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Friday, 10 March 2017 00:45
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On balance, Trai more to blame for industry problems

The telecom regulator, Trai, reportedly, has countered former department of telecom (DoT) secretary’s letter by saying the government is to blame for the mess the telecom industry is in—contracting revenues, a debt of over R4.6 lakh crore and auction dues of R3.1 lakh crore over the next 11 years. According to Trai, had the government gone by what it had recommended, both licence fees and spectrum usage charges (SUC) would have reduced, lowering the industry’s annual outgo. In September 2013, while Trai recommended SUC levies be cut to 3% for all auctioned spectrum, the government accepted this only for future auctions. On balance, Trai’s recommendation would have lowered SUC to slightly over 3% as compared to the weighted average of around 4% of adjusted gross revenues (AGR) right now. In January 2015, Trai recommended lowering the Universal Social Obligation component of licence fees from 5% to 3%, but this was not done either. Given the industry’s AGR of around R180,000 crore, a 3 percentage point reduction would mean an annual saving of around R5,400 crore which is no small change. Round one to Trai!

This, however, needs to be juxtaposed against the higher costs industry has incurred on buying spectrum, largely due to Trai’s practice of keeping reserve prices very high. The government, of course, is also party to this since, by not renewing licences after the initial 20-years were over, it forced telcos to bid crazily; not putting enough spectrum in auctions had a similar impact, as did not telling industry how much spectrum would be available in the future. Since 2010, industry has bid R356,000 crore for spectrum. If R100,000 crore of this was due to Trai policy, to use any arbitrary number, this means an additional annual cost of R15,000 crore if you assume an interest cost of 10% and amortisation over 20 years. We know that the reserve prices of 900MHz spectrum rose from R813 crore per MHz in 2014—for the circles where there was an auction—to R2,632 crore in 2016, and from R1,772 crore in 2013 to R5,737 crore in 2016 for 800MHz, but does this mean Trai is to blame?

It probably does, when you look at the details of individual circles. In Gujarat, and there are many such examples, the reserve price for 900MHz spectrum was R424 crore per MHz in 2015 and the final bid was for R673 crore—this R673 crore became the reserve price for the 2016 auction and was so high, there were no bidders. In Delhi, there were no takers for the 800MHz band when the 2012 reserve price was R732 crore. This was lowered to R360 crore in 2013 and this is the price at which it was sold. In 2015, the reserve price was jacked up to R627 crore and the bid went up to R847 crore—this then became the reserve price in 2016 and it was picked up at that price. As a result of such irrationality, in 2013, while Delhi accounted for 20% of the all-India reserve price for the 1800MHz band, just 8% of industry revenue came from here. While DoT could have over-ruled Trai, on balance, the regulator is more to blame for higher spectrum prices, and that is the main reason for the industry bleeding—between FY09 and FY17, while its AGR rose from R113,000 crore to R184,800 crore, debt rose from R82,700 crore to R381,000 crore.


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