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Extra spectrum may cost telcos $1.6 billion

Extra spectrum may cost telcos $1.6 billion
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First Published: Wed, Jan 26 2011. 11 29 PM IST
Updated: Wed, Jan 26 2011. 11 29 PM IST
New Delhi: India’s mobile phone companies may need to pay an additional $1.6 billion (Rs7,312 crore) for the extra spectrum they have if a proposal that’s under consideration is implemented by the government, according to two officials belonging to the regulator.
The Telecom Regulatory Authority of India (Trai) may recommend that companies which have more spectrum than the start-up 6.2MHz, which all of them are given, would have to pay for it. This could be as much as 68% of the price at which third-generation (3G) mobile airwaves were auctioned in May.
“We are looking at a number of methods to calculate the value of the additional spectrum” but most of the methods of calculation are throwing up very high valuations, according to one of the Trai officials cited above.
“We are looking at the incremental profit from additional spectrum” and factors such as the money spent by the operators, who don’t have the additional airwaves, to set up towers, he added. Firms with limited spectrum need to set up a greater number of towers to ensure coverage. Trai had earlier suggested a pricing formula that would have seen the telcos paying about $3.2 billion.
The companies will need to pay for the additional spectrum starting January 2008 to the end of their licence period. For instance, Bharti Airtel Ltd, India’s biggest phone company, has additional spectrum valued at about $381 million using the formula. The payment under the above formula would be much less as it would have to pay only for the years of licences since 2008. All telecom licences run for 20 years and 3G prices vary across circles, with Delhi and Mumbai being the highest.
Four experts, including two Indian Institute of Technology professors, are helping the regulator arrive at the valuation formula, said the second Trai official cited above. The regulator began work on the subject in September.
“It was decided that it would take six months to prepare due to its highly complex nature,” he said. The calculations are being based on inflation, revenue earned by operators from incremental spectrum and the amount spent on erecting base stations, he said.
“It is difficult to base the calculations on 3G spectrum as the auction was carried out to ensure the highest possible revenue for the government from what is essentially spectrum for premium services. The price would obviously be higher,” he added.
Still, that is the only available recent benchmark that is comparable, he said.
“The calculations are being made using very robust economic models and it is unclear what method will be adopted finally,” said a member of the team of academicians seeking to arrive at a payment formula.
The second Trai official cited above said, however, that the report is not final as yet.
He said the job of finding the correct value of the spectrum was difficult as it had already been allocated. Trai is preparing two reports—one related to the engineering aspect and the other to the economic angle, the official said.
If the calculation based on 68% of the 3G price comes into effect, operators with excess spectrum would have to pay as much as Rs11,380 crore for every MHz above 6.2MHz across the country. Every MHz of 3G spectrum in a pan-India licence was valued at around Rs16,000 crore in the auction.
Operators such as Bharti and Vodafone Essar have a total of 32.4MHz and 19.6MHz of additional spectrum, respectively, in various operating areas in the country. In Delhi, Bharti Airtel has as much as 3.8MHz of additional spectrum.
The proposal is being considered against the backdrop of the corruption allegations in 2G spectrum allocation that are being investigated. The Comptroller and Auditor General of India, in its report on the 2008 allocation, has found that the extra spectrum allotted to incumbent operators at no additional cost led to a loss of revenue to the tune of Rs36,993 crore.
The original Trai report on 2G spectrum was submitted to the department of telecommunications in May. It had said that the formula to calculate the cost of additional spectrum would be made in a subsequent report.
In that report, Trai had suggested that operators be made to pay for spectrum of 6.2-8MHz for seven years. Anything above 8MHz would have to be given up, besides which the companies would have to pay for this for three years.
Telecom firms are of the view that the 2G spectrum cannot be equated to the 3G spectrum and that the price cannot be based on the price found from the auction. The government earned approximately Rs1.06 trillion from the auction of high-capacity spectrum, of which more than two-thirds came from the sale of 3G spectrum. The rest came from the auction of the Broadband Wireless Access spectrum
Last week, Trai chairman J.S. Sarma had said the report would be submitted to the government in a few days time.
Trai’s earlier recommendations included various aspects of basic mobile telephony services dealing with issues such as roll-out criteria and rural connectivity among others.
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First Published: Wed, Jan 26 2011. 11 29 PM IST
More Topics: Telecom | Spectrum | 2G | 3G | DoT |