Following a telecom ministry directive, the Telecom Regulatory Authority of India (TRAI) has urged the government to determine the price of extra 2G spectrum through auction if it also cancels licenses of those who have not started operations. In case the government does not cancel licenses of new operators, TRAI suggested fall-back prices that would also cost companies like Airtel thousands of crores of rupees.
The new prices are being firmed up under the new telecom policy which abolishes the concept of ‘free spectrum’ and requires all operators to pay for the extra spectrum they have already been alloted or any that will be allotted in the future. The Comptroller & Auditor General of India (CAG) was the first body to object to the distribution of free spectrum to operators as and when they achieved certain subscriber numbers, following which the new minister Kapil Sibal scrapped the ‘free spectrum’ policy.
TRAI had, in May last year, suggested against conducting auctions of 2G or voice spectrum, arguing that enough spectrum was not available for auction to work. In the new letter, TRAI points out that since the government is moving forward on cancelling many of the licenses issued by Raja, there would be a large amount of spectrum that will be freed up, and auctions are possible.
“While making the recommendations in May 2010, the Authority found auction to be not feasible.. on account of the number of operators already existing.. coupled with the low availability of spectrum and related issues,” it said in the new letter to the Department of Telecom. It pointed out that since then, it had recommended action — including cancellation — against 74 operators.
“If these cancellations take place, the availability and requirement of spectrum would undergo a significant change… In that event, it should be possible for the government to auction the surplus spectrum and treat this auction price as the relevant price of extra spectrum,” it added.
The biggest negative impact of the move would be on the old operators as new GSM operators such as Reliance and Tata Docomo do not have any “extra spectrum” over and above the ‘start up’ spectrum that they were entitled to for free. It would also negatively impact any operator who wants to purchase spectrum or license in the future — including start up spectrum — as the government has already announced that ‘start up’ spectrum will also be charged, but only for those who purchase from now on.
Both options suggested by TRAI are bad news for operators. While auction prices tend to stay high because of bids and counter-bids, the fall back price suggested by TRAI in its letter are more than 1000 times what was discovered in the 2001 auctions in some areas. The highest increase in ‘fall back’ price for extra spectrum has been in second and third tier circles like Madhya Pradesh, West Bengal and Bihar.
In Bihar, the new ‘fall back’ price is 100 times the price discovered during 2001 auctions, while it is 1,350 times what it was in 2001 in West Bengal. On an all-India basis, new ‘fall back’ prices — which come into the picture only if auctions cannot be held — are 17 times what they were in 2001.
The industry is likely to favor auctions, according to early indications, particularly if 3 or 4 licenses are cancelled in each circle and there are only another 4 or 5 operators left to bid for the freed up spectrum.
Bharti Airtel would be the hardest hit among private operators while BSNL would remain the overall loser. The Comptroller & Auditor General of India had, in its report in November, pointed out that 9 operators held a total of around 150 MHz of spectrum beyond the 6.2 MHz that was promised to them in their licenses.
In response, communications minister Kapil Sibal had said that all operators who hold spectrum above 6.2 MHz will have to pay for the same. No existing operator will have to pay for the basic or ‘start up’ spectrum, according to the new telecom policy announced by Sibal ten days ago. He had said that TRAI will suggest the way in which the pricing will be done and the current recommendation is seen as TRAI’s response on that front.
The biggest chunk of spectrum beyond 6.2 MHz is held by the state-owned Bharat Sanchar Nigam (BSNL), accounting for 61.6 MHz of the 150 MHz extra spectrum held by all operators. Going by the all-India average ‘fall back’ price of Rs 4,572 for 22 MHz of extra spectrum, BSNL may have to shell out around Rs 10,000-15,000 crore as one time payment or surrender its extra spectrum.
Similarly, Bharti Airtel holds 32.4 MHz of extra spectrum, but may have to pay only around Rs 2,000 crore since the payment is for 20 years duration and Bharti has only 5-10 years left in many of its licenses. Vodafone holds 19.6 MHz of extra spectrum, followed by Idea and MTNL with around 12.5 MHz each.
