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| Sunil Jain: Stop picking winners | | Differential spectrum fees implies the government is still playing favourites |
| Sunil Jain / New Delhi Feb 01, 2010, 01:24 IST |
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As the Telecom Regulatory Authority of India (Trai) finalises its recommendations on a new regime for spectrum pricing (fees) and allocation, it may be a good idea to examine just who is paying what for using this scarce spectrum. In the bad old days when firms like Reliance started CDMA-mobile services, it was well known that the government was favouring them over GSM-mobile phone companies like Bharti — CDMA-mobile firms paid no licence fees, got paid each time a call was made to their network, had different pulse rates and so on. The problem is that, to a large extent, the government is still playing favourites, and this is what Trai needs to keep in mind while finalising its new recommendations on the Subodh Kumar report on this issue.
The principal problem area, as the Kumar committee pointed out, is that of differential charges — a CDMA players pays a 2 per cent revenue share for up to 5 MHz of spectrum, 3 per cent when it rises to 6.25 MHz; a GSM firm pays 2 per cent for up to 4.4 MHz, 3 per cent for 4.4-6.2 MHz, 4 per cent for 6.2-10 MHz, and so on. So, we’re at a stage now when several players like Reliance Communications (RCom) and Tata Teleservices have more spectrum than the GSM lot (that’s because RCom and Tata Tele now offer both CDMA and GSM services) but pay a lot less spectrum fee. Which is why the committee was of the view that the government needed to move to one uniform fee, regardless of whether a firm used CDMA or GSM and whether it had 5 MHz or 10. Just look at the allegations against RCom about showing a part of its mobile revenues as internet ones (there is no licence fee on the latter) and it’s obvious one flat rate will reduce arbitrage opportunities — imagine the confusion when firms start sharing spectrum and when there’s yet another rate for 3G players!
The differential spectrum charges are defended by the government and the CDMA players, by arguing that CDMA makes more efficient use of spectrum and so it is only right that they pay less. The problem, however, dramatically worsened when dual technology was allowed and firms like RCom/Tata Tele got GSM spectrum in addition to the CDMA spectrum they already had — while Trai was in favour of clubbing the GSM and CDMA spectrum to charge a higher fee, the government turned this down and so, RCom, which has an average of 9.1 MHz, paid Rs 44.6 crore of spectrum fee in the September 2009 quarter, Tata Tele paid Rs 44.9 crore for its 7.8 MHz versus Bharti Airtel’s Rs 291.4 crore for 7.6 MHz and Vodafone Rs 192.5 crore for its 6.5 MHz. In other words, while Bharti paid Rs 38.4 crore per MHz and Vodafone Rs 29.5 crore, RCom paid Rs 4.9 crore and Tata Rs 6 crore! If you look at it in terms of subscribers, Bharti paid Rs 26.4 per subscriber, Vodafone Rs 23.3, RCom Rs 5.2 and Tata Rs 9.6. In other words, the government is getting a lot less revenue, thanks to its present fee structure.
Another issue proving to be problematic in the Trai consultation — which is why its recommendations are getting delayed! — is the difference on whether to accept the Subodh Kumar recommendation on auctioning all spectrum. After the furore over Communication Minister A Raja allotting 4.4 MHz of spectrum to a few firms in 2008 at prices discovered in 2001, the committee took the view that while what was done was done, this had to be prevented in the future. The newcomers and the minister, however, argue that they should be given another 1.8 MHz free since their licence allows this. While the Delhi High Court decision on the matter (STel had challenged Raja’s actions in the court) makes it clear the allocation procedure was faulty — so the licence “rights” are really irrelevant — what’s interesting to note is what this additional allocation will cost. A good idea is to take the base price of Rs 3,500 crore that the government has fixed for the 3G auctions. Given that 5 MHz are to be allotted, that’s Rs 700 crore per operator per MHz at an all-India level, do the maths for the number of operators who will have to be given the 1.8 MHz in each circle, and that’s around Rs 9,500 crore the government will lose by way of entry fees!
Equally important for the Trai, especially since it is in favour of one-second pulse rates and other measures to drive down prices to the current suicidal levels, is to realise the consequences of this on government revenues. In the September 2008 quarter, the government earned Rs 98.1 for each of the 315.3 million subscribers the industry had; by September 2009, this had fallen to Rs 70.1 for each of the 471.7 million users — that’s a loss of around 1,800 crore on an annualised basis, or around a seventh of government revenue from the sector, a figure which has worsened after the introduction of 1 paise per second rates. So, the government loses at least a seventh of its potential revenues as operators lower rates to grab more subscribers and this will, if 1.8 MHz of spectrum is given out free, cost it another Rs 9,500 crore of lost revenues!
How difficult is it for Trai to understand this pretty basic level of maths?
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