India's Latest Telecom Commission Recommendations: What Do They Imply?

India's Telecom Commission came out with a set of recommendations on 6th November 2013, primarily relating to spectrum. Here is my quick analysis of the recommendations:

On Reserve Price: Reserve price for spectrum remain high. My assessment based on industry valuation and assuming moderate sector profitability improvement over the next five years is that a block of 5MHz of 1800 MHz spectrum has a value (to an average industry player) of around Rs. 5,000 Crore.  The recommendations issued by the Telecom Commission yesterday put forward a reserve price value which is almost double this, and about 15-20% higher than TRAI’s recommendations last month.  But the silver lining is that the recommendations are still quite a bit lower than reserve prices we have seen in the recent past.

On Spectrum:
With a number of licences coming up for their 20 year extension date, some operators are in need of extending or acquiring the use of spectrum. So a number of players have a lot at stake. Therefore, despite high prices, operators can generally be expected to participate.  However, auction activity will be more measured than we could have achieved with lower reserve prices.

On Mergers and Acquisitions:
The merger recommendations are generally positive. The 50% threshold for market share in a circle allows many combinations and permutations between operators, which is positive. If players need to pay one off spectrum acquisition charges this may moderate interest in some deals. This is likely to be important as spectrum access is likely to be key driver for acquisitions.

To sum up, confidence in the sector won't be restored properly until we see general confidence return to the economy and the rupee, given how import-intensive and debt-hungry this sector is.

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