, and whole new sections of the population gaining access to phones not just for communications, but for applications such as banking and insurance.
Little wonder that India has created 10 “Unicorn” start-ups valued at $1 billion or more, and that most of them are in the telecoms and online space such as Hike Messenger, Paytm and Flipkart.
That is the upside of Indian telecoms: growth, innovation, plenty of blue sky.
But like any sector growing too fast – more than 2000% since the early 2000s - the development has been bumpy.
In India’s case a combination of greedy private sector scammers, over-enthusiastic foreign investors and muddle headed – and occasionally corrupt - regulators and politicians have provided plenty of negative headlines and squandered many good opportunities.
Industry observers well remember the so called 2G scam of 2008, when big companies created fronts to buy spectrum at 2001 prices in events which attracted the attention of India’s Serious Fraud investigators.
Right now, India is on the verge of its largest ever spectrum auction, with 3.786 MHz of airwaves up for grabs. The expected return for the Government is $90 billion or so, a whopping amount by any measure.
The trouble is, the telecoms companies can barely afford it. Most of the likely bidders for the core 700-MHz band which is at the core of the action are already highly leveraged. Debt in the sector is nearly twice annual revenues.
They have been asking the Government to delay the auction but those requests have fallen largely on deaf ears: the 700-MHz band will drive the development of better services, particularly around data, and besides, the Government wants the money.
They have become used to it too. This will be the fifth year in a row that spectrum has been auctioned off, and with the industry so promising, it’s no wonder big prices have been paid.
Come 2016, however, and the industry would appear financially exhausted. Not only have they been progressively shelling out for spectrum on an annual basis, some of them – such as Airtel – have gone on M&A splurges not just at home but abroad.
There is no doubt that India’s telecoms industry needs more spectrum, and fast, to develop. Over the last few years spectrum has been doled out in such small amounts that it has inhibited operators from really doing anything which has major scale.
So that is an argument in favour of this year’s auction, but at the same time it could precipitate a financial mess, with over indebted telecoms company’s unable to do anything with the spectrum they buy or, at worst, going into financial meltdown.
It has all the classic symptoms of an industry growing too fast and being regulated by a bureaucracy which can’t make up its mind whether to be greedy, or to be more focussed on nation building.
When Narendra Modi’s government came to power a couple of years ago, high hopes were understandably held for the telecoms industry.
This year’s auction needs to be navigated very carefully. There is a lot at stake, and the margin for error is very thin.