A more mobile sector

Telecom spectrum is lying unutilised. The industry needs a transparent system of auctions, mergers and exit.

The Telecom Commission has agreed to the suggestions made by the Telecom Regulatory Authority of India, or Trai, to liberalise the norms for mergers and acquisitions and allow sharing of spectrum by operators. But it has not addressed the demand made by some telecom service operators who got licences in 2008 to put in place an exit policy. These operators have said that the business environment has changed drastically since then (tariffs have plummeted and bank finance has dried up), and so they should be allowed to surrender their licences (and the 4.4 MHz spectrum that comes bundled with it). The government, in turn, can auction that spectrum. Out of the proceeds, it can reimburse the licence holders what they paid for spectrum (Rs 1,650 crore for a pan-India licence), charge a penalty if they have not met the roll-out obligations — and pocket the remainder.

Older players have been demanding extra spectrum for a while because their network is bursting at the seams, while spectrum is lying unused with the new licensees. This could be a good way to meet the deficit and earn the government much-needed revenue. Instead, the government seems to have pinned its faith on spectrum-sharing among operators as a mechanism that will put idle spectrum to good use. But there is a cap of 25 per cent on the spectrum that an operator can share with others — meaning much of the spectrum with the newcomers will be wasted. Current rules allow mergers of telecom operators provided their combined market share does not exceed 40 per cent. The share of the newcomers is less than seven per cent; so any of the larger operators can merge with one or more of them safely. This is a good opportunity for the newcomers, because they will get a stake in the merged entity that represents the true value of the spectrum they hold — and not the pittance they paid in 2008. But none of them has found a suitor. The reason for that could be that nobody wants to buy spectrum that has come to be tainted by a scam.

In this scenario, an exit policy makes a lot of sense. The price of spectrum should be determined in a transparent way, and an auction is the best way to do it. Only when the price of spectrum, which is a scarce resource, is determined by market forces will there be efficiency in its utilisation. And there seems to be broad consensus amongst all stakeholders on the benefits of spectrum auction. Since the tele-density targets have all been surpassed, the government can safely look at spectrum sale as a source of revenue and not just a tool to boost economic and social inclusion. However, the spectrum policy may lead to another issue. In the past, operators like Bharti Airtel and Tata Teleservices have returned spectrum they had bought but did not need. They have not been paid for that. If the exit policy pays the newcomers, these old cases are likely to be opened one more time. But that amount cannot be huge because these companies too had bought spectrum at very low prices. In other words, that should be a small price to pay for cleaning up the mess.