Spectrum auction set to open fresh can of worms

Multiple disputes to ensue auction begins today, but will do little to quell uncertainty

Even as the auction of 2G telecom spectrum is set to begin tomorrow, the government faces the spectre of a series of legal challenges from companies. That could lead to another phase of uncertainty in the sector.

On the face of it, the empowered group of ministers on telecom and the Cabinet have taken some key decisions in the past few months, which seem to have resolved all contentious issues. They have pushed through the proposal to refarm spectrum in the 900-MHz band to 1,800 MHz, allowing incumbent operators to keep only 2.5 MHz. They have also imposed a one-time spectrum charge on incumbent GSM operators for spectrum they hold beyond 4.4 MHz (2.5 MHz for CDMA players). An auction base price has been fixed at Rs 14,000 crore for five MHz in the 1,800-MHz band.

However, GSM operators are bracing to challenge at least two of these decisions in court. Says Rajan Mathews, director general of Cellular Operators Association of India (COAI), “The choice is clear: either the government rectify its decisions or everything will have to go to court, leading to months of uncertainty.”

LEGAL CHALLENGES

• GSM operators will challenge refarming on the grounds that their contract says their licence will be extended, not renewed
• CDMA operators say the contracted spectrum they are supposed to get is up to five MHz; so, they should not pay a one-time charge for spectrum below that
• GSM operators say even spectrum beyond 6.2 MHz was given based on a clear policy; so they should not pay a one-time fee
• Refarming move hinges on decision whether all 2G spectrum is auctioned
• If there are no takers for spectrum in certain circles, there will be no auction-discovered price to fix a one-time charge
• With a large amount of spectrum expected to remain unsold, the govt might have to re-auction it. If that happens at a lower base price, those buying now could challenge it

COAI says it will challenge the refarming move because under their contracts, telcos’ licences were to be extended, not renewed as the government now says. CDMA operators are also getting ready to challenge the decision asking them to pay a one-time spectrum charge prospectively. Says Ashok Sud, secretary general of AUSPI, which represents dual-technology players, “It is very clear to us that our contracted spectrum is up to five MHz. We have taken the opinion of legal luminaries and they have supported our view.”

The Supreme Court last week asked the government to explain why the entire spectrum available after the cancellation of licences had not been put up for auction. It was hearing a petition filed by COAI and some operators. Experts say the entire refarming process is pegged to a final decision on this issue. “If all spectrum (out of 471 MHz, only 271 MHz is up for auction) has to come up for auction now, it would mean the death of refarming as there will be no spectrum available for refarming from 900 MHz to 1,800 MHz,” says a top executive of a telecom company.

To avoid legal trouble, the department of telecom in July offered telcos a package, including a liberalised spectrum regime, re-farming of 800/900-MHz spectrum and no imposition of a one-time fee retrospectively, provided the companies withdrew all court cases. But the attempt failed, as companies such as Tata Teleservices opposed the move saying it was unfair to CDMA players.