A fortnight ago, with the Telecom Commission by and large accepting various Trai recommendations on spectrum pricing, along with a more progressive M&A policy being worked on, things looked quite rosy for the sector. Last week, however, the crucial Empowered Group of Ministers (EGoM) that was to take the final calltechnically, a Cabinet approval is required but this is usually a formality after an EGoM decided to just do a partial job. It agreed to what the Telecom Commission had said by way of the base prices at which the January auctions would start and, despite what the telecom ministry wanted, it went along with the Trai on not auctioning 800MHz spectrum for nowTrais view has been that once the regulations are changed to allow even GSM-telcos to use this spectrum instead of just CDMA-ones, the government will get a better value for this.
None of this, however, adds up to much till the M&A policy is not cleared since this is critical if moderately-sized telecom firms are to mergeand that is the only way India will get good spectrum efficiencies. Even more critical is the EGoMs inability to arrive at a conclusion on spectrum usage charges (SUC). Right now, the larger the amount of spectrum a telco has, the higher the rate at which it is charged for spectrum usage. That may have made sense in a regime where spectrum was not auctioned, but that is not the case today; more important, as Trai pointed out, lack of uniform SUC has two other implications. One, it encourages telcos to camouflage revenues as some services attract lower rates; two, since the escalating scale is on revenues, inefficient telcos like MTNL and BSNLwho are simply squatting on spectrumend up paying much lower charges than their private sector counterparts despite holding a lot more of the spectrum. Also, till there is a flat spectrum charge, there can be no M&A since the charges for larger chunks of spectrum become prohibitive.
Ironically, while the EGoM has allowed spectrum tradingthat means a BSNL can hire out its spectrum to an Ideaeven this becomes prohibitive till there is a flat SUC. If an Idea is to rent BSNLs spectrum based on current spectrum usage rules, this will straight away jack up Ideas annual SUC dramatically. What is not clear is why the decision-making is proving so tortuous since, apart from Trai arguing government revenues will not be