The Union minister for many things, Kapil Sibal, made good his promise to present a new telecom policy in 100 days by delineating its broad contours bang on deadline. The original announcement was made on January 1 when he took over from scam-tainted telecom minister A Raja. The details will take a year to finalise to take all stakeholder opinion on board. Monday’s announcement – which will replace the 1999 policy that many regard as being at the root of the 2G scam – was mostly on expected lines and will not surprise mobile service providers. They are unlikely to welcome it wholeheartedly, of course. Most operators have accepted that licence costs will have to rise from the current Rs 1,650 crore, but there is bound to be some nervousness on the pricing of licence and spectrum, the airwaves that enable mobile calls and the epicentre of the current controversy and CBI investigations. There can be no quarrel with the proposal to delink the operator’s licence from spectrum allocation. This has been a long-standing recommendation and will free the government from the kind of discretionary allocation of a scarce resource that has plagued telecom policy ever since the industry was opened to private participation.
Much, however, depends on how the spectrum policy that has been entrusted to retired judge Shivraj V Patil pans out. Given the scarcity of spectrum, the proposal to allow operators to share it is also sensible. Operators already share tower infrastructure, so there is no reason why they cannot rent excess spectrum. The prospect will not only encourage more efficient spectrum usage, as a mode of price discovery the process could be as efficient as the auction system that gained currency after the generous revenues that 3G licences yielded for the government. Industry will welcome a relaxation of merger and acquisition rules. As current experience with Swan and Idea has shown, limits such as a 10 per cent cap on intra-circle holdings only promote practices that serve neither the consumer nor the industry. Given that the minister has also said each circle will have at least six competitors instead of four, the dangers of creating market-distorting monopolies are also limited.
The big game changer for the industry is Mr Sibal’s Monday announcement reducing the tenure of a licence from the current 20 years to 10. The proposal is expected to evoke sharp protest from the 14 service providers, some of whose licences will come up for renewal in 2014. For one, banks lending to telecom companies will be required to take an altogether new valuation perspective. A shorter licence regime, with the re-application process required to be started after seven and a half years, would not only mean higher interest costs, but, crucially, also shorter breakevens. Together with higher spectrum fees mobile operators are bound to feel the pressure, especially newer ones that have not had the opportunity to amortise many capital costs like the older incumbents. Consumers, however, are unlikely to complain since the shorter licence tenures will force companies to raise their service standards in a milieu in which the entry barriers are falling rapidly. Indeed, Mr Sibal had promised a telecom policy that would benefit the aam aadmi, the talisman of the UPA. His test will lie in the details of the final draft.