|Bye bye telecom|
|Tuesday, 24 April 2012 00:00|
Trai raises spectrum costs 10 times, disrupts networks
If telecom stocks fell 3.5-5.5% on Monday, it was only because the Trai recommendations on auctioning spectrum—following the Supreme Court cancelling 122 licences—had not been made public before trading closed; only rumours of what they contained were doing the rounds. Expect a bloodbath later today since, if they are accepted, the Trai’s recommendations will cause industry to shut shop. If former minister A Raja’s shenanigans had caused a huge spectrum shortage which resulted in bids in the 3G auction to average R16,000 crore per 5MHz, Trai chief JS Sarma has used this as a benchmark and raised the base price to R3,622 crore per MHz—so if a Uninor wants to bid for the 4.4 MHz of spectrum it lost when its licence was cancelled, it will have to pay R18,110 crore (it will have to buy 5 MHz as spectrum will be auctioned in bits of 1.25 MHz). If spectrum costs are to rise 11 times, it is obvious no new players can afford to come in.
While this wouldn’t matter to existing players who could carry on by not participating in auctions till the government came up with a better policy, Sarma has recommended a major disruption in their functioning as well. Over two-thirds of the revenues of firms like Bharti Airtel and Vodafone come from their networks based on the more efficient 900 MHz spectrum—this was the first spectrum given to firms; later on 1800 MHz spectrum was given. Trai has recommended this spectrum be ‘refarmed’. While ‘refarming’ typically means allowing spectrum to be used for additional purposes—using 2G spectrum for 3G services, for instance—Sarma wants this to be taken back. Give Bharti/Vodafone/MTNL/BSNL/etc spectrum in the 1800 MHz band and re-auction the 900 MHz spectrum at a base price of, hold your breath, R7,224 crore per MHz! While the government can still do this when the existing licences come to an end—and even then, you could argue the propriety of doing this—Sarma wants this done at the earliest.
Ironically, when 900 MHz spectrum is refarmed and telcos are given 1800 MHz spectrum instead (which will raise costs 1.5 times and disrupt networks since additional towers will have to be put up), this will leave little spectrum to auction in the 1800 MHz band—perhaps just around 5 MHz per circle—which is what Trai’s job was to get done!
The Trai recommendations over the past few years have been curious, from wanting to charge 1.5 times the 3G rates for the older telcos who had more than 6.2 MHz of spectrum to wanting to remove termination charges which would have hit the larger firms while benefiting the smaller ones—and we’re not even talking of the TDSAT’s findings, when Mr Sarma was part of it, that giving RCom a ‘dual-technology’ licence a day before the policy was announced was ‘early completion of formalities’. The best the government can do with the recommendations is to junk them.