Uninor on the rise

The green shoots are beginning to show in the Indian telecom sector.

Uninor has achieved financial breakeven in two more circles--UP West and Bihar. After achieving breakeven in five of its six circles. Uninor has now achieved EBITDA break-even in UP West, UP East, Bihar (and Jharkhand), Andhra Pradesh and Gujarat. That leaves out only Maharashtra, which is expected to achieve the milestone by the end of 2013.

“Uninor is well on its way to meet a commitment of pan-India breakeven that was made 3 years ago when we started. In the process, we have been able to bust prevalent myths that efficiency needs scale and profitability needs high-end services with expensive tariffs,” said Yogesh Malik, CEO of Uninor

As of end-August, Uninor had 32.5 million mobile subscribers. While UP East had 7.7 million subscribers, Maharashtra had 5.8 million and UP West 5.3 million. The advantage that Uninor has is that its lower costs per minute (upto 40% lower) and sabse sasta tariffs (upto 60% cheaper)helped it achieve its financial break-even.

TRAIng to get telecom on track

It was quite on the lines of what the doctor had prescribed for India's troubled telecom sector. In a landmark recommendation, the Telecom Regulatory Authority of India (TRAI) has cut through the red tape that has bogged the sector. It cut the base price for 5MHz of spectrum in the 1800MHz band by 46.6 per cent to Rs 7,480 crore. That will be a huge relief for bidders in the next auction. That was not all. It also recommended:

• There be no reservation of spectrum for the renewal of licences in the 900/1800MHz band 
• Asked DoT to come up with a clear roadmap before the auctions 
• Should look at the adoption of the E-GSM band in a time-bound manner 
• Spectrum usage charge would be a flat 3 per cent of AGR for mobile and BWA services 
• Permit spectrum trading 

Says Hemant Joshi, Partner, Deloitte Haskins & Sells: "The recommendation by TRAI in reduction of the spectrum price is a very welcome move considering the current market realities and recent failed auctions.We still believe that the DOT / Govt should consider starting with the floor price of zero and let the market forces decide the final price for the spectrum." However, companies that bid in the earlier auctions are not particularly happy about the reduction. Says Arvind Bali, Director & CEO, Videocon Telecommunications Ltd: "We hope the Government will recognize the importance of new players and support them. We strongly recommend that the excess money paid by us ie difference between the price paid by us and the successful bid price of the upcoming auction should be refunded back to us either in monetary terms or through additional spectrum”.

That's something that the Department of Telecommunications (DoT) has to sort out and that too quickly. However, the issue is not that complex as it seems to be made out. TRAI has not changed or marginally tweaked the base rates in 11 of the 22 circles. This includes all the six C circles and five of the eight B circles. It has gone ahead and lowered the base price in the four circles--Delhi, Mumbai, Karnataka and Rajasthan--which did not receive any bids whatsoever. That leaves just seven circles where rates have been lowered. That leaves seven circles--Kolkata, Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu, Haryana and UP West--where prices were lowered despite the bidding.

It remains to be seen how quickly the DoT can go ahead with the auctions. While the lower price for spectrum is great news for Bharti Airtel, Vodafone and Idea Cellular, they need to get cracking on the auction of spectrum in the 900MHz band if they need to retain the advantage. That's where the entry of Mukesh Ambani's Reliance Jio Infocomm could prove to be a area of concern.

Sunil Mittal back in the fray?

It may be tough times for the Indian economy, but, the Indian telecom industry seems to be finally getting back on the growth track.

Currently, the Department of Telecommunications (DoT) is finalizing the M&A norms and the Telecom Regulatory Authority of India (Trai)is to come up with the base price for spectrum auctions later this fiscal. All this should be in place by mid-October.

Already, the first stirrings of M&A in the sector have begun in earnest. It is believed that Sunil Bharti Mittal led Bharti Airtel has emerged as the frontrunner to acquire Mumbai's Loop Mobile, that is owned by Kiran Khaitan and her husband IP Khaitan. Kiran happens to be the sister of Essar Group's Shashi and Ravi Ruia. The advantage that Loop Mobile offers is that it has 8MHz of spectrum in the 900MHz band. Bharti currently offers services in Mumbai on the 1800MHz band.

However, for the deal to fructify, the government has to come clean on the M&A norms. Loop's licence expires in end-2014. This is not the first time that Loop Mobile has been seeking a suitor. The companies that had sought to acquire it include Norway's Telenor, Malaysia's Maxis and Idea Cellular.

It is still early days for M&A to begin in the sector. But, the signs are all there. It will depend on how quickly DoT and TRAI can come up with their recommendations. It could well be the booster shot that the economy needs at this juncture.