 "Rahul Khullar")
How did you reach to the conclusion of a substantial reduction in pricing of spectrum for the future auctions, especially as there have been a lot of discussions alleging that the country has lost thousands of crores due to wrong pricing of spectrum?
The regulator was conscious of the fact that the previous two auctions had failed. And, we needed to solve the problem, which was not possible if we stuck to the earlier methods. The earlier approach (based on 3G spectrum auction in 2010) was to arrive at a pan India valuation that was then allocated across all 22 telecom zones.
A similar process was used in 2012: indexing the 3G price for inflation and sectoral efficiency. This had two issues. First there was a rule of-thumb allocation from pan-India level to an LSA level. Second, it distorted relative prices viz. this approach did not factor market conditions viz. the LSA specific factors.
This time, we decided to take a completely different approach. Rather than going for the top-down approach, we opted for a bottom up approach. We tried to find out the valuation of the spectrum for each of 22 telecom zones.
The value of spectrum is determined based on market information, technical factors and economic factors. We came up with five or six different methods such as econometric regression, production function, opportunity cost model, etc. And, all of them came up with completely different valuations.
Each method gives different valuations, some of which are low and some are high. In the 1800MHz band, even incumbent operators have bought spectrum through auction in 14 telecom zones. So, this can be taken as a sort of market price or market information. All that the regulator has done is that it has followed scientific methods using market information as revealed in the previous auctions to derive prices.
This is how we determine valuation. The next decision was that reserve price should be 80% of the valuation of the spectrum. The rationale for this is provided in the recommendations.
So, did not TRAI follow scientific methods earlier?
Scientific methods vary from time to time. The method we have used is somewhat different from the earlier one. It is not about the method, rather, it is about how we ‘solved’ the problem. The Authority has tried to make an objective assessment, based on the average of just a few possible alternatives.
Valuations are arrived by a few methods. There can be hundreds of alternatives. But we can’t consider all of them as it would take 20 years to reach a conclusion. And we had to complete the process this in just eight weeks.
Also, we had offered all these methods to stakeholders of the industry for their comments. We also asked them to give more alternatives, if they did not like any. But, nobody has given us any workable alternative. Hence, we went ahead with what we had.
With the extended GSM band, CDMA operators say they will have no growth path in the 800 MHz . Yet you recommend the extended GSM band to be auctioned?
What the authority has said is that in the 800MHz band, any operator doing voice has enough spectrum to cater to its users, and everybody know this. CDMA operators with 5MHz or 3.75MHz of airwaves in the 800MHz band are more than adequately capable of dealing with their customers.
In fact, one of the CDMA operators has already volunteered to surrender its spectrum in the 800MHz band. Our approach was that we need to realize the opportunity cost of 800MHz spectrum. If the spectrum in the 800MHz band can be used in creating the extended GSM band, the value of the same spectrum would be three to four times that of the existing value of the 800MHz band.
As per the recommendations, with very little changes we can make 2x5Mhz of spectrum available for almost all LSAs. Once the spectrum in the extended GSM band becomes available for all operators. The point is that we should not sell spectrum in the 800MHz band when there is an opportunity to enhance its value without dislocating any 800MHz band operator in any way.
In most circles, about 15-17MHz is available in the 900MHz band, and if we can add 10MHz more through the EGSM band, there will be opportunity for more than three operators (as it is now), and there can be four players giving everybody an opportunity to bid for it.
In any case, as there is no reservation for the 900MHz band, even though operators wanted it then why should there be any reservation for 800MHz band? How could that be justified?
You have now come up with a uniform 3% charge for spectrum usage. How is that justified, and what could be the possible impact? Many say this is a way to offer a huge financial bonanza to the incumbent operators
Ideally there should not be any SUC (or very low charge) at all but that would have revenue implication. At present, there we have a bizarre scheme that stipulates different rates for different spectrum bands and technologies that the operator uses.
What the authority has said is that for anybody who buys spectrum in an auction, the charge should be a flat rate of not more than 3%.
The current system bars anybody from acquiring spectrum, As per the consultation paper, no merger or acquisitions are discouraged because the charges rise because of bracket creep up as you get more spectrum. The authority has also recommended that when an operator buys spectrum in an auction that should not be added to its existing stock of spectrum to calculate the spectrum usage charges. So, the disincentive against spectrum acquisition is resolved.
The BWA spectrum was primarily for ISP and broadband operators and was at 1% SUC now they can do voice also so, we will have to have a level-playing field for all operators. This is why we recommended three% SUC for BWA spectrum.
We also recommended that all spectrum, regardless of bands, should be tradable and all operators should have same roll out conditions.
The only thing besides this is that for everyone else, we have suggested that the spectrum usage charges be capped at 5% with effect from April 2014. Some operators may pay more than 5% but the impact will be minimal. Not the Rs 70,000 crore bonanza that some have alleged about the TRAI has given operators.
Some operators who bid and won spectrum in November 2012 are now saying that the government should refund money as they have paid more compared to the new recommended revised price which is much lower. How will you deal with this issue.
For 14 telecom circles there was voluntary bidder in the November 2012 auction. And four circles did not receive any bid in the previous auctions. The so called problem is confined to four circles – Kolkata, Andhra Pradesh, Gujarat and Tamil Nadu where there is a reserve price lower than the November 2012 base price. But the market price is yet to be determined. Why should there be any refund?
Operators have been increasing tariffs over the past few months. How would TRAI address the issue? Should forbearance policy come under scrutiny.
While operators have increased tariffs, the headline tariff has been at Re 1 which we had accepted earlier. The actual realisation is much lower as all the operators offer a lot of freebies. What most of the operators have been doing is that they have been calling back the freebies over a period of time, essentially because of the pressure on margin. A couple of operators have also increased the headline tariff, but again, they offer more freebies.
Realistically, the increase in realisation is about 2-3 paise per minute per quarter. Over a year, this would be about 8-9 paise. To reach Re 1 might take 5 years. If the operators increase the headline tariff more than Re 1, then the regulator may intervene. What has happened now is that operators have offered tariffs at very low rates, and customers have got used to it, but this cannot continue and the consumers need to understand that.
You have come under questioning on the 12-minute cap on advertisements. The broadcasting industry is divided with news broadcasters saying it will kill them but entertainment channels say it is the right way.
Across the world, there are restrictions and limits on how much advertising can be aired. And, these time restrictions are honoured. In most countries, business models are being adjusted to comply with statutory rules and regulations.
Here some broadcasters are saying change your rule and regulations to suit “our business model”! On the other hand, broadcasters have asked me why shouldn’t content be priced freely? There is a history here and this is a matter which is sub-judice at the Supreme Court right now.
That is why we can’t move towards forbearance in tariffs in the broadcasting sector. Once phase-I and phase-II of digitisation are complete, we may think of bringing in forbearance over next few months.
