Future disputes

New spectrum trading norms fail to recognise ground reality

The guidelines for spectrum trading issued early this week by the Department of Telecommunications, or DoT, were meant to ease the scarcity of airwaves for large telecom companies and improve their quality of service. While it is not clear if the new norms will help achieve these objectives, they certainly have left the doors wide open for disputes in the future. The Cellular Operators' Association of India, or COAI, had, in a series of letters written in September, raised the issue of spectrum trading in the coveted 800-MHz band. Administered spectrum to be traded in this band first needs to be "liberalised" - the seller must pay to the government the difference between the price determined at the auction in March this year and the price at which it was allotted. COAI had contended that in as many as 12 telecom circles, the price determined in the March auction did not reflect the true value of the spectrum because the spectrum on the block was less than five MHz, which made it unfit to launch a new service like 4G-LTE. Most of the big telecom companies, therefore, stayed away from the auctions. As a result, the combined final price of these circles was just 1.29 times the reserve price. On the other hand, in the 10 circles where spectrum of five MHz or more was auctioned, the final price was 2.06 times the reserve price. However, these 12 circles included Maharashtra, where the final price was 2.36 times the reserve price, and Delhi, where it was 1.37 times. Among the 10 circles, where spectrum in excess of five MHz was on offer, were Bihar (1.01 times), Jammu & Kashmir (1.01 times) and Himachal Pradesh (1.03 times).

In the guidelines, DoT has said that the prices determined in the March auction will be the benchmark for the liberalisation of 800-MHz spectrum. This means it has clearly struck down COAI's plea. To be sure, there wasn't full consensus within the lobby group on this matter: in a recent communication to DoT, COAI had said that one of its members "has a divergent position on the matter". DoT has also said that the proceeds from spectrum trading will get added to the company's adjusted gross revenue on which spectrum user charge (of up to eight per cent of revenues) and licence fees (five per cent) will be levied. The industry had resisted this saying it would amount to double taxation; instead, it had said that the proceeds should be treated as capital gains. This demand too has not been accepted. This could act as a dampener. It could also lead to a situation where the seller marks up the price of the spectrum.

The third issue that industry had raised was about spectrum caps. The merger and acquisition guidelines for the sector, announced in February 2014, said that one telecom operator cannot own more than 25 per cent of one band's spectrum and 50 per cent of the total spectrum in a circle. The industry wanted the 25 per cent cap to be raised to 40 per cent in order to facilitate meaningful consolidation. But this demand too has been ignored. In this scenario, it will be interesting to see if some big-ticket spectrum consolidation takes place or not. It is also likely that far from enhancing spectrum availability among operators and improving the quality of service, the telecom sector will witness more disputes.