Giving advice on what stocks to buy and what stocks to sell is pretty dicey, but when it’s a sure shot that may not be such a bad idea—like Reliance’s stock will do better if the government raises the gas price RIL gets. Telecom is one such sure shot, and here’s the advice: till the government changes its policy, you’re going to make a loss each extra day you hold on to telecom stocks. Apart from the dismal economic conditions, the messed up government policy is the main reason why there are such few takers for next week’s auctions that look certain to be a washout given the number of players participating is really low.
A good place to begin is the Rs 30,000 crore—a third of this from PSUs BSNL and MTNL—that the EGoM wants telcos to pay for the ‘extra’ spectrum they have (table 1). While telcos argue they got the ‘extra’ spectrum as a result of bona fide government policy, this is missing the point—after all, Uninor can claim it got its licences out of government policy that everyone in the government argued (some still do!) was bona fide till the Supreme Court ruled otherwise. The question is whether the government got compensated for, say, giving spectrum worth R5,000 crore for an upfront payment of just R1,651 crore.
Turns out, the government did get compensated. Here’s why: when telcos were given this ‘extra’ spectrum without being charged an upfront auction-type fee, the government raised the spectrum usage charge (SUC) which telcos pay apart from the 6-8% annual licence fee. The SUC was 2% of adjusted gross revenues (AGR) when telcos began their operations with 4.4 MHz of spectrum, rose to 3% of AGR when telcos had up to 6.2 MHz of spectrum, 4% for 8 MHz of spectrum, and so on. Sadly, Trai provides data for SUC payments only from 2008 onwards while firms started getting ‘extra’ spectrum 7-8 years earlier, but even data since 2008 shows telcos paid R17,248 of spectrum till June 2012. Considering that the SUC should have been just 2%, this means telcos have already paid up R9,463 crore extra (table 2) for this ‘extra’ spectrum—considering telco licences still have some years to expire, this number could conceivably go up to around R20,000 crore.
Which brings us to the larger point of the auctions and government greed. If