Editorial: Stranded spectrum

For more than a year now, it has been argued (by no less than the Prime Minister himself) that the telecom ministry would be well advised to auction the fresh spectrum available for giving telecom firms since this would fetch the government a good price and prevent charges of favouritism. Communications Minister A Raja, however, ignored these suggestions and sold spectrum in small lots at bargain basement prices. The adversely affected parties, typically the existing mobile phone firms, went to court as they found that the spectrum they required for their future rollout was being handed out to new licensees, leaving none for them. Then, as the case dragged on, the chiefs of these firms pointed out that, if need be, they would buy out the new licensees. In other words, instead of paying the government good money to get additional spectrum in an auction, Vodafone or Airtel would pay it to one of the new licensees "" the loser would be the government, which could have got the money had the spectrum been auctioned in the first place.

 

Having had his way on the auctions, Mr Raja has now gone and complicated matters further. The new merger guidelines announced by his ministry earlier this week do not allow any merger for three years, presumably to address the criticism that those who had got the spectrum at bargain-basement prices would make a quick buck by immediately selling it off. That means the new licensees have no choice other than to roll out their networks with the 4.4 MHz of spectrum allotted to them. But since most of them are not telecom players and many do not have the large sums of money required to roll out a full-fledged network, especially in a market that already has established players, it's likely that large parts of the spectrum they have got will remain idle till they go bankrupt and return the spectrum to the government.

The policy also does not allow individuals/firms to own more than 10 per cent of two or more telecom firms in any circle. This means that no existing player can acquire any of the new licensees, unless this is done through opaque deals involving middlemen. A new player, like British Telecom or AT&T, can, however, acquire one of the new licensees. But since 4.4 MHz of spectrum is not enough to roll out a decent-sized network, such firms will have to merge with another licensee, after the three-year ban is over. But this may not happen either since the policy says that, if two licensees merge, they must within three months of merging have enough subscribers to meet the subscriber criterion. In other words, if Firm A has 4.4 MHz of spectrum which requires it to have half a million subscribers in metros, within three months of buying Firm B with 4.4 MHz of spectrum, the combined entity must have a million subscribers. The only way this can happen is if, at the time of the merger, Firm B also has nearly half a million subscribers. That is, Firm A cannot consider buying Firm B in order to use its extra spectrum. In other words, Mr Raja has ensured that the existing companies don't stand a chance of getting additional spectrum; and the new ones who have got the spectrum don't have an exit route in case they don't do well. All these complications could have been avoided if Mr Raja had auctioned the spectrum in the first place.