New Delhi: The Telecom Regulatory Authority of India (Trai) has recommended that second-generation (2G) spectrum in the 1,800 megahertz (MHz) band be priced at 53-136% of the rate at which third-generation (3G) frequencies were auctioned last year, which would mean telecom firms having to pay more for the frequencies they operate in.
The regulator has differentiated between the start-up spectrum of 6.2MHz and frequencies beyond that, recommending different prices for both.
Trai’s formula includes revenue per MHz, its efficiency and availability in various circles across the country. Trai has suggested that only incremental spectrum should be charged. But its has given recommendations on the pricing for start-up spectrum in case the government decides to charge telcos for the spectrum.
Vodafone Essar Ltd did not agree with the recommendations, calling them “flawed, illogical and discriminatory against the operators who were the first to invest deeply to build the sector and who are aggressively pushing a rural roll-out programme”.
Graphic: Sandeep Bhatnagar/Mint
“The recommendations also do not rectify the completely illogical difference in the treatment of spectrum given to GSM operators and to dual-technology operators,” Marten Pieters, chief executive of Vodafone Essar, said in an emailed release. “Although the latter have between 10% and 40% more spectrum than Vodafone, the new Trai recommendations suggest that they will pay insignificant amounts as one-time spectrum fees.”
This suggests that the incumbent “GSM operators will have to pay thousands of crore rupees as a one-time spectrum fee”, Pieters said, estimating this at Rs ,000 crore for India’s biggest phone company Bharti Airtel Ltd and Rs 1,740 crore for Vodafone.
Later entrants into GSM from CDMA, or dual-technology operators, will pay much less, he added.
Bharti Airtel was critical of the recommendations, saying, “There seems to be huge inconsistency in terms of the differences of prices in various circles. For instance, up to 6.2MHz, the price vis-à-vis 3G prices range from a low of 16% to a high of 208%, while beyond 6.2MHz, it ranges from a low of 24% to a high of 868%. This defies logic.”
The company said it fails “to understand the reason for linking the auction price only to spectrum beyond 6.2MHz. The price discovered through a fair and open auction must apply to all spectrum allocations”.
Most of the operators already have heavily leveraged balance sheets due to the payouts they had to make for 3G spectrum. The government made Rs 1.06 trillion from the auction that concluded in August.
The amounts payable by the telecom firms will be based on the number of years remaining on their licences from 1 April 2010, Trai recommended. This is the correct present value of the spectrum based on data up to March 2010, according to the Trai experts who worked out the formula.
Keeping in mind the limited amount of air waves available, it is not feasible to auction 2G spectrum in the 800, 900 and 1,800MHz bands and, therefore, it is necessary to determine a fair value for the spectrum, Trai said in its report. To determine this value, both technical and commercial aspects needed to be taken into account, the report added.
The calculations would be applicable even at a later date, but would need to be adjusted for inflation, J.S. Sarma, Trai chairman, said in a separate letter to the secretary, department of telecommunications, which has to decide on whether to adopt the recommendations. Trai also said that prices would need to be adjusted if licences are cancelled and more spectrum is freed up, referring to investigations of 2G spectrum allocation. It suggested that if the government is in a position to auction surplus spectrum, it should aim to get a relevant market price.
“From a policy perspective, the telecom firms were earlier given the spectrum based on subscriber-linked criteria. They didn’t have to pay. Now midway through the business, they are having to pay for the spectrum,” said Hemant Joshi, partner at audit and consulting firm Deloitte Haskins and Sells. “This is not the right signal to investors. Ideally, they should have waited till the licence expired and then through a transparent mechanism charged for the spectrum.”
“The industry as a whole is bleeding. A few companies are making profits. But the sector contributes significantly towards GDP. Don’t kill a goose that is laying golden eggs,” Joshi said.
As per the findings of Trai, every MHz of spectrum in the 1,800 band up to 6.2MHz would cost the telcos Rs 1,769.75 crore, while above 6.2MHz each MHz would cost Rs 4,571 crore across the country. The prices when compared with the 3G price differ from circle to circle.
Many of the licences of some of the older operators, including Bharti Airtel, are due for renewal after completing their 20-year term. Such companies would have to pay to renew their licences as per the new norms recommended by Trai.
Uninor, which won spectrum in 2008, welcomed Trai’s view that 6.2MHz spectrum was the contracted amount and that additional payment was required only for spectrum beyond this.