Telecom back to reform mode with base price cut

Written by fe Bureau | New Delhi | Updated: Sep 10 2013, 08:49am hrs
Underlining the deterioration in all the key macro-economic indicators and two flop auctions in the past, the Telecom Regulatory Authority of India (Trai) on Monday recommended a reduction in the base price of spectrum by up to 60%. The regulator also suggested a couple of major policy changes, including allowing spectrum trading and a flat spectrum usage charge to clear the mess in the telecom sector. The suggestions will now be vetted by the empowered group of ministers headed by finance minister P Chidambaram before the government decides on the final reserve price and date of the proposed auctions, which it needs to hold as per the directions of the Supreme Court.

Though none of the operators officially commented on the recommendations, privately, their officials broadly welcomed the suggestions as well thought-out and a step in the right direction.

Apart from the reserve price, the other significant recommendation is there would be no more reservation of spectrum for any class of operators and all spectrum would have to be bought from the market by participating in the auctions. This means operators like Bharti and Vodafone would not have any automatic right on the spectrum held by them in the more efficient band of 900 MHz when their licences in some circles come up for renewal in November 2014. Also, these operators would not be given spectrum in the 1,800 MHz in lieu of the 900 MHz as was earlier accepted by the government.

In the 1,800 (2G) MHz band, the price suggested by Trai for per MHz spectrum on a pan-India basis is down 37% at Rs 1,496 crore compared to Rs 2,378 crore in the March auctions, which did not find any takers. For a block of 5 MHz spectrum, the minimum required by any new operator to provide services, the pan-India price comes to Rs 7,480 crore against Rs 11,890 crore fixed during the March auctions.

The decrease in base price in the 900 MHz band is higher at 60%. Here, in November 2014, the licences of Bharti in Delhi and Kolkata and those of Vodafone in Delhi, Mumbai and Kolkata would come up for renewal. The price of per MHz spectrum in Delhi has been suggested at Rs 288 crore, down 63% from the price of Rs 776 crore recommended in March. Similarly, the price for Mumbai circle is lower by 65% at Rs 262 crore against Rs 760 crore in March.

Explaining the rationale for the price revision, Trai chairman Rahul Khullar said: The Authority is of the view that the failure to sell spectrum in many circles in the last auctions of November 2012 and March 2013 has been a setback for both the government and the industry as the value embodied in the unsold spectrum has not been realised. The primary task is, therefore, to ensure that spectrum is sold in the forthcoming auction and the impasse does not continue.

However, the Trai has not recommended auction in the 800 MHz band which is used by the CDMA operators like Reliance Communications, Tata Teleservices and Sistema Shyam. Instead, it has said that the feasibility of adoption of e-GSM band should be explored in a time-bound manner.

The telecom industry broadly welcomed the recommendations, though some operators said price reduction in the 1,800 MHz band should have been more. Though companies like Bharti and Vodafone did not officially comment, their executives on condition of anonymity said they would continue to oppose the refarming proposal. As it is, the matter is sub-judice in the Supreme Court.

Welcoming the recommendations, Sanjay Kapoor, former CEO of Bharti Airtel told FE: The Trai has done a thorough job by balancing the needs of operators as well as the government. The recommendations are well thought-out. The only dampener would be the refarming bit. A Bharti Airtel official said: The rigour and understanding at Trai under the new leadership needs to commended.

Rajan Mathews, director-general of Cellular Operators Association of India, the industry body of GSM players, said: The positives are the lowering of the reserve price, spectrum trading, uniform spectrum usage charge. However, refarming would be a disincentive.

A major recommendation of the Trai, largely welcomed by the industry is regarding the uniform spectrum usage charge of 3% of the adjusted gross revenue of operators. Currently, spectrum usage charge begins at 3% of the AGR for spectrum held up to 4.4% and increases as the spectrum holding goes up. In cases where the operators do not hold auctioned spectrum, the regulator has capped the charge at 5% and the calculation would not take by place by combining the spectrum bought in auction and held otherwise.

Trai has also proposed spectrum trading, stating that all spectrum bought in auction can be traded by paying a 1% transaction charge to the government. However, trading has to be done by outright transfer and not leasing. No prior permission of the government is required for such trading, Trai said. In cases where operators hold non-auctioned spectrum, trading is to be allowed after charging a prescribed fee.

Khullar said that if the government accepts its proposal to allow spectrum trading, Trai would constitute a committee to draft implementation rules.