Government is the biggest loser in the spectrum issue

By: |
August 25, 2020 6:45 AM

If both the SC and the government realised that, it would pave the way for some sensible telecom policies

Another obvious conclusion is that, irrespective of what the SC decides, apart from the telco itself, the biggest loser from it shutting down will be the government of India. Another obvious conclusion is that, irrespective of what the SC decides, apart from the telco itself, the biggest loser from it shutting down will be the government of India.

While the Supreme Court (SC) decides on whether or not telecom companies own the spectrum they are using, the obvious question that comes to mind is, what else did they pay lakhs of crore rupees for? After all, if the telecom firms don’t own the spectrum and were just given the right to use it, well, they are paying an annual spectrum usage charge and a licence fee for that. Indeed, that brings to the fore the fundamental contradiction of the government both asking the telcos to pay a huge fee for the spectrum and then charging an annual fee for using it. As we have argued before, when it comes to payment for a house, you can either take the full payment upfront or you can take monthly EMI; you can’t charge both.

Another obvious conclusion is that, irrespective of what the SC decides, apart from the telco itself, the biggest loser from it shutting down will be the government of India. In the case of Vodafone Idea that is on the verge of shutting down, as this newspaper has pointed out, while the telco owes the government Rs 2.5 lakh crore by way of AGR dues as well as the instalments still due on the spectrum bought in the past, the current value of that spectrum—keeping in mind its residual life as well—is around 40% of that. This is because, while the spectrum was bought at a time when the industry outlook was quite optimistic, things are very different today. Indeed, even this value may be optimistic since it is based on either the last auction price or the reserve price set by Trai; but when the next auctions happen, if the industry’s fortunes don’t revive, there is no guarantee telcos will bid as much. To give one example, in the case of the 900 MHz spectrum, while the reserve price set was Rs 776 crore per MHz in 2013, the price Trai recommended in 2019 was a much lower Rs 585 crore.

So even if Vodafone Idea’s spectrum reverts to the government in the event of it shutting down, the government will be a big loser. That apart, if the spectrum cannot be sold as part of the insolvency process, this will be a big setback for the entire process, and not just for telcos, since a case can be made for a similar carve-out for other assets such as land or mining leases. The lesson for the government, then, is that irrespective of how the SC rules on the matter, it will have to change policy if it has to minimise its losses; put another way, it is only when the industry is doing well that the government can hope to recover its dues. The only way to do this is to totally scrap license fees and spectrum usage charges; ideally, the government should have come out with an ordinance restricting the AGR dues to just the principal amount—and not the penalty and interest payments—but that ship has sailed. Given this reality has been facing the government for so many years, what is unclear is why no decision has been taken on this all this while.

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