DoT panel objections on spectrum pricing more procedural in nature

Written by ENS Economic Bureau | New Delhi | Updated: Oct 3 2013, 14:14pm hrs
Despite the sweeping objections raised by the telecom ministry on the pricing of airwaves, it would seem the differences with the regulator on the issues are more procedural than substantive.

The objections are more in the nature of caveats for the inter-ministerial panel, the Telecom Commission, that is expected to take a view on both on Thursday the almost two-thirds cut back in reserve prices for airwaves as made by the telecom regulator and the wholesale objections made to them by the telecom ministry.

A government source said the nine points on which the department has differed with Telecom Regulatory Authority of India (Trai) are meant mostly to flag the alternative views. The cut backs recommended by Trai should not be seen as a means to preserve the market share of the incumbent players in the sector, the source argued. Mohammad Chowdhury, sector leader (telecom) at PricewaterhouseCoopers said some push back was expected. It has been a bold approach by the Trai, so I am not surprised there is a push back by those sections of the government looking at it purely as a fiscal issue, he said. Chowdhury accepted that of the several issues on which the department of telecom panel has rejected the telecom regulators spectrum pricing package on Tuesday, the one on spectrum usage charges (SUC) was one of the most debatable.

It could also be the most contentious as it will impact all the telecom companies. While Trai has recommended a flat SUC charge for all operators at 3 per cent on total revenue irrespective of the spectrum band held, the department has argued that this is impossible because revenue arising out of auctioned and administratively allocated spectrum cannot be segregated. It has also argued that even if for instance, the SUC were to be reduced to be of 5 per cent the government will lose Rs 300 crore per year. SUC is the sum payable by companies to the government annually as a percentage of their adjusted gross revenue. This means the more spectrum held by a company and the higher the usage, the higher should be the pay-out. But thanks to the differential telecom licence conditions for almost each operator, the percentages fluctuate widely from 1 to 8 per cent.

Another telecom analyst said the DoT panel was using circular reasoning. SUC changes are meant to wean away the telecom companies from their dependence on administratively allocated spectrum, he said. By arguing that the new formula can be applied only when everyone has graduated to auctioned spectrum would mean it will never happen.

We all know that administered spectrum is here to stay for a long time till the existing licences expire. Hence the way ahead should be to take out all auctioned spectrum from the total pool to calculate the percentage of SUC payable. Only then would an operator feel the incentive to acquire airwaves through auctions.

Reliance Jio Infocomm has recently asked the telecom department to reject Trais recommendation for a flat SUC terming the proposals as discriminatory and legally untenable. The company currently pays SUC at 1 per cent for its pan India BWA spectrum which would rise to 3 if the telecom regulators recommendations are accepted.

Other than Reliance Jio, Sistema Shyam Teleservices too has said the Trai recommendations on spectrum auction have created ambiguity that would adversely impact its investment plans. But companies with GSM bandwidth including Bharti and Vodafone will find their SUC going down. The Trai recommendations were part of its report Valuation and reserve price of spectrum issued in early September. It argues that the varying rates introduced at different points of time create unnecessary biases in operators business on account of different kinds of spectrum held. This also disturbs the auction process.

flagging alternative views

* The 9 points on which the DoT has differed with Trai are meant mostly to flag alternative views, says a government source

* On spectrum usage charges, DoT panel has used circular reasoning, says a telecom analyst

* SUC changes are meant to wean away firms from their dependence on administratively allocated spectrum, says the analyst