Telecos say the new spectrum auction terms could ruin the sector, but TRAI insists it’s in the country’s best interest. G Vishnu and Abhishek Bhalla explain the mess
THE SUPREME Court order of February cancelling all 122 telecom licences allotted under the 2G spectrum in 2008 was a big blow to the telecom industry. The Telecom Regulatory Authority of India (TRAI) recommendations on 23 April on 2G spectrum auctions has further rankled the sector. Besides setting off fears of a hike in mobile phone tariffs, currently among the cheapest in the world, thousands will lose their jobs if the proposal is accepted.
TRAI has recommended a steep hike in the base price for 2G spectrum that is to be auctioned. It proposed a base price of Rs 3,622.18 crore for every mega hertz (MHz) of spectrum in the 1800 MHz band, which is almost 13 times the price in 2008. If the recommendations are accepted, a pan- India spectrum in 1800 MHz band will cost Rs 18,000 crore. The reserve price is several times the base price of Rs 3,500 crore for 3G spectrum auction in 2010.
Speaking to TEHELKA, Rajan S Mathews, Director General of the Cellular Operators Association of India (COAI), said, “Such high reserve prices indicate that the final price will be several times higher. We’re aghast at the way the recommendations have been made despite having detailed consultations with industry representatives.” The core members of the COAI include the eight major players who stand to be affected adversely if the recommendations are accepted. “Set a reasonable reserve price and if the players are confident, they’ll bid. With the current reserve price, there will be a 30 percent increase in tariff rates,” says Mathews, echoing views of Aircel Ltd, Bharti Airtel Ltd, Etisalat DB Telecom India Pvt Ltd, Idea Cellular, Loop Mobile (India) Ltd, S-Tel Ltd, Unitech Wireless Pvt Ltd, Videocon Telecommunications Ltd and Vodafone Essar.
“The reserve price is too high. Smaller players cannot bid for this amount. They don’t have the money,” said a former TRAI chairman, who did not want to be named. “If a company has to spend a huge amount, tariffs will increase.”
TRAI , for its part, has been doggedly defending its recommendations. “2G spectrum prices in 2001 and 2008 are the same. But since then the market has grown several folds. There were five million subscribers in 2001. Today, we have over 900 million mobile users,” says JS Sarma, TRAI Chairman.
Contrary to the telecom operators’ contention, Sarma said that the service providers stand to gain under the new regime in the long run if they have to pay the reserve price for the spectrum. “The reserve price is obviously high. But then we have liberalised spectrum, which means the licencee can do whatever they want with the spectrum. A lot of costs will actually come down. Therefore, this policy stands to benefit the service providers, consumers and the country,” explains Sarma.
However, telecom companies feel several of these recommendations are retrograde and if accepted, will do irreparable harm to the industry. “If prices go up around 300 million people would not be able to use mobile phones anymore. It will be a huge national loss,” says a representative of a telecom company.
Also, there is a serious livelihood crisis looming. “3,500 workers directly employed with Sistema stand to lose their jobs if the Russians decide to shut shop. Their retail is over 3 lakh people strong,” said a trade analyst. Recently, over 3,000 employees of Telenor staged a dharna at Jantar Mantar asking the government to intervene and protect their jobs. Telenor currently employees nearly 14,000 people with around 2,000 distributors.
The industry is also worried about retaining foreign players. In fact, Russia-based Sistema (in collaboration with Indian company Shyam Telecom) and Norway-based Telenor (in collaboration with Uninor) have already invoked provisions under the Bilateral Investment Treaty (BIT) for cancellation of licences by the apex court. The BIT allows them to sue the Indian government.
“Nearly 60 percent of the capital comes from foreign players. The companies say they aren’t ready to enter the market at these prices simply because they won’t be able to make it work,” says Mathews.
‘The reserve price is high, but we have liberalised the spectrum. A lot of costs will actually come down,’ says TRAI Chairman Sarma
The former TRAI chief also raised apprehensions on other recommendations made by the regulatory body. “As of now, the recommendations are very complex. They are difficult to implement and can unsettle the entire growth process,” he says. TRAI has also proposed to refarm 900 and 800 MHz bands so all players can have equal access, which means shifting existing telecom players providing their services in 800 and 900 MHz bands to some other band. So in lieu of the lost spectrum in the 800-900 band, operators will get spectrum in the comparatively less efficient 1800 MHz band at the discovered price. “Why constrain the availability of spectrum artificially?” asks a top-level executive from a telecom company. “Denmark is the only place that has tried refarming. They had just three players; they introduced two more. They only made a portion of the spectrum available. We have 12 players here today.
So it’s not refarming, this is redistribution and eviction. Refarming for us is not legally tenable. If the government pushes for it then we’ll move court,” he adds.
MANY SAY that TRAI’s recommendations on spectrum auctions were not in line with the court’s order. The apex court had stated that “within two months, TRAI shall make fresh recommendations for the grant of licences and allocation of spectrum in the 2G band in 22 service areas by auction”. But the long-term concern in the proposal is that it puts next generation technologies like 3G and 4G out of reach for many operators.
The former TRAI chairman adds that the body should have restricted itself to what the Supreme Court had stated. “They should have dealt with the 1800 MHz band for 2G spectrum and got it auctioned at the earliest to comply with the SC direction. Instead, they have given a series of recommendations that has led to confusion,” he says.
A senior TRAI official on condition of anonymity highlights the fact that the regulator valued 2G spectrum at about Rs 7 lakh crore, nearly seven times more than the Rs 1.04 lakh crore the government had received through auction of 3G spectrum in 2010.
“India stands to earn Rs 7 lakh crore through 2G auctioning if this policy is followed. When India’s budgetary demand for infrastructure building is over Rs 52 lakh crore, wouldn’t Rs 7 lakh crore make a difference? We keep taking loans from foreign countries. Why should only the private players make money? Why shouldn’t the country benefit?” argues the official.
He further adds, “The arguments being given by the service providers is self-serving. They just want to have all the spectrum available at the 2001 prices without any consideration for the future or optimum utilisation of a scarce resource.”
Meanwhile, heads of top telecom companies, including Sunil Mittal, KM Birla, Vittorio Colao and Jon Fredrik Baksaas (Telenor) met union ministers Anand Sharma, Kapil Sibal, Veerappa Moily and Planning Commission Chairman Montek Singh Ahluwalia protesting the TRAI recommendations. “We don’t want this matter to be taken to court. We are having meetings with ministers and top officials and hope the government will step in and resolve the matter,” says an industry insider.
However, with pressure mounting on the government, the Telecom Commission has sought clarifications from TRAI on the recommendations. Perhaps, this is a sign that the government is finally stepping in to resolve matters. The corporations — that are steering the sector that’s expected to register a 16.7 percent growth this year — definitely have their fingers crossed.
G Vishnu is a Correspondent with Tehelka.
Abhishek Bhalla is a Senior Special Correspondent with Tehelka.