Trai for no auctioning of 2G spectrum

Virtually endorsing the Union telecom ministry's decision not to auction 2G spectrum two years ago, telecom regulator Trai on Tuesday said bidding out mobile spectrum would not have yielded major economic gains for the exchequer.

"It is not feasible to subject the spectrum in 800-900-1800 Mhz band to auction process, considering that the amount of spectrum after meeting the obligation of contracted spectrum is very limited and the number of claimant for additional spectrum would be extremely few," Trai chairman J S Sarma said.

The telecom ministry's decision to sell 2G spectrum in 2008 at 2001 prices had become the subject of a major controversy, with the Opposition parties alleging a scam that cost the government Rs 60,000 crore (Rs 600 billion).

The telecom regulator on Tuesday released its recommendation report on spectrum allocation and pricing.

Trai also suggested that from now 2G spectrum (radio waves) could be priced on par with what is discovered through the 3G spectrum auction and also delinking the sale of spectrum from issue of licence, as is the current practice.

Sarma added: "The authority is conscious of the fact that there are several views about deriving the true price of 2G spectrum and keeping this in view the authority is separately initiating an exercise to further study the subject and would apprise the government later, but for the present the authority recommends that 3G prices could be adopted as the current price of 2G spectrum."

Telecom Minister A Raja's decision to allocate mobile licences with 4.4 Mhz of 2G spectrum at a price of Rs 1,651 crore (Rs 16.51 billion) to a host of companies that included realty player Unitech Wireless, Videocon, Swan, prompted the allegations of corruption.

Consequently, the CBI was roped into to look into the allocation of giving away spectrum at rates much below the market price.

Raising the quantum of minimum amount of spectrum (contracted amount of 6.2 Mhz to the operators), the regulator said: "All the spectrum beyond 6.2 Mhz will have to be paid for at the current market price (linked to 3G price) by GSM operators and for the CDMA operators the spectrum assigned beyond the contracted amount of 5 Mhz will have to be paid for."

Dealing a big blow to several existing operators like Bharti Airtel, BSNL and Vodafone Essar, the regulator said the service provider will have to pay an additional one time charge for the spectrum they hold beyond 6.2 Mhz, which will be paid at the current price of spectrum up to 8 Mhz and after that it will be charged at 1.3 times the current price.

This would mean existing operators would have to pay 3G rates for spectrum they hold above 6.2 Mhz.

The big three players -- Bharti Airtel, Vodafone and BSNL -- hold around 10 Mhz spectrum in many key circles. The blow also came for many new mobile licencees, including Tata, Uninor and Videocon, who are yet to receive any start-up spectrum in many circles, including Delhi. There are many telcos who are yet to get start-up spectrum for any circle.

Sarma said preference would be given to those who want to get the contracted 6.2 Mhz of spectrum and those who are waiting for the next level (8 Mhz of spectrum). The least priority is those who are waiting to get start-up spectrum.

One of the far-reaching recommendations made by Trai was the end of restrictions preventing telecom firms from selling majority stakes in the first three years of getting a license.

This will help consolidation by allowing mergers and acquisitions in the world's fastest growing telecom market.

Such mergers and acquisitions would be subject to the merged entity having a market share not above 30 per cent in terms of subscriber base, as well as adjusted gross revenue.

What is more, following such mergers, there must be a minimum of six players for any circle.

There are 15 operators and 584 million mobile phone users in India.

"We are clearly saying we should consolidate. We are not mandating consolidation, but facilitating it. Our proposals are clearly in that direction," Sarma said.

Trai expects to raise Rs 30,000-35,000 crore (Rs 300-350 billion) as one-time spectrum charges from these operators.

It said telcos should not be given free spectrum when their licences come up for renewal, but must pay market rates based on 3G prices.

Currently, additional radio airwaves for mobile firms are granted when they reach prescribed subscriber-addition milestones, with only a usage fee charged for the resource.

All top mobile operators, including Bharti, Vodafone, Idea and Reliance, have got huge spectrum based on their reported subscriber figures.

But this will change if Trai's proposal is implemented. The regulator suggests that subscriber-linked criteria should be done away with for additional spectrum.

It favoured the assignment of spectrum with fulfilment of roll-out obligations, which should be complete within three years from the date of assignment of radio waves.

Trai has capped the spectrum allotment to GSM and CDMA mobile companies at 10 Mhz and 7 Mhz per operator, respectively.

In a move that could cheer all mobile companies, Trai said it is not in favour of capping the number of companies per circle if licences are delinked from spectrum.

Trai has fixed spectrum usage fees at 0.5 per cent of revenue for spectrum up to 6.2 Mhz. Beyond 6.2 Mhz, a fee of 1 per cent of the operator's revenue will be charged.

Trai has pegged the value of the 900 Mhz spectrum band at 1.5 times that of the 1,800 Mhz spectrum band used for CDMA services.

Trai has also favoured sharing of 2G spectrum between operators for five years if the rules are passed.

The recommendations of Trai have to be accepted by the telecom ministry before they become law.