Trai sticks to spectrum base price cut; telcos breathe easy

Keeps earlier recommendation of a substantial price reduction for auctions unchanged

In a move that might make GSM telecom operators like Bharti Airtel, Vodafone and Idea Cellular rejoice, the Telecom Regulatory Authority (Trai) on Wednesday stuck to its earlier recommendations on pricing of spectrum, rejecting the Telecom Commission’s view that it should reconsider many of the key suggestions in its report on spectrum pricing.

The regulator had recommended a 60 per cent reduction in the base price for 900-MHz spectrum in the Delhi, Mumbai and Kolkata circles; and a 37 per cent cut in 1,800-MHz spectrum. It had also suggested introduction of a uniform spectrum usage charge (SUC) rate of three per cent on all operators and auctioning the extended GSM (EGSM) band along with 800-MHz spectrum (rather than keeping it for CDMA operators). Besides, the regulator had recommended that there should be no reservation of 900-MHz spectrum for incumbent operators and all spectrum held should be vacated to be put up for auctions.

With Trai deciding to keep its recommendations unchanged, the ball is now in the court of the Telecom Commission (TC), which will take a call on whether to make changes to the recommendations, reject it or refers it back to the regulator again. After TC’s call, the final decision will be taken by an empowered group of ministers, which had earlier asked Trai to look into the various aspects of spectrum pricing.

After a Department of Telecommunications (DoT) committee reviewed Trai’s recommendations, TC had urged the regulator to reconsider the substantial cut in reserve price for the spectrum auction suggested by the latter. It had said Trai’s calculation did not appear to reflect the value of liberalised spectrum, the potential for use of which was much more than that of 2G, hinting that the cut was too steep. To this, the regulator, on Wednesday said: “DoT’s observations were puzzling,” as the methodology used by the regulator were grounded in economic theory and had widespread international acceptance. “Assumptions, data sources and methodology adopted in calculating the value of spectrum under different approaches have been clearly explained,” it added.

TC had also said that the regulator’s suggestion on adoption of a uniform SUC rate of three per cent might not be implemented immediately, as legal implications needed to be examined. It had asked Trai to refer to the notice inviting applications. The DoT committee had noted that a uniform SUC could not be implemented, as revenue from auctioned and non-auctioned spectrum could not be separated.

Claiming it did not see any “valid grounds to reconsider” its recommendations on SUC, the regulator on Wednesday said: “The ease of administering a flawed system surely cannot be a justification for continuing with the flawed system.”

Trai added its primary aim in this regard was to enable a gradual transition from a slab-rate system to a uniform SUC regime over time. Noting that DoT’s comments appeared to be influenced by a selective reading of the recommendations, Trai said its holistic view of the SUC regime had not been fully absorbed. According to Trai, the transition to a uniform rate would not only simplify the levy structure but also enable the policy initiatives on merger & acquisitions and sharing & trading of spectrum to be implemented without inherent disincentives. The regulator added: “If DoT is of the view that a uniform SUC rate should be one per cent, the authority will not have any objection.”

While the DoT committee had rejected Trai’s suggestion that an EGSM band, taking spectrum out of the existing 800-MHz (CDMA) band, Trai reiterated there was a vast difference between the opportunity cost of 800-MHz spectrum in the proposed EGSM band and the price at which it was sold in the previous round of auctions.

“What must be considered is the opportunity value of that spectrum band using the most optimal technology. The government should fully explore the feasibility of adoption of the EGSM band before reaching a conclusion,” it said. According to Trai, adoption of EGSM band will add over 25 per cent spectrum to the 900-MHz band, even if the government decided to set aside five MHz spectrum in the 800-MHz band.

TC had asked Trai to suggest on the pricing of 800-MHz spectrum, as the government wanted to auction spectrum in this band along with that in the other two bands. But, Trai said: “It would simply not be prudent... to take a hasty decision in the matter.”

GSM operators are happy with Trai sticking to its guns. “We are happy with the Trai recommendations, except the one that there should be no reservation of spectrum in the 900-MHz band for refarming. Overall, it will be beneficial for the industry,” said Rajan Mathews, director-general, Cellular Operators Association of India (COAI), which lobbies for incumbent GSM operators like Bharti Airtel, Vodafone and Idea Cellular.

But CDMA players are waiting for the government’s final decision. “We have said that adoption of the EGSM band will impact CDMA operators. If DoT sticks to its decision of not going for an EGSM band, it will help the industry. But, if it accepts Trai’s recommendations, it will impact CDMA service providers. We will have to wait till DoT takes a final decision,” said Ashok Sud, secretary-general of the Association of Unified Telecom Service Providers of India (Auspi), which lobbies for CDMA operators like Sistema Shyam Teleservices and Reliance Communications (RCom).

Trai also noted in the afterword to its response to DoT that a policy regime would not only impact the success of the auction but a suitably-responsive regime might even determine the very future of the sector. While there had been major policy changes, those did not measure the possible challenges ahead, the regulator noted, adding: “If those had, the sector would not be in the shape it is in.”

PROPOSALS & DISPOSALS
Reserve price of spectrum
DoT: Says the calculation doesn't reflect value of liberalised spectrum, asks Trai to reconsider substantial cut
Trai: Says methodology grounded in economic theory & with global acceptance

Uniform spectrum usage charges at 3% rate
DoT: Says it may not be implemented immediately as it legal implications need to be examined; asks Trai to refer to notice inviting applications
Trai: Says no valid ground to reconsider recommendations; if DoT thinks uniform SUC rate should be 1%, Trai will not have any objection

Reserve price of 900-MHz  spectrum
DoT: Asks Trai to suggest prices for all 22 circles

Trai: Says DoT actually asked for only Delhi, Mumbai and Kolkata circles

Auction and pricing of 800-MHz spectrum
DoT: Asks Trai for suggestions on reserve price
Trai: Says there's a large gap in the worth of spectrum in its present use and potential use; not prudent to take hasty decision

Extended GSM band
DoT: Rejects Trai recommendations
Trai: Says there's a vast difference in the valuation between the opportunity cost of 800-MHz in the proposed EGSM band and the price at which it was sold in last auction; adoption of EGSM band will add 25% spectrum in the 900-MHz band, even if 5 MHz spectrum in 800-MHz is kept aside

Spectrum trading
DoT: Gives in-principle approval
Trai: Says will work out detailed norms for implementation shortly