The draft NTP 2011 emphasises the role of telecoms in “accelerated equitable and inclusive economic growth by laying special emphasis on providing affordable and quality telecommunication services.”   In light of these aspirations PwC in its paper on "Impact of TRAI spectrum recommendation on consumers and industry" assessed TRAI’s ‘Recommendations on Auction of Spectrum’ published on 23rd April 2012.

TRAI’s computed cost increase per minute at a national level is Re 0.44 per minute (for 2013).  However, due to numerous considerations PwC have found that the impact on cost per minute is likely to be far greater, in a range between Re 0.24 and Re 0.28 per minute.

TRAI underestimates the cost per minute impact by around 50 per cent by counting both incoming and outgoing MoU in its calculations rather than just the outgoing MoU. TRAI also does not consider the further cost of extension of licenses for renewed usage of spectrum which are at present in use for servicing current customer needs and TRAI omits to take into account the additional spectrum that will be required to service the huge growth in voice and data traffic implied by TRAI’s workings.

EBITDA margins of Indian Operators stands at 29 per cent compared to Asia region average of 40 per cent and low EBITDA margins are leading to single digit PAT margins. Indian operators' Debt/EBITDA ratio is expected to rise to 7.4 by 2016 and usually Total Debt/EBITDA rising to above 3.0 indicates heavy debt service burden. While Indian mobile operators have absorbed cost increases in the past, including after the 3G auctions of 2010, but due to the eroding margins and increasing Debt/ EBITDA levels in the past few years it is improbable the industry has the capability to do so further.

It is likely that operators will be forced to impose tariff increases as a result of the cost increases.  Tariff increase in the range of Re 0.29 to Re 0.34 can be expected in case of simple pass-through of the spectrum cost, plus added impacts of licence fees, taxes and levies. Metro subscribers might experience the most substantial tariff increase, up to Re 0.90 per minute, compared to other subscribers because the current spectrum reserve prices are almost 20x times higher than Circle C reserve prices.