|Friday, 02 November 2012 00:00|
Fixing of base price will now be critical
By giving existing telcos a right of first refusal (RoFR) on 2.5 MHz of the 900 MHz spectrum they hold, the Empowered Group of Ministers (EGoM) has taken a wise decision, though more steps will need to be taken to save the industry from collapsing. Since telcos giving up their more efficient 900 MHz spectrum would have to add a lot more telecom towers and rework their entire networks if they were to shift to the alternative 1800 MHz spectrum the government was offering in return, the first casualty would have been rural telephony where customers don’t pay much. By deciding telcos can retain 2.5 MHz of 900 MHz spectrum, this issue has been partially resolved as this will be enough to meet rural telecom demands for now. Though the telcos with 900 MHz spectrum argue they have contractual rights which allow them to get the same spectrum when their licenses come up for renewal, the telecom regulator (Trai) has cited practical reasons for opting for the 2.5 MHz number—giving them an RoFR for all the spectrum they hold was, presumably, ruled out as, apart from anything else, it could lead to cartelisation where the existing telcos wouldn’t bid above a certain price. At the other extreme, full refarming is not possible for technical reasons—since any telco being asked to give up 900 MHz spectrum has to be given 1800 MHz spectrum, Trai points out there isn’t enough 1800 MHz spectrum for this in 60% of telecom circles. If telcos were to be given an RoFR for 5 MHz, that would mean the top 3 would have 15 MHz of 900 MHz spectrum, not leaving enough to bring in another telco in most circles. Having done these exercises, Trai found an RoFR for 2.5 MHz was optimal as there was enough 1800 MHz spectrum to give to telcos and there would be enough 900 MHz spectrum on auction to make it a genuine bid. The larger issue, of course, is the reserve price. Going by Trai’s earlier formula of keeping the 900 MHz base price at double that of 1800 MHz spectrum (R14,000 crore per 5 MHz), this means existing telcos will end up paying R1,10,000 crore to retain their 900 MHz spectrum—the alternative of accepting the lower-priced 1800 MHz spectrum would also involve costs which could be as high since entire networks will have to be re-engineered. This applies as much for telcos that get 900 MHz spectrum for the first time. For an industry which already has a debt burden of R1,85,000 crore, the impact can only be disastrous—it also makes rural telephony unviable. At some point, the government will have to consider whether high spectrum auction prices are killing the golden goose.