Column : A spectrum blow to telecom

Nov 13 2012, 03:30 IST
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SummarySpectrum refarming, coupled with a self-inflicted tariff war, has resulted in a gloomy outlook.

Telecom services have been loudly acclaimed as the success story of economic policy in India. The National Telecom Policy 2012 has proclaimed that the availability of “affordable and effective communications” for the common man is at the core of the agenda. In a knowledge-intensive global scenario, telecommunication is the key driver of economic and social development. Its contribution to GDP growth has been confirmed by the World Bank.

The recent developments and policy decisions by the government unfortunately give the impression that the prime consideration is contribution to the state exchequer and much less on revamping and consolidation. There are several key issues that have resulted in the standoff in the telecom sector. We need to recognise that the Indian telcos have underperformed in the last three years due to increased regulatory risks and a self-inflicting drive in tariff cuts. If newspaper reports are to be believed, there is no bidder of spectrum earmarked for CDMA services. Only 5-6 companies have deposited earnest money for the auction of GSM-related spectrum. Most of these companies have shown interest for select service areas. It is safe to conclude that the response is not very encouraging and the government may miss its budgetary expectation of R40,000 crore unless there are some surprise irrational bidding. It seems that even the serious players have been discouraged because of an unreasonably high reserve price, which is disproportionate to the current revenues and future growth prospects. The auction needs to be designed in a manner such that there is well-spread rent-seeking linked with the growth of the industry. The high reserve prices have in some ways pre-empted the market determination of the value of spectrum.

Another key issue is the government’s surprise choice in favour of spectrum refarming. The argument in favour of refarming is enforcement of a level playing field, realisation of spectrum value at present market price and maximisation of the versatile usage of the spectrum band. The details of the policy are both contradictory and self-defeating. The argument for a level playing field is weakened if the existing owners are allowed to retain one half of their present allocated spectrum. Initially, 900 MHz band was allotted because of its availability to the first three operators. Later on, the number increased to seven operators in total including two PSUs—BSNL and MTNL. These service providers have expanded their network and have a substantial

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