)
Last week, the Telecom Regulatory Authority of India (Trai) stuck to it’s guns by making no changes, even after the Department of Telecommunications (DoT) asked them to have a relook at some of its key recommendations which include reduction in spectrum prices.
Even while the Telecom Commission meets today to take a final call on whether to accept or change the regulators recommendations, Trai chairman Rahul Khullar explains why it stood by its views to Surajeet Das Gupta and Sounak Mitra. Here are the edited excerpts from the interview.
DoT and Telecom Commission has said that Trai’s recommendation does not appear to reflect the value of the liberalised spectrum hinting that it should be higher, Trai stuck to its original recommendations favouring stiff reduction in spectrum prices, stating that DoT’s observations were puzzling. What made you do so?
We have given detailed explanations for everything in the document that the Authority sent back to the Department of Telecommunications (DoT). The overarching purpose of all the recommendations is clearly explained in the Introduction (Chapter 1) of the document. Detailed parawise comments are in Chapter II.
And, there is an Afterword. We are on the verge of a major opportunity. This is a sector that can be turned around. Man-made mistakes have brought us to this pass; we should learn from history and move on. Now, it’s the Government’s call whether we want to take that opportunity or not.
Justice not only has to be done, it also needs to be seen to be done. Any attempt to reserve spectrum will be non-transparent and will appear as if it is being done in someone’s favour even if that is not the intention. Hence, an unrestricted, open auction is the best way forward. It will prevent any fallout later. Some companies may want reservation. We do not have to agree with every single thing that they might want. The task of the Authority is to ensure the success of an auction that is open, transparent and objective.
DoT does not want to put in a timeline for availability of spectrum. Is that right?
There is 143MHz of spectrum that ought to be available with Government (on the basis of the understanding with Defence). The Government needs to make some statement about availability for the future, so that companies know what would be there for them in store over the next few years. They should not be kept in the dark: how will they plan to participate in an auction if a future path is not delineated.
You also pushed for uniform roll out obligations.
Today, Roll-out obligations are different from one company to another in the same LSA. The roll-out obligations depend on when the company actually received the licence/spectrum. This creates a non-level-playing field. Moreover, the Government framed the original roll-out obligation guidelines 20 years ago. And, even today, there are 50,000 uncovered villages and rural penetration is stagnating at 40%. Is this really a great achievement? The Government has, in the National Telecom Policy 2012, clearly stated that rural teledensity must be rapidly increased.
What we have said is that the Government should give equal treatment to all operators in like circumstances. The roll-out obligations should be de-linked from the auction, and create a level-playing field. Second, we have said impose new roll-out obligations that ensure more coverage; but give operators time to comply.
The DoT has stated that changing roll-out conditions violates the guidelines specified in the Notice Inviting Applications (NIA). The Authority is not convinced with the statement that NIA is sacrosanct and its clauses cannot be amended. A sovereign policy decision to reach 100% penetration in rural India by 2020, incorporated in the NTP 2012, has been cleared by the Cabinet. Surely, that sovereign design trumps an NIA condition.
While both the Telecom Commission and the DoT committee had stated that adopting the extended GSM band is not possible right now, you once again stuck to your point that the proposed EGSM band be carefully examined.
What everyone needs to understand is the opportunity cost of auctioning the 800MHz spectrum. The 800MHz spectrum can be used in providing LTE services or t can be used in extending the 900MHz band. Now, the value of this spectrum when put to such use is three to four times higher than what it is today.
And, at least one of the operators using CDMA technology, said they want it at one-fifth of the current price (reduce March, 2013 auction prices by 80% !). This is not simply justified. In 800MHz band, any operator can offer the latest technology-based service with 5MHz of spectrum. In the previous two auctions, operators did not bid simply because they do not need spectrum. In fact, one of the CDMA operators has already volunteered to surrender some of its spectrum in the 800MHz band, as it does not want to pay the one-time charge for the additional spectrum.
Another major operator already has 5 Mhz in most circles. So, the incumbent operators are not willing to bid in auctions because they have “enough” spectrum.
The reason some want the price of 800MHz spectrum to be reduced is that this will bring down their one-time charge which they have to pay for the additional spectrum, they hold over 2.5 MHz. And, they have clearly demonstrated a lack of interest in buying the spectrum through auction.
In some circles, there is a large quantum of spectrum lying unutilised in the 800MHz band, especially the category-C LSAs. In many such LSAs like North East, J&K, Himachal Pradesh and Assam, for instance, converting 800 MHz to EGSM can help in providing services at lower investment cost.
And, there are LSAs like Uttar Pradesh (East) and Uttar Pradesh (West) where unutilised spectrum in 800MHz band is available. The Authority has given enough evidence to prima facie establish that EGSM band is workable. All we are saying is examine the possibility in a time-bound manner so that there are no regrets later. It would simply not be correct to sell 800 Mhz spectrum for a fraction of what Government could possibly realize from its sale.
Why do you think that the price that Trai has recommended is justified?
We have determined the value of spectrum and then determined the reserve price. We used different models, including the discounted cash flow model which industry suggested. Then, we took a fraction of 0.8 to determine the reserve price for the auction. We have given enough justification for the models we used, including international practice.
During the consultation process, we asked industry to come out with an alternative way to compute valuation. They did not have any. So, nobody has given us any workable alternative. Hence, we went ahead with what we had. Now, in the Authority’s work, the models determine valuation which, in turn determines reserve prices.
How can we ‘reconsider’ (change) the reserve price? We have no other model or method of valuation proposed. In that case, all we can do is stick with what we determined. The Government is free to change the reserve prices; but then it must also justify its reasoning.
On uniform spectrum usage charge (SUC), you not only stick to the point noting that there was no valid grounds for reconsideration, you also hinted at reducing it further to just one% of adjusted gross revenue (AGR). You have said that if DoT is of the view that a uniform SUC rate should be 1%, the Authority will not have any objection. Why do you think SUC should be lowered?
Everything that is flawed in the slab rate system has been highlighted. We have proposed a graduated transition to a SUC of a uniform three%. The first step is to charge 3% SUC for all auctioned spectrum. Second, do not add auctioned spectrum to existing stock for determining the slab rate.
Third, since BWA spectrum operators are now being licensed for voice, the SUC should be 3%, not 1%; that ensures fairness across TSPs. We have also suggested that the spectrum usage charges be capped at five% with effect from April 2014 (for those on the slab system).
As per our calculation, the impact of this SUC is Rs 1,500 crore over 10 years, or about Rs 150 crore a year. By 2015-16, all companies, including the early entrants will have only auctioned spectrum. They would transition to a 3% regime.
If the Government wishes to bring down the SUC further, we concur provided it is kept uniform for everyone. The Authority’s stance is crystal-clear. Everyone should be paying the same rate. So, if 1% is what some operators are paying and the Government wants it to be brought down to that level, then everyone else should also get the same benefit.
So, what would be the impact on tariffs?
We have only recommended a reserve price of spectrum. The final price will be discovered in auction.
My guess is that the impact will not be more than three to four paisa a minute.
Will spectrum be sold at this price which you have suggested?
At these reserve prices spectrum is expected to be sold. We think that the auction will be successful. Companies will bid fiercely for the 900MHz band, and as 900MHz spectrum gets sold, some will lose out and they will have to bid for 1800MHz, otherwise, they will be out of business.
Also, we need to keep in mind the fact that this is the first time the Government is going to auction such a large quantity of spectrum. Once bought, the usage right for the spectrum is valid for 20 years. Who wants to miss this boat?
You have once said that free roaming is not practical. Why do you think so?
There are good technical reasons why it simply cannot be done. If nation-wide free roaming is implemented, non-roamers will end up paying for the roamers. This is inequitable. Just 12% of mobile users roam frequently. Why should the 88% of the subscriber base pay for just 12% of the affluent segment of the mobile users?
We have issued some guidelines and orders, so that options are given to the consumers, and roaming costs come down. We shall review this by June next year. Across the world, nobody has, till date, come out with a solution to the roaming issue. And, we have 22 telecom LSAs, just like EU has 27 separate markets. This is not an easy issue. But, I am told roaming charges have started coming down. Let us wait and watch.
There have been quite a few recommendations from Trai on the information and broadcasting issues. Why did Trai need to work on information and broadcasting issues in the past one year? Do you think the industry needs more tight regulations?
Over the past one year, there have been a lot of issues on which the Ministry of I&B has sought recommendations. The Authority had earlier given its recommendations on some of these issues earlier as well. But the Ministry has sought fresh recommendations.
There are also some new issues on which advice has been sought. The range of issues includes, foreign direct investment (FDI) in media across platforms, television ratings, cross-media ownership, monopoly in cable distribution, DTH licensing, among others. We shall give our recommendations on monopoly in cable services, aggregators, and DTH licensing, within the next few weeks. Over 90% of the television channels have complied with the 12 minute advertisement regulations.
