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Rediff.com  » Business » Telecom tussle: Raja's in the saddle again

Telecom tussle: Raja's in the saddle again

May 17, 2010 11:04 IST

Given how the Telecom Regulatory Authority of India's (Trai's) recommendations on 2G spectrum will hit telecom firms, it's not surprising that telecom stocks have plunged.

Of course, the fun and games have only begun since it is up to Telecom Minister A Raja to decide whether to accept the recommendations, which ones to accept, and when to accept.

In other words, he's back in charge, as he was in 2008 when he decided to favour certain firms with cheap licences and hit the incumbent players by dramatically increasing the subscriber link for extra spectrum.

Since the policy then was that telecom firms got spectrum based on their subscriber-base, raising the number of subscribers required for additional spectrum ensured firms like Bharti and Vodafone became ineligible even though they had the necessary subscribers -- the spectrum was then available to give to a handful of firms.

The minister accepted some part of the recommendations of Trai (under a different chief, Nripendra Misra) and rejected others, leading Misra to say that the minister had cherry-picked. He's once again in a position to do so.

The broad details of what is unfair about the recommendations are, of course, easily detailed.

> Trai has, for instance, gifted another Rs 25,000 crore (Rs 250 billion) to the firms that Raja favoured by saying the government will grant them 1.8 MHz of spectrum free.

This is controversial since, right now, the 3G bids are running at Rs 3,000 crore (Rs 30 billion) per MHz for one pan-Indian licence -- when there's such a clear market price, why would anyone gift away spectrum fee?

This is even more problematic if you consider that Trai is of the view that 2G and 3G spectrum are equivalent and those firms which have "extra" spectrum, beyond 6.2 MHz, should pay for it based on the 3G bids (more on this later).

Trai has justified this by saying the government had committed to giving this 6.2 MHz. This is not quite true.

For one, the licence says the government 'may' give 1.8 MHz beyond the initial 4.4, this is not a commitment (Trai itself has quotes from the licence agreement which make this clear).

Two, the 2008 lot of licences cannot be compared with those given earlier since, as all the queries raised by the CBI, the CVC and CAG make it clear, there were a host of irregularities in their issue -- this includes the arbitrary cut-off date, creation of a separate dual-technology group of licensees, and so on.

Three, as Trai itself makes it clear, licence conditions are easily changed. Trai wants the subscriber criterion dropped (a change in licence conditions) -- curiously, it wants this to be kept in place for just six months to allow firms that have got enough subscribers to get another 1.8 MHz of spectrum free!

This is what the Tatas are protesting about. Though the group got its licence in 2008 along with others, it has not got spectrum in various cities like Delhi -- thanks to one of the new recommendations of Trai on what the priority in getting allocation for spectrum, the Tatas have been pushed down the queue instead of being in the first place.

> The decision to levy higher spectrum user fees on firms that have more spectrum -- those with 4.4 MHz will pay 2.2 per cent (right now, this is 2 per cent) while those with 10 MHz will pay 6.9  per cent (right now, this is 4 per cent) -- hurts those firms that have more subscribers and hence more spectrum.

This would make sense if these firms had got spectrum free, but since they're being asked to pay for it based on the current 3G bids, it is nothing but an additional penalty.

> Indeed, linking the one-time fee to 3G bids in the case of the spectrum telcos have in excess of 6.2 MHz is also flawed. That they should be charged is correct since the subscriber-link was always open to manipulation, but the 3G link is unfair.

Raja's policy of hiking the subscriber-linked criterion, which choked off the spectrum route for these firms, is what ensured the prices of 3G have gone through the roof. And now firms are being asked to pay for what they have on this basis. Double jeopardy.

This is not to say the recommendations are all bad. The one-time fee (except for the 3G link) is a good idea, as is the proposal that when the favoured firms of 2008 try to sell out, they will have to pay a hefty fee to the government (based on the 3G prices) -- indeed this should have been done a long time ago.

It would be interesting to see how Raja implements the recommendations. Accepting a parity between 2G and 3G while asking the older telcos to pay for the extra spectrum will make a mockery of his stated position -- when it was pointed out that the 3G bids showed the 2008 licences were given at bargain-basement prices, he said comparing the two was like comparing PDS rice to basmati. One man's PDS rice can't be another man's basmati.

The other interesting thing to see is whether the aggrieved players -- Bharti, Vodafone, and so on -- will take the case to its natural conclusion, to the TDSAT and, if need be, the Supreme Court.

In 2003, when the cellular operators had a very good case -- the operative part of the TDSAT judgment was in their favour but the government refused to implement it -- the operators' association suddenly withdrew its case in the Supreme Court. The buzz is that Sunil Mittal was against taking on the government beyond a point -- this time, however, he is the worst affected.

Sunil Jain
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