The forgotten objective

Telecom policy should encourage efficient use of spectrum

The Telecom Commission's decision to take the middle path on pricing telecom spectrum shows how the issue has been hijacked by two conflicting objectives: maximising revenues for the government and helping out the industry, which is struggling with falling profits. In the process, the cause of efficiency has been relegated to the background. After the Comptroller and Auditor General's reports on spectrum and coal block allocations, the government - ministers as well as bureaucrats - seems to have decided that it cannot be seen as "giving away" a scarce natural resource cheap to a business entity - or else all involved will have to defend themselves for the rest of their lives. This seems to be the sole guiding principle for the government when it comes to spectrum pricing. Telecom service operators, on the other hand, have lobbied hard in the last few years that such an approach can kill the industry. They cite the example of the auction of third-generation, or 3G, spectrum, where companies paid such exorbitant amounts that they are still struggling with the huge debt they had to take on. They also point to recent spectrum auctions, where high reserve prices led to a lukewarm response from telecom operators.

That's why the industry was up in arms last year when the Telecom Regulatory Authority of India, or Trai, recommended a price of Rs 18,200 crore for 5 MHz, or Rs 3,400 crore per MHz, in the 1800-MHz band. Last month, Trai came out with a new price, Rs 1,497 per MHz. The industry was happy, but the Department of Telecommunication (DoT) felt the price was too low and did not reflect the true value of spectrum. An internal committee of DoT, thus, called for raising the base price by 37 to 47 per cent. The Telecom Commission has recommended a price that is 18 per cent higher than Trai's and 20 to 25 per cent lower than DoT's. The matter will now be brought before an empowered group of ministers, headed by Finance Minister P Chidambaram, whose decision will be final.

In this tug of war, efficiency has been lost sight of. Since spectrum usage is inefficient, consumers are struggling with poor connectivity and heavy congestion, which is evident in dropped calls. A recent study by Trai shows that there was a deterioration in service quality parameters such as point-of-interconnection congestion, call drop rate and connection with good voice quality in the quarter ended March 31 compared to the previous quarter, though there was improvement in base tower station downtime. Inexpensive spectrum can lead to hoarding and inefficient usage, and too high a price can stress the financials of service operators. In a way, there has been a move towards efficiency in spectrum usage as administered prices get replaced with auction-determined prices. In the earlier regime, where additional spectrum was allotted when the service operator achieved a certain base of subscribers, many companies blindly acquired subscribers, even at a loss. Now that spectrum has to be bought, many service operators have switched off non-paying subscribers. The logical step is to make efficiency the basis of spectrum pricing.