Why is the Vodafone chief concerned about high spectrum price

In February this year, Vodafone bought some back-up spectrum in the 1800 MHz band in a few circles. According to Marten Pieters, the company does not have enough quality spectrum.

The day is not very far when telecom companies in the country will have to shell out more for spectrum acquisition than what they would need to spend for developing the infrastructure if the government continues with its current stand, Vodafone India managing director and chief executive officer Marten Pieters said in New Delhi on Tuesday.

The chief of the British telco’s Indian subsidiary, which is the second largest cellular operator in India, also said the recent decisions by telecom authorities have disappointed the sector.

“It is wrong to hold the auction without enough spectrum on the block.

"Unless the government frees up additional spectrum for commercial use, it may call for disaster, and some of the existing operators may have to close shops.

"Most of the investment happened in the last five years and these are long-term investments,” Pieters said.

The government should make more spectrum available for commercial use and offer them at a reasonable cost.

“Without enough spectrum, even the government’s agenda of building ‘Digital India’ will fail,” said the Vodafone chief.

However, Pieters does not believe the government should stall or delay the proposed auction. But he noted that without fresh spectrum, the auction will not be feasible for any of the operators.

“The government should take it seriously. Globally, we have seen governments have come out with alternative solutions, sometimes by splitting the auction process.

"In any case, the quantum of spectrum that operators get in India is too low as compared with that of the developed countries even if the number of subscribers are much higher here,” said Pieters.

In February this year, Vodafone bought some back-up spectrum in the 1800 MHz band in a few circles. According to Pieters, the company does not have enough quality spectrum.

“Even in the previous auction, there was enough spectrum in the 1800 MHz band to fall back upon, in case an operator fails to retain its holding in the 900 MHz band. This time even that is not there,” he added.

This will make prices shoot through the roof, which would not be a feasible option for most of the telecom operators.

“Trimming down operations might not be feasible as well. But if prices are too high, we may look at options like trimming down services to just 3G in a few circles,” said Pieters.

Vodafone India, which will also lose licences in a few circles in 2015-16, said will not have any back-up spectrum to fall back upon in two circles – Rajasthan (high data revenue) and Maharashtra and Goa.

So, no matter what the price would be, Vodafone will have to win back its current holding of airwaves in the 900 MHz band in these two circles just to continue operations.

“We’ll still go ahead and bid for spectrum irrespective of the price and scenario,” said Pieters.

On the other hand, Vodafone does not have 'good quality' spectrum to fall back upon in two more circles -- Gujarat and Uttar Pradesh (East).

So, the company will also try to win back some 900 MHz spectrum in these two circles.

“It all depends on the appetite to stay in business and financial strength of an operator that would determine the game,” said Pieters, adding that the company has already invested a lot in India and the country is 'very important' for Vodafone Group.

Speaking on possible mergers and acquisitions in India, Vodafone India CFO Thomas Reisten said there are a couple of operators who have been struggling.

“As a company we always look for opportunities in a particular geography but taking a decision depends on a lot of things.

"There is nothing on board right now. We are open if it makes financial viability,” he added.