Out of order

Sibal will find it hard to delink spectrum policy from the past

Union Minister Kapil Sibal’s latest proposal to delink telecom licences from spectrum allocation suggests that he has finally come round to agreeing with the Comptroller and Auditor General’s view on revenue losses from underpriced spectrum. To be fair, Mr Sibal’s new stance is logical. Spectrum is a scarce resource and should not be given away for commercial purposes at sub-optimal prices, especially by a government struggling to control a ballooning fiscal deficit. It is a point that the windfall from 3G licence auctions underlined. The Telecom Regulatory Authority of India (Trai) has made this point any number of times, the latest being in its Spectrum Management and Licensing Framework of May 2010. Indeed, Sibal is echoing Trai when he says, “The stage has been reached where there is enough competition to warrant a market-driven process for the allocation of 2G spectrum.” Even so, his latest policy statement, that operators who were given 4.4 MHz of start-up spectrum, the minimum required to launch GSM services, in 2008 will have to pay market-linked prices if they want more, is not entirely kosher, apart from running the risk of being challenged in the courts.

True, operators are being disingenuous when they claim that a 6.2 MHz allocation is a contractual obligation and that Mr Sibal’s statement is not legally tenable. In fact, the licence states that spectrum will be allocated on the basis of availability and the operator’s ability to justify the need for it. So Mr Sibal is following the letter of the law. But government rules are not always about working only within the legal contours of an issue; industry dynamics and public policy objectives also count. Indeed, if the mega-mess over spectrum that precipitated Minister A Raja’s ignominious exit from government proves anything, it is policy stasis. To come to the specific issue of spectrum allocation and pricing for new operators, Trai concluded that the 6.2 MHz is the commitment for GSM services — the more widely used of the two mobile technologies, CDMA being the other. As a result that allocation has come to be regarded as something of a norm. So it is not unreasonable for new licensees to expect this level of allocation. The older incumbents’ case, on the other hand, is slightly weaker. They have been allocated additional spectrum over and above the 6.2 MHz minimum virtually free and now face the prospect of paying humungous 3G-linked premiums for this excess.

Their case is that the allocation process for extra spectrum may have been ad hoc but they cannot be faulted for taking advantage of what was admittedly a weakness in government policy. But it is also true that the user linkage as opposed to a usage link for additional allocation has encouraged an inefficiency – equivalent to “gold plating” by fertiliser manufacturers – that has robbed the government exchequer. Today, it is suspected that telecom subscriber numbers are inflated 30 to 40 per cent as a result of this. So, in delinking a scarce resource from the rentier proclivities of commercial players, Mr Sibal is clearly keen to make a new start for telecom policy.