Spectrum pricing, particularly the reserve price (RP) for the upcoming 2G auctions scheduled for August, has become controversial following the 2G scam expose and a Supreme Court judgment in February 2012, cancelling the 122 licences granted illegally by ex-Telecom Minister A Raja. The telecom industry and regulator TRAI are deeply divided on the tariff impact of the recommended 2G auction reserve price of Rs. 18,348 crore for 4.4 MHz of spectrum. The EGoM faces the unenviable task of deciding on these matters urgently in order to meet the deadline of August set by the Supreme Court to complete the auctions.
In his first detailed interview on the matter, DoT Secretary R. Chandrashekhar speaks to Shalini Singh about the government’s views on how these issues could be resolved.
This is the first time the Telecom Commission (TC) is letting the EGoM decide on spectrum pricing based on multiple and perhaps contradictory analyses and data presented by the DoT rather than a firm decision based on the TRAI’s recommendations. Why is this?
No decisions — whether by the TC, GoM or EGoM — are taken on raw, unprocessed data but on a studied analysis presented before them. TC has looked at the recommendations of the DoT committee which has studied the TRAI recommendations. The TRAI’s RP is higher than the 3G-discovered price since time correction and higher efficiency of the 1800 MHz band have been factored in.
But determining what is high and what is low is relative to different players, so we weighed the impact on consumers (affordable services) and on operators (viability). The tariff impact is not predictable since this will be an individual decision by operators depending on their competitive conditions. The reality lies somewhere in between. So the TC has laid down the manner in which the RP price should be analysed considering its impact on other multiple levies and areas of policy. An RP of Rs. 18,000 crore for 1800, 900, 800 MHz of spectrum, applied to both winners and existing players for a 20-year term and paid upfront, involves a staggering outgo of Rs. 3-lakh crore.
How will the government reconcile the huge gap between the TRAI and the industry’s views on the impact of the current reserve price on consumer tariffs?
The difference between TRAI’s upper estimate of a 4 paise/minute tariff impact and the Re. 1 impact presented by operators is a differential of 50 times, which is bizarre. Therefore, the matter needs proper analysis by an expert body with the authority, credentials, expertise for financial, economic and technological analysis.
If operators absorb the entire cost of spectrum what will be the impact on their bottom line? In addition, the impact of the auction price applied to other existing players has to be factored in after deciding if this re-pricing should be done immediately or upon renewal of licence.
What is the impact of the circle-wise and 20-year allocation of spectrum in a sector marked by rapid technological changes?
The same question is applicable technology-wise and circle-wise. All players are not in all circles and do not use the same technology, so a pan-India price may not be universally applicable. Further, a 10-year charge may be preferable to a 20-year tenure since the outgo is significant and will affect industry cash flows and liquidity. We have to also bear in mind the interests of the financial sector in this decision.
The question is: should we tilt towards the golden goose or the golden egg? With rapid technological changes, if broadband and LTE become a game changer for telecom, an RP of Rs. 18,000 crore may even seem cheap in retrospect. A pricing window of 10 years could help both reduce the one-time outgo and allow the government to share in the upsides of revenue due to technological advancements in later years.
The TC-DoT may not be equipped to make this analysis — since this is a financial study of business case. TRAI has made this analysis. Its recommendation has not been made public since it will be placed before the EGoM.
Why go to a GoM for 3G and now for 2G spectrum pricing when DoT avoided this in 2007 in spite of the Law Minister’s request?
Because it’s a political decision involving (i) public good (affordable, ubiquitous, affordable communication using the inclusiveness of broadband to generate the multiplier effect of telecom on GDP), (ii) ensuring the viability of the sector (industry accounts for 89% and the public sector just 11%) and (iii) realising optimal government revenue.
In 3G there was no legacy. It was a greenfield service with no previous price benchmark. This time, the 2001 auction price benchmark is irrelevant as is the 3G auction price benchmark because 2G is the staple for basic services, therefore larger implications have to be taken into account. 3G price implications are not comparable because they are not basic to life.
A related question is charging of existing players. The 2003 Cabinet decision mandated that pricing was the preserve of the Finance and Telecom Ministers. So it is best for the EGoM to decide.
This is the stuff of public policy decisions with very large ramifications, therefore the EGoM is the appropriate level since it involves juggling tradeoffs of some sort. The TC has done its job of placing the analysis of the different tradeoffs before the EGoM, which may meet this week.
What are the top four issues that need a decision to kick-start the sector? What does the industry say?
Have met industry extensively since they have a right to be heard. Though there is no please-all answer, a better understanding of the industry’s requirements and why will help the government strike the right balance.
The main issues are: (1) RP (2) Pricing policy for existing players and whether they should be priced at 0, above 4.4 MHz or above 6.2 MHz (3) Spectrum refarming: with the options of no refarm, only reprice, refarm everything immediately, refarm above 5 MHz (900 MHz CDMA licences expire in 2014, therefore need auction in 2013), and (4) Spectrum usage charge: determining the right balance between the golden goose (1994) and the golden egg (1999).