Opinion The new 2G broom
Sibals moves to clean up telecom will help the industry
Telecom Minister Kapil Sibal has finally moved towards cleaning up the mess in the 2G spectrum space. This was much needed,as it has been much muddied ever since his predecessor,A. Raja,allotted nine licences in January 2008 at 2001 prices.
What Sibal did over the weekend,de-linking spectrum from licences,is the only pragmatic way to move forward,since it is difficult to achieve the ideal level playing field when different players have entered at different points in time. Naturally,early movers would have certain advantages and even disadvantages vis-a-vis newer players,so it is futile to try to balance them out exactly. The best way forward is to take a cut-off date,and come with policy measures that are fair to all.
The only unfortunate part of Sibals policy announcement is the timing. It would have been much better had it come prior to his making statements which were seen as backing Rajas moves allocating licences/ spectrum without auctions,and concluding that there was no loss to the exchequer as a result. Whatever criticism has been levelled at his latest pronouncement is only because he is now seen to be doing an about-turn as compared to his earlier stand. But then,politics has its own compulsions,and Sibal will be forgiven if he is able to deliver on the long-term goals.
Sceptics feel Sibal may have bitten off more than he can chew and is sure to run into litigation. The premise for such a view is simple: incumbent players like Bharti,Vodafone and Idea have spectrum in excess of the contracted 6.2 Mhz,and will have to pay for it according to a market-determined price. The problem comes when Sibal says that even newer operators,having 4.4 Mhz spectrum,will have to pay for their next tranche of 1.8 Mhz because this would be seen as reneging on their contracts. Will this set of operators not head the courts?
Further,Sibal has said that in the event of cancellation of the Raja licences,the ones in queue will also come under the new dispensation. The problem here is that those lost out because of Rajas manipulating the rules. They can today argue that,had they been given licences way back in 2008,they would at least have got 4.4 Mhz spectrum free not the case under the new dispensation. Will they too not head to the courts?
The answer is highly improbable in both cases. Sibal has done his homework well. There will be a bit of song-and-dance from the first set of operators,but they wont head to the courts because it is clean spectrum which matters to the ones who are serious. For non-serious players,a liberal merger and acquisition rule is on the way to exit.
Sibal also knows that ground realities have changed since 2007-08,and telecom licences no longer fetch high valuations. So none of the players in queue are going to ask for a licence in the first place so why worry about litigation? Second,if any serious operator wants a licence,his focus would once again be on clean spectrum,rather than the kind some players got in 2008.
So while the litigation aspect could be debated in theory,there seems to be no real threat of it in reality.
In fact,the government will end up earning more as a result of Sibals measure. If the licences are cancelled and if there are then fresh takers,the government will charge them market rates. If they are not cancelled,then all the operators will pay the government market rates for getting additional spectrum!
The other apprehension is that tariffs may once again start rising. This apprehension is,once again,misplaced. Tariffs are driven by market competition and not by costs. This has been fairly established in the Indian market. There was,is and will remain more than sufficient competition in the Indian telecom market to ensure that tariffs do not abnormally move upwards,irrespective of whether spectrum is auctioned or not. Anybody doubting this can look at the tariffs being announced by the operators for 3G services
they are lower than those for 2G services!
What will,in effect,happen as a result of Sibals new telecom policy is that tariff alone will not drive any operators business model. Right now,in a model where operators got additional spectrum on achieving a certain number of subscribers per circle,the temptation was to add users through rock-bottom tariffs. However,in the new scenario the race to acquire dud customers will end because,to support them,operators would have to pay a good amount. Who would want to pay more for spectrum when he is not realising a fair value from customers? The result will be better business models from the operators,and only those will survive who are able to grow as a pure-play communications company.
This is what is required in the Indian telecom sector at this point of time.
The writer is special correspondent,The Financial Express anandita.mankotia@expressindia.com
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