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Thursday, 24 October 2013 00:28
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Telecom set to surge as Trai sticks to its guns

If the government doesn’t play spoilsport and decide not to implement the Trai’s original recommendations—it reiterated these yesterday in response to the Telecom Commission’s queries in early October—chances are the telecom sector is set to blossom after several wasted years. Not only will the Trai’s recommendation to lower the reserve price for the forthcoming 2G auction by around 60% help spur investor interest, the M&A policy being worked on by the government—it will be announced next week—is a lot more progressive than in the past and will facilitate mergers between even large and mid-sized players. As a sort of cherry on top, the decision to allow 100% FDI in telecom has already encouraged players like Vodafone to set aside $2 billion to buy out their local partners and, since this means their expansion is no longer constrained by the funds availability with the local partner, it also paves the way for faster expansion. The sector has been in trouble ever since then-minister A Raja blocked spectrum availability for existing players by handing it out virtually free to a few firms; this then led the spectrum-starved industry to over-bid for 3G spectrum in 2010 and, ever since, the government used this auction as a benchmark for future spectrum sales.

It was this that the Trai sought to fix when its chairman said he would keep economic realities in mind while setting the new base price. While it was always clear this was a base price and that the final bid would depend upon demand and supply, an internal panel of the telecom ministry and then the Telecom Commission decided to question the Trai’s calculations, suggesting it had not done its maths on either the base price or on its recommendations that the spectrum usage charge (SUC) be made uniform across various types of telecom suppliers. Trai has not just stuck to its recommendation, it has given detailed explanations as to why the objections were ill-conceived. So it has shown that a flat SUC was required since the current system allowed BSNL, for instance, to pay just R33 lakh per MHz in the June quarter as compared to R2.12 crore for Bharti Airtel while it had 45% more spectrum than Airtel. The current system, Trai showed, created arbitrage opportunities and unlevelled the playing field between different telcos, not a great idea when thanks to technology and unified licenses, all can potentially offer the same services to customers. Similarly, it pointed out the government was being short-sighted by not converting the 800 MHz band to one which can be used by the GSM players also instead of just the CDMA ones as this would dramatically enhance its value. After 5 years of ‘man-made mistakes’ which ‘brought the sector to its knees’, Trai rightly quotes Brutus to say ‘there is a tide in the affairs of men ... we must take the current when it serves, or lose our ventures’.

 

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