Telecom investment to get a fillip as Trai sticks to its guns

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Summary* Combined impact of 60% cut in auction base price, 100% FDI & liberal M&A norms

The Telecom Regulatory Authority of India (Trai) on Wednesday stuck to its earlier proposal of up to a 60% cut in the reserve price for the next round of spectrum auctions in the 1,800 and 900 MHz bands saying the price was arrived at by the use of internationally accepted methodologies.

In its 63-page report to the department of telecommunications (DoT), peppered with quotes from Shakespeare and James Joyce, the regulator has said that in the absence of any alternative approach suggested by the department, there was no scope for it to revise the prices.

Should the government now accept Traiís pricing formula, the telecom sector will see a sharp reversal in its fortunes. Traiís recommendation together with the M&A policy being worked on by the government ó likely next week ó as also the earlier decision to allow 100% FDI in telecom, will make investors more comfortable. A successful auction in January,should fetch the government at least R20,000 crore, helping it narrow the fiscal deficit. The draft M&A rules suggest that mergers between even large and mid-sized players will become easier.

Aware that the final decision rests with the government, Trai has advised it that the country stands at a crucial stage where the option is either to reform or perish. The mistakes of the past five years, Trai says, have left India 5-10 years behind in the telecom revolution. The regulatory authority has counselled the government to seize the opportunity.

The Telecom Commission, the highest policy-making, inter-ministerial body in the DoT had on October 11 asked the regulator to consider revising the prices upward since it felt that the value of liberalised spectrum has not been captured. It had also raised queries on the methodology adopted asking whether the future growth potential and projections in the telecom sector were taken into account.

This is perhaps the first time in Traiís history that it has stuck to its recommendations in its entirety when asked by the government for a review. Traiís strong defence of its recommendations is evident from the fact as it has virtually advised the telecom department to read it (the recommendations) carefully to look for explanations for everything it has said.

The regulator has also reiterated its stand on all other issues: No auction in the 800 MHz band due to low demand and instead explore the possibility of creating an extended EGSM band; a flat spectrum usage charge

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