With the telecom industry up in arms against the Telecom Regulatory Authority of India (Trai) recommendations for the auction of 2G band spectrum and companies like Telenor threatening to quit the country if those are implemented, Trai Chairman J S Sarma defends his decision to propose a high base price and says criticism of his recommendations is not new to him. Excerpts from an interview with Mansi Taneja and Surajeet Das Gupta. Edited excerpts:
You have been attacked by operators who say this will force consumers to pay higher rates, which will go up by 30 per cent to 40 per cent. They have even written to the government on this. What is your take?
In the first year, the cost increase will be 3.6 paisa and in the 20th year, it will be 0.8 paisa for the industry as a whole. And, the average will be around 1.5 paisa/minute. We must appreciate that people’s paying capacity will also increase in this time period.
First, we do not think the increase will be passed on to consumers, and operators will be able to absorb it. Even if it is passed on to the consumers, it will not be a big burden. More important, over a period of time, ability of Indian consumers to pay up for the services will also increase with the rise in per capita income.
We are thinking of the next 20 years while giving away spectrum. We seem to be concerned about the immediate fallout of it, and are overlooking that fact that whatever is being given is for 20 years. We believe the prices are not going to rise.
If you want to have immediate satisfaction of every body, then the nation is also likely to lose some money. Let’s be clear if we want to realise the full value of spectrum or not. In a situation where people are accustomed to receiving spectrum at a low price, it is natural that the prices will appear to be high and people tend to react.
Will the increase in cost also mean raising the benefit you are passing on in terms of lower spectrum charges?
No, the savings are not included. The low spectrum charges are based on the principle that if somebody pays the full price for spectrum, then the spectrum usage charges would be only to cover the administrative cost.
You are auctioning only 5Mhz of spectrum though the availability is 20MHz or more. This, operators say, will create scarcity and push up the price. They say your calculation that the reserve price should be 80 per cent of the discovered auction price might go haywire as it did in 3G.
Definitely, it is one of the aspects where people are reacting strongly. Auction by itself is a method by which you would fix a certain price and offer a certain optimal quantity, taking into consideration your anticipation of the demand.
Currently, we are in a situation where 3G spectrum has already been auctioned and there are certain players in the market, and you need to find the right price. In about seven circles, including Delhi, Mumbai, Bihar, Himachal Pradesh, Rajasthan and Punjab, spectrum is not available after setting aside the spectrum for refarming. But in 15 circles, spectrum is available after the refarming.
Also, you do not know at this stage what is going to be the demand. There is no risk of undervaluing spectrum.
With 5Mhz, one new entrant can come in immediately. Others can also come in later. We have taken note of the competition; the index of competition is favourable. If any new entrant, even if it is second and is willing to match the highest bid price, then it will be entitled to 5 Mhz. The earlier operator will get 2.5Mhz. So in that case we will give out 7.5 Mhz of spectrum.
There are four blocks which have enough spectrum for two operators - one new player and another old player or two old players and one new player. This way, we hope to realise the real market value of spectrum.
On what basis have you assumed that the base price will be 80 per cent of the discovered price?
Eighty per cent is a matter of judgment. The value of the spectrum that has been taken is 3G price x 1.1263 (inflationary factor for one year) x 1(efficiency factor).
It is already mentioned in NIA that 3G discovered price would be the next reserve price for any auction. This spectrum, which will be up for auction, will be capable of doing 3G and much more. We could have taken it at 50 per cent or 90 per cent .
Why didn’t Trai look at the BWA price as the basis for auctioning, even after this was a discovered price?
The current spectrum for auction is much more valuable than 2,300 Mhz band. The value difference is much higher sometimes. The base price for BWA was half that of 3G, and it was examined and kept as it was by the government as recommended by Trai.
Will the high base price kill new operators giving 2G services?
We are looking at how spectrum will be utilised in the next 20 years. The telecom scenario is changing, and has changed a lot in the last 5-7 years. Data will play a bigger role in that. If 1800Mhz spectrum is not capable of providing different services, then it is another matter. But, if you are artificially restricting it by saying it is meant only for voice, then it will be underutilisation of spectrum. We must allow technology to be fully utilised, and this will naturally add value to spectrum. Several countries are using 1800 MHz for LTE 4G services.
How do you think data services will grow?
In case of Category A circles and the metros, data services will contribute more than 50 per cent. Category B and C circles will also witness growth. Consumers in urban areas will consume more data. In the next five years, revenue from data will be 50 per cent of the total revenue, that is, non-voice services. Currently, it contributes 15 per cent to the operator’s revenues.