Two years after having allotted third-generation (3G) spectrum without any contest to its own telecom companies, on the promise that they'd match the prices later paid by private sector winners of the auction for it, the communications ministry now wants them to get it for free.
Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) had paid a combined Rs 29,598 crore for 3G and broadband wireless access (BWA) spectrum only weeks earlier, after the auction was finally held for private competitors. They can't really afford to pay; let's return it to them, Communications Minister A Raja has formally proposed.
In a letter to Finance Minister Pranab Mukherjee, he has said: "BSNL is the only service provider giving connectivity to far-flung rural areas. The service rendered by BSNL in the rural areas of the country cannot be replicated. Being public sector undertakings, which are shouldering social and governmental obligations, it is essential that they (BSNL and MTNL) be absolved of this heavy financial burden."
In August 2008, both BSNL and MTNL were given spectrum ahead of the auction process for the private players, but they were required to match the winning bids in their respective areas. MTNL, which operates in Delhi and Mumbai, paid about Rs 11,098 crore (Rs 6,574 crore for 3G and Rs 4,534 crore for BWA spectrum). BSNL, which operates in the rest of the country, paid about Rs 18,500 crore (Rs 10,186.6 crore for 3G and Rs 8,314 crore for BWA spectrum).
"We did not have any option of selecting circles for 3G or BWA. Such high prices will impact our business model. We are offering WiMAX services purely under social obligation, besides operating in far-flung areas. This is why we have requested for the refund of 3G and BWA spectrum fees," BSNL Chairman and Managing Director Kuldeep Goyal told Business Standard.
BSNL, which expects to make losses for the first time in its history in 2009-10, had begun the process. It had written to the department of telecommunications to return the spectrum fees.
Despite the early and uncontested allocation, BSNL and MTNL have not been able to do much with their first-mover advantage in 3G. Both are in the process of outsourcing their 3G networks, saying it was a better way of proceeding, rather than doing it themselves.
The government earned over Rs 1,06,262 crore from the private auction of 3G and BWA services
"In terms of the New Telecom Policy, 1999, BSNL (then DoT) was not required to pay an entry fee for Cellular Mobile Licenses, which were bundled with initial spectrum of 4.4 Mhz. Similarly, BSNL was also exempted from payment of 2G spectrum charges of Rs 1,650 crore in view of its immense social and rural obligations," Raja's letter argues.
"MTNL has borrowed heavily to finance payment of spectrum charges. In view of the deteriorating financial health, it may not be able to service this heavy debt," it adds.
BWA spectrum allocated to BSNL is being used mainly for rural connectivity to bridge the digital divide. The cost of BWA spectrum is six times the estimated reserve price, which would put financial pressure on the project, the letter said. MTNL's BWA business model is also likely to fail if BSNL's BWA project becomes financially unviable.