Nod for spectrum auction

But airwave sales may not resolve all the telecom woes

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The Union Cabinet on Wednesday cleared the largest-ever auction of spectrum in the country: if all the airwaves get sold at their base price, the government will get richer by Rs 5.44 lakh crore. This is a lot of money and has led to the accusation that the government is fleecing the telecom industry to meet its revenue targets. The telecom companies have argued that the price of Rs 5.44 lakh crore is more than double the industry’s 2014-15 turnover of Rs 2.54 lakh crore and that this will lead to a sizeable increase in their debt burden, currently estimated at Rs 3 lakh crore. However, almost three-fourths of this money is budgeted from the sale of 700 MHz spectrum, which telecom companies have said is prohibitively expensive. Bharti Airtel, Vodafone and Idea Cellular, the three largest players in the market, have indicated that they will not buy spectrum in this band. If the rest of the spectrum gets sold, the telecom companies will need to arrange upwards of Rs 1.25 lakh crore. As they are required to pay 50 per cent of the money upfront, this could mean an additional burden of Rs 62,000 crore during the current financial year, which admittedly is not insignificant, but is way short of the Rs 5.44 lakh crore being cited. This, realistically, is what the government should hope to get during 2016-17. The money would be slightly more than the Rs 56,000 crore it has budgeted from spectrum sale during the year. Along with licence fees and payments of earlier auctions, the government had budgeted for almost Rs 99,000 crore from “communication services” this year.

Of all the frequencies on the block, 700 MHz offers the best propagation qualities, and is, therefore, ideally suited for data-heavy 4G services. As there is hardly any spectrum available in 800 MHz and 900 MHz, this was a coveted band. Since it is very expensive, the rollout of 4G services may get impacted, the industry has argued. However, the government has put large chunks of spectrum on the block in the other frequencies of 2,100 MHz, 2,300 MHz and 2,500 MHz, which too can be used for such services. In 1,800 MHz, because of harmonisation, most of the circles have over 5 MHz of spectrum, the minimum size required to launch 4G services. The better availability of spectrum could lead to an improvement in the services. Telecom companies have threatened that the high-priced auction could lead to a rise in tariffs, but a spike is unlikely to happen in a hyper-competitive market like India, where there are at least half a dozen service operators in each circle. The quality of service will also depend on the on-ground networks. A lot of people are reluctant to offer their terraces for telecom towers because of fears of harmful radiation. This is where the government needs to step in: it could ensure that its buildings host telecom towers.

However, the issue of spectrum user charge continues to hang fire. The Telecom Regulatory Authority of India or Trai had proposed flat rate for spectrum user charge, but the Attorney General had opined that this may not be feasible. The matter has been referred back to the regulator. Spectrum auction cannot happen unless the issue of spectrum user charge is sorted out. Trai, therefore should arrive at a decision quickly.