Nod to spectrum trading may spur consolidation

The government on Wednesday cleared spectrum trading guidelines, allowing telecom companies to buy and sell unused spectrum to other operators. It is expected the move will trigger consolidation in the sector. Besides, it will improve quality of services, in the wake of a rise in call drops.

The nod follows the government allowing spectrum sharing among operators in the same band.

Trading norms will enable telcos to monetise their unused/under-used spectrum, besides giving them contiguous spectrum. Currently, spectrum is allotted to telecom companies through an auction process.

“The Cabinet has approved spe-ctrum trading in all bands. The telecom sector has been demanding it for optimum utilisation of spectrum,” Ravi Shankar Prasad, communications minister, said after the Cabinet meeting. “The ownership right will be of the government of India. That right of trade can be traded with someone else fully, between two service providers.”

 

A one per cent transaction amount or one per cent of the prescribed market price, whichever is higher, will be imposed on all spectrum trading agreements. Operators will not need the government’s prior approval for this, though they have to inform it of the plan 45 days before it is carried out.

Spectrum is allotted to service providers for 20 years. During this period, some are able to acquire subscribers and grow faster compared to other operators, resulting in spectrum lying unused with some, while others face a spectrum crunch. In India, unlike other countries, the availability of spectrum is relatively small, which is why sharing and trading norms assume importance.

The Centre hasn’t accepted telcos’ demand to not include spectrum trading revenue in adjusted gross revenues (AGR). Operators had sought that proceeds from spectrum trading not be included into their revenues, as this would lead to payment of licence fee and spectrum usage charges twice.

“The amount received from trading shall be part of AGR for the purpose of levy of licence fee and spectrum usage charges,” went an official statement.

The buyer of spectrum, as well as the seller, will have to give an undertaking that their pact is in compliance with all rules and regulations.

“In a sample check, if it is found that an undertaking is wrong, action will be taken, including cancellation of the trading agreement,” Prasad said.

Operators who bought spectrum through auction can go for trading agreements directly. But those allotted spectrum under old licensing regime will have to liberalise the spectrum by paying a market-determined price.

Also, there is a lock-in period. Telcos will be allowed to sell the spectrum through trading only after two years from the date of acquisition through an auction, or administratively-assigned spectrum.

Experts hailed the move. Hemant Joshi, partner, Deloitte Haskins & Sells, said, “Spectrum trading would provide an exit opportunity to operators who have not been able to build scale in India and have been facing unprofitable operations by selling their spectrum.” Major players with congested networks wouldn’t have to wait for auctions to secure additional spectrum and this would aid consolidation in the sector, he added.

Prashant Singhal, global telecommunications leader, EY, said, “It would enable operators with congested networks to acquire new spectrum, improve the quality of services, and reduce call drops.”

However, he said including trading revenue as a part of AGR could be a dampener. “This provision could prove to be deterrent to trading, as this effectively entails a 13 per cent levy --- a licence fee of eight per cent and SUC of five per cent — for the seller. This results in double taxation for the sector, already subjected to about 30 per cent in taxes and levies and reeling under huge debt levels.”

Also, the one per cent transaction fee could negatively impact business for telcos, as they would need to balance the potential benefits of trading against the outlays involved. The prescribed caps on spectrum —25 per cent of the total assigned in a circle and 50 per cent in a band — might impede possible transactions between leading telcos.