There are two ways of looking at the Telecom Regulatory Authority of India’s (Trai’s) recommendation of a hefty six-fold-plus increase in spectrum prices for operators offering 2G services. One, that it is recognising the scarcity value of a resource that incumbent operators have so far enjoyed at significantly lower costs. Therefore, in recommending that 2G prices contracted up to 6.2 MHz at Rs 10,972.45 crore for a pan-India licence (up from Rs 1,658 crore) and a one-time entry fee for every additional MHz of spectrum at Rs 4,571.87 crore on an all-India basis, Trai is following a principle that it had reiterated in an earlier report. Two, by suggesting that these recommendations apply with effect from April 2010, it is changing the goalposts for operators just as heightened competition and tapering growth are squeezing margins. For the government, the choices range between the Scylla of perpetuating defective policy by rejecting these recommendations and the Charybdis of incurring the wrath of incumbent operators by raising their costs significantly. Judging by Telecom Minister Kapil Sibal’s statements and the growing pressure on the government from an unexpectedly united Opposition on former minister A Raja’s licensing peccadilloes, the latter option looks likely. More so since Mr Sibal has also hinted that newer operators may have to pay “market prices” for spectrum above the start-up amount of 4.4 MHz.
It is true that there is an urgent need to correct what was a patently inefficient pricing policy for spectrum. It is also true that incumbent operators were expecting some sort of new impost — especially those that hold spectrum above the 6.2 MHz contracted in the original licences. Even so, the recommendation of retrospective application for the higher prices, however, is probably unfair on two counts. First, it is unreasonable to penalise operators for bad policy on the government’s part. They did not, after all, steal the extra spectrum; they were given it by the government on an admittedly inefficient subscriber-linked criterion. In that sense, they could not have been expected to look a gift horse in the mouth. Also, the opportunity to correct the skewed pricing for these players would have presented itself in four or five years when the 20-year licences come up for renewal and when a new pricing is entirely in order. It is also worth noting the new operators, which are waiting for the remaining 1.8 MHz of spectrum, are also unhappy. They see the policy as legitimising an inequitable policy.
But there is much more hanging on the government’s acceptance of this policy than just the comfort or discomfort of operators and political parties. The predilection for chopping and changing policy on natural resources is hardly a desirable signal for the investment community, domestic or foreign. As with the Cairn-Vedanta deal where the government is seeking to arbitrarily impose a change in royalty payment norms that would impact valuations or in its reneging on its residual stake sale deal with Sterlite on Balco or the policy flip flops on Posco’s project in Orissa, or indeed the latest case of ISRO, Antrix and Devas, where private parties are being asked to pay a price for governmental flip flops, the signals from Raisina Hill are scarcely reassuring. The task of evaluating Trai’s recommendations, thus, should be seen from that prism.
