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Thursday, 07 November 2013 00:00
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Spectrum swap, SUC decision critical for success

If telecom symbolises just how quickly a sector can be brought to its knees through a combination of favouritism in 2008 and bad policy subsequently, it also shows how things can be turned around should the government so desire. After the telecom regulator finally slashed the reserve prices for auctions by 60% and the telecom ministry bureaucracy stoutly resisted this, the Telecom Commission decided to, by and large, go along with what the regulator has said—rates have been increased by around 25% in the case of the 900MHz circles and 18% for the 1800 MHz ones. Along with a sensible M&A policy, the stage is set for successful auctions in January, and for the industry to get back on its feet—the good thing is that, over the past few quarters, with the hyper competition unleashed by then telecom minister A Raja’s giving out virtually free licenses now over, telecom realisations have been rising. Under the new M&A policy, not only can larger telcos buy out mid-sized ones as the market share criterion has been raised to 50%, the combined telcos can hold up to 25MHz of 2G spectrum and 2 carriers of 3G spectrum—since larger spectrum chunks will greatly lower costs of operations, this bodes well for the industry.

There are still some gaps that need plugging for the sector to fully take off, and it is to be hoped that the government will move on them quickly. A uniform Spectrum Usage Charge (SUC) is critical not just for telcos that wish to either merge or grow bigger since, right now, the more the spectrum a telco has, the greater the percentage of revenue it has to share with the government. Two, unless there is one SUC for all telecom services, whether voice or data, this will encourage arbitrage, helping one lot of telcos over others—the telecom bureaucracy has been firmly resisting Trai’s uniform SUC proposal but this may get accepted after a consultation between the telecom and finance ministries. It would, of course, have been better had the Telecom Commission taken a view on this since the matter can now get delayed once again. Since the industry badly needs to hike its data capability, what is critical is that more 3G spectrum be released—this is where the telecom ministry needs to move on swapping spectrum with the defence one as this will allow the latter to consolidate its spectrum over 4 blocks as compared to 6 today; it will also give the telecom ministry 3 extra 3G slots to auction. Based on even a 50% discount to the 3G auction in 2010, this could fetch the government an additional $5-6 billion. Sadly, the Telecom Commission has gone along with the telecom bureaucracy’s insistence on auctioning 800 MHz spectrum and will, once again, ask Trai to set a price to it. Hopefully, Trai will stick to its view that the 800MHz band must be ‘liberalised’ first so that it can even be used by GSM telcos and not just those that offer CDMA services—you will, otherwise, end up in a situation where it will fetch a low price now and the winner will stand to earn a windfall gain when the band is finally opened up, as it will eventually, for all telcos to use.

 

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