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Thursday, 21 June 2012 00:00
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Little EGoM can do on telecom sector woes as matter likely to go to court, and Presidential reference further ties its hands

 

Though it is not quite clear whether Trai chief Rahul Khullar will support the claim made by his predecessor—that the impact of the steep hike in reserve prices for the auction of 2G spectrum will be just 4.4 paise per minute—the EGoM which meets on this later today is unlikely to be the final arbiter either. If, for the sake of argument, Khullar says the tariff impact of the R3,622 crore per MHz reserve price for 1800 MHz spectrum will be very high—COAI has a PWC study which says it will be 24-28 paise per minute on average, and 90 paise in the metros—and the EGoM uses this to lower the reserve price of spectrum, a PIL will very likely follow, arguing the government has made undue concessions to rich telcos.

In any case, it will be difficult to argue that augmenting government revenue by R75,000 crore, roughly the amount that will accrue from the spectrum to be auctioned at the current reserve price, is of less public interest than lowering the cost of telephony in India (which the government says is the lowest in the world anyway!) by keeping a low reserve price of spectrum. The government stands to get another R200,000 crore-plus if telecom minister Kapil Sibal’s new plan goes through, where everyone pays the same auction price—based on what the auction throws up—for the spectrum they currently hold and get it renewed for 20 years. And if, on the other hand, Khullar says the tariff impact will be limited—odds are his figure will be near bang in-between the old Trai’s and COAI’s number—and the EGoM uses this to keep the reserve price unchanged, surely the telcos will appeal this in court, even if to withdraw it later when the government gives them an acceptable alternative.

But it’s important to move beyond the issue of the reserve price since the sector has a lot more problems, and in this case, the government appears to have tied itself in knots. Since the sector may end up paying over R1 lakh crore (even if Sibal’s new plan is not approved, some money will be charged for the ‘extra’ spectrum telcos hold), a critical part of the new plan is that the spectrum can be hypothecated to banks—so, if a new telco defaults on payments to SBI, SBI can simply sell the spectrum to, say, Sunil Mittal and recover its dues.

That, however, is easier said than done. Presumably the telcos that would like to buy the spectrum from SBI, and have the money to do so, are the larger ones. But under the current norms, there is a cap on how much spectrum they can hold. Similarly, if a newcomer, say a foreign telco, wants to leverage its global relationships and borrow from a foreign bank, the law as it stands does not allow spectrum to be hypothecated to foreign banks—indeed the 74% FDI cap will be another hurdle. And imagine the furore when SBI enters into a direct negotiation with Sunil Mittal instead of, say, auctioning that spectrum after it takes it over!

Similarly, thanks to the government deciding to send a Presidential reference to the Supreme Court on the 2G matter, it’s hands have been further tied. For one, it’s not clear how decisions can be taken on how to price the ‘extra’ spectrum, since the Presidential reference has left the door open for 80 licences issued between 1994 and 2007 to be cancelled. Indeed, since the fate of these licences is uncertain, no M&As can take place until this is sorted out, and there is no clarity on when the SC will decide on the reference.

In the case of the dual technology licences—existing CDMA-mobile players were, in 2008, given GSM spectrum by A Raja at the same 2001 prices paid for the other 122 GSM-mobile licences—similarly, the government has complicated matters. Instead of either deciding they were okay, or that they needed to be cancelled, the government has left this to the Supreme Court as part of its Presidential reference. If there is no certainty over the dual technology spectrum, should a Tata Teleservices or an RCom take part in the forthcoming auction? Indeed, for any of the existing telcos, how much spectrum they should bid for in the auction is linked to whether or not their older licences are to be cancelled. Even the price the auction will fetch will depend on how much spectrum firms need, and that rises if the older licences are cancelled—conversely, if the licences are cancelled, that brings in more spectrum into the market, theoretically depressing auction prices!

Any way you look at it, tomorrow’s EGoM meeting is just one step in untangling the ugly mess ex-telecom minister A Raja created and which was made worse by his successor Kapil Sibal (who pushed for the appeal against the Supreme Court judgment, which was later withdrawn, and then the Presidential reference) and former Trai chief JS Sarma. Neither of the big policy statements issued since—New Telecom Policy 2012 and the Unified Licence—do anything to address these basic issues.

 

 

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