Column : Broad spectrum trouble

Apr 25 2012, 03:51 IST
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SummaryThe biggest problem with using 3G base prices is that with the economy and telecom in trouble, few want to invest.

Trying to correct historical wrongs is generally a dangerous exercise jeopardising the present. Trais latest recommendation on spectrum auction, knowingly or unknowingly, falls in this trap. What should have been aimed as a limited exercise to give a window of opportunity to some operators who had entered in 2008 and found their licences cancelled in February by the Supreme Court has ended not only in making business hugely expensive and unviable for them but also for the existing operators. No wonder all sections of operators have criticised the recommendationsthe existing GSM and CDMA operators (who in the past have rarely seen eye to eye on most matters but stand united on this one) as well as a new operator like Uninor.

In short, while stating that spectrum should be granted through auctions, Trai has set an abnormally high base price for participating in the auctions at R3,622.18 crore per Mhz in the 1,800 band (GSM). Going by this, a new operator like Uninor whose licence has been cancelled can only remain in the Indian market if it pays R18,110 crore to get 5 Mhz spectrum. The company has already invested around R14,000 crore in the Indian market to create networks etc so far. It is anybodys guess whether the business case is viable for the company to take the plunge if these recommendations are accepted by the government in its present format.

Lets take the case of another new operator Sistema Shyam that operates in the CDMA segment whose licences have also been cancelled but is interested in carrying on business in India. Since the base price of the CDMA spectrum in 800 Mhz is double that of the GSM, the company will have to pay around R36,000 crore for procuring 5 Mhz spectrum. Since currently GSM operators are given a start-up spectrum of 4.4 Mhz and CDMA the half of it, Sistema would also have to pay R18,110 crore if it wants to retain its current spectrum.

To be fair, the task before Trai was a difficult one. If the reserve price was too low, the charge would have been that a sham auction is being conducted. A high reserve price is being criticised because it makes business unviable. A middle path would have been better, which has been abandoned in the recommendations since it seems that the ghost of 2008 was hanging over the regulator.

The logic is that the value of

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