Column: Killing the telecom party

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SummaryWithout a uniform spectrum usage charge, everything the govt has done of late will come to nought

It is to the credit of the Group of Ministers that, despite spirited opposition from the telecom ministry bureaucracy, they still managed to accept the Telecom Regulatory Authority of India’s (Trai) prescription for dramatically lower reserve prices for the January auctions. To add icing on the cake, the government also cleared a more liberal mergers and acquisition policy that allowed even market leaders to buy mid-sized firms—the relaxation was done not only in terms of the market size of the firms involved but, more critically, firms merging or acquiring are to be allowed to hold up to 25 MHz of spectrum as opposed to the current 14.4 MHz.

Despite this, however, lack of progress on two fronts can derail the government’s hopes of getting R40,000 crore in the January auctions. One, as this column has pointed out before, the government’s inability to get more 2100 MHz spectrum cleared in a swap with the defence ministry

(‘It’s in the data’, FE, November 12, goo.gl/zjQsMH) will lower investor appetite since it is 3G spectrum that telcos are really short of.

Equally important is the Trai proposal on a flat and uniform spectrum usage charge (SUC)—apart from the annual license fee, telcos also pay a SUC depending on how much spectrum they have. Since this is a finite resource, the more the spectrum they have, the more they have to pay for it. Though a spectrum auction bid for a flat amount of spectrum—what will happen in January—is theoretically very different from an SUC which is an annual charge, the two are related. Think of it as a security deposit on a flat and a monthly rental, the higher the monthly rental, the lower the security deposit, and vice versa. Except, spectrum is a bit more complicated.

To begin with, there are six slabs of spectrum—as firms get more spectrum, they pay a higher rate for it, 3% of their annual revenues if they have up to 4.4 MHz of spectrum, 4% if they have up to 6.2 MHz of spectrum, and so on. It gets complicated because, while there is a GSM and a CDMA type of mobile, if a CDMA firm has 2.5 MHz of spectrum along with 4.4 MHz of GSM spectrum, the two spectrum amounts are not added—so, while a pure-play GSM firm would pay 5% of revenue as SUC if it had under 8 MHz of spectrum, a dual-technology firm with

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