Alternately, defence must free up valuable spectrum
Telecom firm CEOs have done well to reiterate the Trai recommendations that the government not conduct the next round of telecom auctions until there is enough spectrum. Given the finance ministry has R27,000 crore riding on these auctions coming through before March, the CEOs of Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications have offered a more practical solution in case the auctions can’t wait—extend the validity of their licences till there is more spectrum and, in the meantime, charge them for this on a pro rata basis based on the last auctions held in February 2014.
Since the financial loss in this option will be the least, the government would do well to examine it closely. The alternative, as Trai has pointed out, is almost immediate ruin for the industry, consumers as well as the banking sector. In the absence of enough spectrum, Trai said in its recommendation, the auction would drive prices sky-high and make telcos unviable; those that could not afford to bid would be driven out of business, leaving their consumers high and dry and, in both cases, the banks that have lent them tens of thousands of crore rupees would end up big losers.
The crux of the problem is that, while in February 2014, roughly a tenth of the spectrum auctioned was brand-new spectrum, things will be the exact opposite in the February 2015 auction when just 10-15% of the spectrum will be new. A good example of what this will do in Maharashtra, to take one example, is that Vodafone could well see its business shut down in the state. Right now, Vodafone has 6.2 MHz of spectrum in the 900 MHz frequency band where its licence is running out later this year—if it is not able to win this back in the auction, its only fallback is 1800 MHz spectrum. But it has only 1.25 MHz of this spectrum and only another 2 MHz is available for auction. So Vodafone will bid whatever it takes for it to retain the 900 MHz spectrum, but it requires just one other telco to take the price higher and higher. Such examples can be multiplied manifold across various other telcos as well as licence circles.
Under the circumstances, the telecom, finance and defence ministries need to sit down and take a call on how to free up more spectrum urgently. Trai has made various suggestions in terms of taking back 1.2 MHz of spectrum from BSNL in the 900 MHz frequency and, once this is pooled with spectrum the telecom ministry has, one more 900 MHz slot can be created in six licence areas. This is easily done, but the rest are not as simple. Getting the defence ministry to free up 2×35 MHz in the 2100 MHz frequency, as Trai has recommended, sounds simple but won’t be easy since the defence forces’ need for spectrum has to be taken care of—the spectrum swapping proposal discussed by the finance and defence ministries, however, does not need the defence to give up any spectrum but frees up 3×5 MHz of spectrum in the 2100 MHz frequency band and will help keep auction prices from flaring up irrationally. In a nutshell, holding auctions right now will be suicidal for the sector, so the government would do well to look at the various alternatives provided. And, were the telecom ministry to disregard Trai, it would do well to give detailed explanations for this—the industry’s future is at stake.