Pegs 2G at 53% of 3G price; will cost telcos Rs 24,700 crore.
Telecom companies — both new operators and incumbents — will have to pay an additional Rs 24,700 crore, if the government agrees to the recommendations of a report by a Telecom Regulatory Authority of India (Trai) panel. It was tasked with calculating the value of 2G spectrum in the 1,800 MHz band at 2010 prices.
The committee, whose report which was released by Trai today, values 2G spectrum up to 6.2 MHz at 53 per cent of the 3G auction price. However, it contends that the efficiency of 2G spectrum beyond 6.2 MHz is higher than the start-up spectrum given to 3G operators. Therefore, the panel has valued spectrum beyond 6.2 MHz at 136 per cent of the 3G auction price.
Operators forked out Rs 16,750 crore for 5 MHz of 3G spectrum auctioned last year, which works out to Rs 3,350 crore per MHz. Since 2001, 2G operators have paid Rs 1,658 crore for a pan-India licence bundled with 6.2 MHz. This works out to a paltry Rs 267 crore per MHz.
| Price of bundled 2G spectrum up to 6.2 MHz currently | 267.51 |
| Price of contracted 2G spectrum up to 6.2 MHz based on the report | 1,769.75 |
| Price of 2G spectrum beyond 6.2 MHz based on the report | 4,571.67 |
| Price of 3G spectrum based on the auction | 3,350.00 |
| (per MHz) | in Rs crore |
| Source: Trai | |
Speaking to a television news channel, Telecom Minister Kapil Sibal welcomed the new pricing formula, saying the proposals are acceptable to the ministry “in principle”. He said the recommendations were in line with his own position on the subject. “I have delinked the licence from the spectrum,” Sibal added.
Last May, Trai had released a report in which it had recommended that the price of 2G spectrum should be equal to 3G. However, as there were varying views on the issue, the regulator agreed to set up a committee to value 2G spectrum at current prices.
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The new valuation whittles down the notional loss to the exchequer in the allotment of 2G licences to new operators in 2008, estimated by the comptroller & auditor general of India. CAG’s controversial report, which used the 2G-3G parity formula, pegged the loss at Rs 1.76 lakh crore. Based on the new valuation, however, that figure would come down to Rs 93,000 crore, say industry watchers.
Trai’s four-member committee has valued a pan-India licence with bundled spectrum of 6.2 MHz at Rs 10,972.45 crore, which is more than six times the current fee. It has also valued each MHz of spectrum beyond 6.2 MHz at Rs 4,571.87 crore, or over 17 times what a new operator pays for each MHz of contracted spectrum.
The new valuation, if implemented, could have a serious impact on new operators like Uninor, S-Tel, Videocon, Loop Telcom, as well as the GSM services of Tata Teleservices and Reliance Communications. Based on preliminary calculations, they have to pay around Rs 7,000 crore for their spectrum.
That’s because the department of telecom (DoT) recently decided that even though they may be allotted 6.2 MHz of start-up spectrum, new operators must pay market rates for spectrum beyond 4.4 MHz. However, operators have said this is illegal, as under the contract signed with the government, their licences include 6.2 MHz of spectrum.
Incumbent operators like Bharat Sanchar Nigam, Vodafone-Essar, Bharti , Idea Cellular and Aircel will also have to fork out around Rs 17,700 crore for their additional spectrum beyond 6.2 MHz.
Analysts say that against 2G-3G price parity, the government stands to lose around Rs 400 crore in revenue based on the new calculations for spectrum beyond 6.2 MHz. Operators like BSNL have to pay Rs 8,933 crore now, compared with Rs 9,625 crore (under parity), while the others like Bharti and Vodafone have to fork out slightly less.
Vodafone Essar came out strongly against Trai’s pricing recommendations, saying they were flawed, illogical and discriminatory against operators, who were the first to invest deeply to build the sector and who are aggressively pushing a rural rollout programme.
"The discriminatory nature of the Trai recommendations is shockingly clear: Only the older GSM operators (who paid thousands of crores in ongoing and escalating spectrum charges over the last ten years and continue to pay far more than dual-technology or new operators) are being punished for building the Indian communications industry," stated Marten Pieters, CEO of Vodafone Essar.
In a similar vein, Bharti Airtel in a statement today said: "Trai, while moving away from its earlier arbitrarily linked 3G pricing levels, has now in many cases gone beyond 3G values. This goes against (the) minister’s and government’s acknowledged position that 3G is significantly more efficient than 2G. There seem to be huge inconsistency in terms of the differences of prices in various circles... This defies logic."
New operators – several of whom are under investigation in the 2G scam – are divided in their response. A Uninor spokesperson said : “We welcome Trai's view that 6.2 MHz spectrum is indeed the contracted amount, and additional payment is required to be made by the existing operators only for the excess spectrum above the contracted amount."
Said the CEO of another new operator: "The recommendations are ridiculous, especially as most new operators are in a financial mess. We have to go to TDSAT (Telecom Disputes Settlement & Appellate Tribunal ) if, despite it being written in the contract, we are now told to pay for the extra 1.8 MHz based on the new pricing by DoT. "