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What is this level playing field? PDF Print E-mail
Friday, 19 October 2012 00:00
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Almost everything, from caste reservations to A Raja's telecom fudge and now spectrum refarming, is justified using this

Relations between Attorney General GE Vahanvati and the Empowered Group of Ministers (EGoM) on spectrum have taken a turn for the worse with Vahanvati expressing doubts as to whether the EGoM’s interim recommendations “stand the test of legal scrutiny and whether the reasoning is not self-contradictory”—which is why the final EGoM view, on Wednesday, takes on board some of his original suggestions. The more interesting debate is about what’s called the “level playing field”. Not just in terms of what level playing field really means and how this continues to be distorted, but in terms of how Vahanvati and the EGoM are pitched on the opposite sides of it and how, following the Supreme Court cancelling the Raja licenses, Vahanvati has changed his stance on it—interestingly, the government hasn’t.

But first, some background. In 2008, when A Raja was working on giving out spectrum-bundled licenses on the cheap, the primary argument he used was the level playing field one. In a nutshell, Raja argued that if new telcos were to buy spectrum at a price higher than that paid by the incumbents (never mind that they bought it earlier, and through auctions in most cases), this would render then uncompetitive. In other words, he argued, there would be no level playing field.

This is obviously hocus-pocus since, by this logic, every newcomer would have to be given resources at the same price that was paid by incumbents. Using this logic, an ITC could argue it should also get land free if the Taj got it free; indeed it can even make out a case for being given the Tajmahal property since that is far more centrally located than its Dhaula Kuan property in Delhi—after all, how can it possibly compete with the Taj if its location is nowhere as good as the Tajmahal Hotel? It’s also ridiculous because the first players are those who took the larger risks in developing the market—in the case of telecom, for instance, Bharti Airtel and Essar took a big risk since no one even knew about mobiles in those days and the huge tariffs ensured the usage was really low. It is through the efforts of these companies that the government finally allowed calling-party-pays for mobile phones (it was always allowed for land lines) and that’s what made mobile telephony affordable as as the rates then halved—telcos now got paid for incoming calls to their networks and this allowed them to charge less for outgoing calls.

When Raja’s licenses were challenged in court, the defence put up, including by Vahanvati, had the same level playing field argument—that the new licensees couldn’t possibly compete if they paid a price that was higher than that paid by the then incumbents. Never mind that they were getting the licenses in 2008 while the incumbents had bought them in 2001 or earlier. Not surprisingly, the Supreme Court didn’t buy this argument and cancelled the licenses.

There was then the issue, arising largely out of the CAG report, as to whether the Bharti Airtels and Vodafones, not to mention PSUs like BSNL and MTNL, had also got spectrum on the cheap. The CAG pointed out that while the licenses said the companies would get 6.2 MHz of spectrum (4.4 MHz of this was to be given out immediately), government policies had allowed them to get an extra 3-4 MHz of spectrum based on a criterion of how many subscribers they had.

We can debate whether the CAG was right—the telcos argue they could have got the “extra” spectrum without paying an upfront charge, but the government got its money back by charging them a higher annual revenue-share fee when their spectrum holdings rose; indeed the revenue-share proportion kept rising with every increase in the spectrum holdings of telcos.

But leave that aside (my view, by the way, is that the ‘extra’ spectrum has to be paid for), and let’s get to current times where the government is deciding on what and how to charge these firms for this ‘extra’ spectrum. Logically, they should be charged for the spectrum they hold over 6.2 MHz. And that’s what Vahanvati recommended. The EGoM, however, pointed out that there are several telcos who’ve got only 4.4 MHz of spectrum and would then demand that they be given another 1.8 MHz for free (this is worth R5,040 crore based on the reserve prices fixed in the forthcoming auctions). Around half of these are the dual-technology firms that Raja gave GSM spectrum to, whose licenses the Supreme Court did not cancel (another case on this is pending before the SC), but there are several older telcos like Vodafone and Aircel as well.

While dealing with the demands of a Vodafone or an Aircel is as tricky issue, the EGoM seems to be more concerned with level playing field issues when it says “there is need to ensure a level playing field to the extent feasible between new entrants and existing licensees while according due respect to the sanctity of contract”. Interestingly, Vahanvati’s opinion now debunks the concept of level playing field.

Though the level playing field argument hasn’t been explicitly used in the case of spectrum-refarming (the more efficient 900 MHz spectrum with telcos gets taken back at the end of their license period and gets replaced by 1800 MHz spectrum), the logic here is the same: that other telcos must also get a shot at using the more efficient spectrum. Theoretically, the government is within its rights to take back the spectrum when the license expires, but it’s not so simple. Firms made large investments on the reasonable assumption the license would be renewed—it is in recognition of this, in fact, that the government is giving them 1800 MHz spectrum in return for the 900 MHz spectrum. If the idea of refarming was just to ensure the government got good money on renewal, which is perfectly fair, why not do what’s been done in the case of the Tajmahal Hotel—an auction for the hotel now that the license has expired, but with a right of first refusal for the Taj in case it wants to match the bid and keep the hotel?

 
 

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