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DoT loses the plot PDF Print E-mail
Monday, 16 July 2012 03:42
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Apart from the old level playing field argument, what's amazing is DoT seems to think no auctions were held before 2001

The reason why DoT wants to charge the older telcos a one-time fee for their spectrum right from 0 MHz is that this is the only way to ensure the dual-tech firms are made to pay anything. But why not cancel their licenses?

 

If the Cabinet deferred a decision on DoT’s proposal for a one-time fee on existing operators and passed this on to the EGoM, it was for a good reason: the DoT’s note on this, it appears, was around 250 pages long and had 15-20 annexures. So, within the space of an hour or two, DoT expected the ministers to behave like seasoned lawyers and shrewd economists, to jump from one cross-reference to another, and take a call based on a complicated telecom history of 18 years.

The question now is what the EGoM will do with it. And it doesn’t help that any decision the EGoM takes is subject to the outcome of the Presidential Reference filed by the government. The only thing the EGoM can decide on independent of the Presidential Reference is the reserve price for the 2G auction. That, as we’ve argued before (http://goo.gl/AH7oo), is easier, regardless of whether Rahul Khullar’s Trai is right about the tariff impact or whether PWC’s study is more accurate—the arbitrary assumption that the reserve price should be 0.8 times the 3G bid price, for instance, offers scope for reducing the reserve price.

The biggest problem with the DoT proposal on a one-time fee is that it continues to be based on the fiction called ‘level playing field’. It sounds fair, but there’s no polite word to describe what it really is. We need to charge the older players like Bharti/Vodafone/BSNL /Idea/MTNL, the DoT argues, because they didn’t pay a market price for the spectrum they hold—so, any new person coming in by paying a market price will face a non-level playing field.

This is simply not true, with a few exceptions such as Raja’s 2008 largesse and about 25 licences issued in between by Dayanidhi Maran. In 1994, when the first licences were given out for the four metros, contrary to what the government may choose to think today, they were bid out—the government came up with criterion you may or may not agree with today, and one of the bid criterion was how low the monthly rental charged to subscribers would be. Since not all agreed this was fair, it was challenged in the courts and cleared by the courts. Similarly, in 1995, there was an auction—this was later changed to a revenue-share regime in 1999, but that was based on a settlement where the operators agreed to allowing more than just 2 players in each circle (that’s why we have low tariffs today!) and withdrawing their legal suits against the government. This, by the way, was also challenged and settled by the courts.

But even if you assume the older telcos never paid an entry fee, how far do you go back to correct this? Should we, for instance, ask Tata Steel to give back all the mines allotted to it 50 years ago since a Jindal Steel which came in later doesn’t have captive mines? Carry the level playing field argument to its logical conclusion and you’ll end up opening up every contract in the country and, mind you, contracts there are no problems with.

Under the DoT proposal, let’s say the bid throws up a price of R20,000 per 5 Mhz. At R4,000 crore per Mhz, this means Bharti has to pay R40,000 crore for its 10 Mhz holdings—but since, let’s say, Bharti has an average of 5 years left in its 20-year licences, it will have to pay R10,000 crore. (An earlier proposal where everyone was to pay for the full 20 years, sort of making each licence co-terminus, was junked.)

How does DoT think it can charge the older telcos for not just their ‘extra’ spectrum over 6.2 MHz, but even charge all the way from 0 MHz? Because, it argues, there’s a clause in the licence which allows it to change terms and conditions whenever it likes, because it says the licence is just a contract for the quantity of spectrum, not its price! If only it had told this to telcos earlier. Sure, DoT says telcos can also provide 3G services in their 2G bands if they give the one-time fee, but surely this needs to be optional?

But why is it so important to charge telcos from 0 MHz, why not the 6.2 MHz the licence says is the contracted amount? Indeed, even P Chidambaram who heads the EGoM told the PM on July 4, 2008, along with A Raja, that the Raja licensees would be charged a higher price for spectrum beyond 6.2 MHz—also, the DoT has made innumerable submissions saying 6.2 MHz is what it is contracted to give. The reason for the volte face is that DoT has not cancelled the ‘dual technology’ licences even though they were awarded on the same terms as the 122 licences which were cancelled by the Supreme Court. So, if it doesn’t charge firms from 0 MHz, dual-tech firms will get away scot free! But why not just cancel the licences? Probably because straight-forward solutions don’t look as smart.

DoT has other gems. In the case of M&As, it says, telcos will have to pay an extra charge. So, say telco A has 6.2 MHz of spectrum it bought in the 2001 auction and B has 6.2 MHz it got in the 1995 auctions. If both merge, they have to pay for A or B’s 6.2 MHz on the basis of the bid we’ll get in the forthcoming auction. But why, since the telcos both paid for their spectrum, in 1995 and 2001. Unless this is because the DoT feels 1995 was not an auction, indeed that no one paid the market price for spectrum before 2001.

But all of this is quibbling. If the government can go and change the law retrospectively—and this has been done many times before Pranab Mukherjee did it—to tax Vodafone, why talk of contracts and rights? If the government can decide Reliance is only a contractor and has no rights over the KG Basin gas even though its contract says differently, why talk of rights? If the government can lop off 1.5 years from Qualcomm’s licences, why talk about rights? For all these firms, and more, let’s talk about rites, of the last kind.

 

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