The telecom authorities, it must be said, includes both Communications Minister A Raja and Trai Chairman Nripendra Misra since, despite Misra's protestations that the government is cherry picking his recommendations, in many ways, their actions are quite similar. So, when the ministry asked Misra if there should be a cap on the number of telecom players, he said none was necessary despite knowing that allotting spectrum to new players would leave little for existing players to expand their subscriber base; to compound matters, he hiked subscriber norms for spectrum usage 4-5 times, which ensured none of the existing players could get more spectrum. He ruled out auctions and, in effect, sanctified the government's plan to allot spectrum to new players depending on when they'd applied for it, and at prices which were probably a third or a fourth of their true value. So, while it is true the government deviated from some of Misra's recommendations, the broad spirit was in keeping with them. |
While the affected firms went to court, most were confident they'd be able to manage by buying out the new licensees to get access to their spectrum. Last week, on the 22nd, however, the government put paid to this when it announced that none of the new firms would be able to merge for a period of three years and significant restrictions were also put on their being acquired (see "Stranded Spectrum," Apr 25). This hit both the established mobile players as well as the new licensees. What it did, though, was to answer Raja's critics who'd argued the new licensees would make huge profits by selling the spectrum they got, with Misra's help, at bargain basement prices.
This is where Trai's latest recommendations, released on Friday, April 25, come in. By recommending that only existing 2G mobile phone players be allowed to participate in the bid for the vastly more efficient 3G spectrum, Misra's given a new lease of life to both the established players as well as increased the value of the new 2G licensees!
Misra's reasons for restricting the 3G contest are interesting, and specious. For one, he argues that, if new players come in, auction prices will rise dramatically and so, consequently, will the costs of 3G telecom services. That's remarkably naïve for a regulator, considering that there is enough evidence to show companies treat such costs as "sunk costs" and price their services, not on the basis of "sunk costs" but on the basis of what the market will bear "" which is why customer tariffs never rose after the fourth cellular licence was auctioned in 2001 or after Vodafone paid Hutch $11 bn for buying out its business last year. But, leave that. Since Misra acknowledges the 3G spectrum available is enough for only 3-4 private sector players, and there are by his own admission 13-14 licensees in each telecom circle, auction values will be high and most players won't get it anyway. How will allowing new bidders change this equation? Interestingly, since the Trai view is that 3G spectrum is not a continuation of 2G spectrum (the previous Trai chief argued the opposite and recommended 3G spectrum be given automatically to existing 2G players), how does it come to the conclusion that only existing 2G players be allowed to bid for 3G spectrum?
It does so by implicitly arguing that these firms have made huge investments, which will go waste if they don't get access to additional spectrum (3G spectrum can serve 2G needs of voice telephony more efficiently). Imagine the irony "" the Trai/communications ministry first cut off access to more 2G spectrum by giving this to new players and by hiking subscriber usage norms dramatically, then they grant 2G firms exclusive bidding rights to 3G spectrum to meet their legitimate needs! All this, of course, could have been avoided by simply mandating auctions for spectrum "" since the price would then be market-determined, there would be no need to fix subscriber norms or even restrict mergers and acquisitions.
The interesting thing in this entire exercise is the dramatic increase in the discretionary powers of the ministry. The notification of the 22nd, for instance, talks of how a "spectrum transfer charge" and a "spectrum enhancement fee" is to be levied when firms merge "" it doesn't specify what this charge is. Presumably it can be discussed with the authorities. It is up to the ministry, similarly, to decide if, after 3G licenses are issued, these can be traded and, if so, under what conditions! Discretion, at the end of the day, is what politicians and bureaucrats love since that's where they get their power from.
