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Friday, 23 December 2011 00:00
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Government adds to policy paralysis woes by 3G decision

 

If it wasn’t bad enough that investment levels have dropped off dramatically with the government unable to pass even executive decisions like FDI in retail, and the Parliament logjam only getting worse, it comes as a real surprise that the government should take a decision that the intra-circle 3G roaming pacts between telcos are illegal and will need to be terminated. Telcos have paid R68,000 crore for the licences and then spent R15,000-20,000 crore to roll out the networks only because their licences specified that such roaming was allowed. In June 2008, the government allowed this and the telco that made use of this immediately was the state-owned BSNL to enter into an intra-circle roaming pact with Swan Telecom—this allowed Swan Telecom to offer subscribers an all-India service even though it had not yet rolled out a network and, no doubt, boosted its valuations. It is ironic that the current investigation into the legality of roaming pacts is based on a complaint made by BSNL which, though it had the 3G spectrum a year ahead of private firms, hadn’t been able to roll it out! Not only was intra-circle roaming allowed after 2008, at the time of the auction last year, firms asked this question to the government which said, in writing, that this would be allowed.

What makes this stranger is that there is zero loss to the exchequer. If, say, Aircel’s customers in Delhi get 3G services through an agreement Aircel has with Vodafone which has 3G spectrum in Delhi, they pay extra to Aircel (some part of this will be shared with Vodafone)—as per the current licence fee/spectrum charge rules, a part of this accrues to the government. But what of the entry fee Aircel would have paid if, theoretically, it had bought its own spectrum? Well, had there been three slots available for 3G instead of two in most circles, the bid amounts would have gone down, so it’s not clear there is even a notional loss—in any case, given that there were only two slots, the question is irrelevant. As for consumer benefits, given there are now several telcos offering 3G services, as opposed to only two if no intra-circle roaming is allowed, consumer tariffs are lower.

Given how the government has readily accepted BSNL’s request to return the 3G spectrum, it remains to be seen if the same treatment is given to private firms who said they would like to return 3G spectrum if intra-circle roaming isn’t allowed. After all, if a new auction is done, and it is known intra-circle roaming isn’t allowed, auction prices will be much lower. Since the budget is in no position to return R68,000 crore to telcos, it’s still not clear what prompted the telecom secretary to announce his decision.

 

 

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