Telcos can’t pay good price for 700MHz, don’t auction
Going by the Telecom Regulatory Authority of India’s (Trai) latest consultation paper, the next auction—in FY16 or FY17 is not clear—will be the mother of all auctions. While telcos have bid R2,90,000 crore in five auctions since June 2010, just the 700MHz spectrum on auction will fetch over R3,00,000 crore if it is sold at the price the 900MHz spectrum was sold last March. If you go by the Trai recommendation some years ago, that 700MHz spectrum be valued at double the 900MHz auction, the value will be R6,00,000 crore—this, of course, is a theoretical possibility since that recommendation is irrelevant now. If you assume the government gets the same price as it got in March for the three carriers of 2100MHz spectrum that are now on sale, it could get another R55,000 crore or so. The last 2300/2500MHz sale took place in 2010, but a 50% escalation in prices can fetch another R60,000 crore or so for the spectrum that is in play. Since there is no question of industry being able to afford all of this—at an industry level, telcos are in the red, though the market leaders are profitable—the government needs to husband its resources and not put all spectrum on auction. Keeping the 700MHz spectrum for another day is a good idea and, along with the spectrum on auction, as FE argued just yesterday, harmonising the 1800MHz spectrum into contiguous blocks of 5MHz each—to make it suitable for offering data services—can fetch the government upwards of R20,000 crore.
The government would be tempted to, as in the past, use the final price got in the last auction as the reserve price in the new auction, but it needs to be careful. This will put industry in a spiral of increasing spectrum costs and will get passed on to users—as is already happening—compromising the Digital India dream. Indeed, since all spectrum is being auctioned at huge prices, there is no case for also charging high licence/spectrum fees as is done today—this also contributes to high user charges. Continuing with a 5% spectrum charge for all users but just 1% for those on the 2300/2500MHz band, is asking for a repeat of the earlier scam where differential charges for different services led to telcos misclassifying revenues. In any case, when this was done—even then, incorrectly—for 2300/2500MHz, the logic was this band would be used for only data since WiMax would be used; but with telcos deploying LTE technology on this, this spectrum will offer both voice and data as in other bands, so there is no case for differential spectrum charges. While Trai has asked for suggestions on whether a separate cap should be put for 700MHz spectrum, this will further complicate matters—with enough competition, and a regulator to ensure telcos don’t fleece customers, all caps should be removed. This is also required for telcos to get better spectral efficiency.