The great fall of the telecom sector, by a strange coincidence, was also the beginning of the growing economic crisis in the country. All the ills of the telecom sector have in some manner been reflected in the manufacturing and other key sectors except agriculture. The sector suffered from unviable debt levels; a sharp decline in profitability as a result of poor average revenue per user; and a slow-down in revenue growth. Telecom service companies also suffered from a resource crunch, with inadequate funding to acquire spectrum as well as expand their networks. Investment in spectrum was largely through debt, and the message to the Department of Telecom and Trai was loud and clear: that the telecom companies may not find themselves in a position to acquire spectrum by raising debt. It almost mirrors the outlook of the Indian economy, with lower GDP growth, higher inflation and a huge governance deficit manifested through paralysis in decision-making.
In one stroke, through recommendations announced on September 9, 2013, the Telecom Regulatory Authority of India has brought the telecom sector back on track and has laid down the path for a reform agenda. One hopes that the government will waste no time in accepting the recommendation and perhaps further improve on outstanding policy issues which were not a subject matter of the reference to Trai.
The Trai chairman remarked: "The Authority is of the view that the failure to sell spectrum in many circles in the last auctions of November 2012 and March 2013 has been a setback...The primary task is, therefore, to ensure that spectrum is sold in the forthcoming auction and the impasse does not continue." The reserve price for both 1,800 and 900 MHz bands has been reduced by up to 37-60 per cent of the previous base price. The revised price recommended is realistic, and will encourage competition. Apart from the reserve price, there are several other welcome recommendations - like a uniform fee for spectrum usage charge for all auctioned spectrum; no reservation of spectrum for the renewal of licensees in 900 and 1,800 MHz bands; and offering a tranche of 5 mega Hertz, encouraging the telecom service providers to participate in the auction. For efficiency, the block size in the spectrum bands has also been revised; that should further ease spectrum availability. Rational and constructive roll-out obligations that emphasise the rural expansion of services have been announced. Another positive feature in terms of technological evolution is the adoption of E-GSM, which should enhance the potential of the spectrum band, without becoming tied to any specific technology. Given the no-growth status of CDMA, the regulator has not given a road path for the auction of 800 MHz.
The valuation approach adopted by the regulator is sound, just and fair. It favours none. Instead, various options were determined based on different approaches like production surplus and production function approach. After eliminating the major outliers, the price has been determined based on an average of the different methodologies - thus confirming that it is not the revenue earning agenda but sound econometric analysis has led to the recommendation of spectrum reserve base price.
A new chapter has been written with the recommendation for spectrum trading. It will maximise spectrum utilisation and also enable the government to take a share of the revenue so earned. Trai has indicated that it will soon suggest rules regarding spectrum trading.
The terms and conditions of previous auctions amounted to arm-twisting -- and the high base price ensured their failure. However, issues relating to an indiscriminate levy of penalty as well as uncertainty in the policy governing mergers, acquisitions and exits should be further addressed. Once done, it will become clear that the telecom sector will again become a success story, in the coming economic recovery.
Trai's new recommendations should be welcomed by all stakeholders instead of approaching the dispute-resolution tribunal or the Supreme Court. Telecom service providers will be encouraged to participate in the auction. The recommendations on spectrum trading, once accepted, would also resolve the controversy regarding intra and inter-connectivity amongst service providers.
However, the decision of the telecom department on Trai's recommendation regarding Voice over Internet Protocol (VoIP) should also be announced, for the spread of data and voice. Overall, Trai's recommendation will ensure a positive participation in the auction - and thus will help to determine a real market value for spectrum, with genuine bidders and minimal unhealthy collusion.
The writer is a former Trai chairman
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
