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Trai and try again

Trai’s recommendations attempt to correct past errors.

Written by Rajat Kathuria |
May 14, 2010 2:56:28 am

Amidst the huge bids being generated by the 3G auctions which must have taken everyone by surprise,including the Department of Telecommunications (DoT),the Telecom Regulatory Authority of India (TRAI) issued recommendations on a longstanding issue in the telecom sector in India. Spectrum assignment had become a contentious and litigious issue,urgently needing review.

Spectrum and licence have historically been bundled and there is no “market” for 2G spectrum at present. 2G is predominantly used to offer voice services. For licences issued prior to 2001,the amount of bundled spectrum was 4.4 MHz for GSM technology. Additional allocations beyond 4.4 MHz were through occasional administrative orders. When mobile and fixed services converged into the Universal Access Service (UAS) licence with effect from 2003,the bundled amount increased to 6.2 MHz for GSM and 5 MHz for CDMA.

Many incumbent mobile operators such as Bharti,Vodafone Essar,BSNL and MTNL hold around 10 MHz of spectrum in many strategic service areas on the basis of such administrative orders; this excess spectrum was given based on subscriber numbers,DoT “rewarded” a higher base with more spectrum. Since no fees were due for this additional amount,it often distorted operator incentives towards inflating their subscriber numbers.

That spectrum given to operators was severely underpriced was also to be proven subsequently when applications were invited in 2007 for additional UAS licences. In all,575 applications were received from 46 applicant companies in 22 service areas in the country. After consideration,DoT issued 122 new licences out of 232 applications before the cut-off date at an entry fee of Rs 1659 crore for the entire country. Significantly,this was the amount paid by the highest bidder at the time the fourth cellular licence was auctioned in 2001.

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Some applicants who successfully received bundled spectrum with the UAS licence,subsequently sold it in the market for several times the amount they paid as fee,extracting massive arbitrage benefits. We have reached a situation today in which licensees have varying amounts of spectrum ranging from 0 (awaiting assignment) to 10 MHz in discrete intervals.

Remember,spectrum confers market power on those who possess more relative to others.

Against this background TRAI had an unenviable and challenging task: to “level the playing field”. What the recommendations essentially try to achieve is to establish a market for spectrum,which would predictably result in efficient pricing and utilisation of the scarce resource. For a start,all licences are to be de-linked from spectrum,that is,no more bundling. TRAI also believes that the contracted spectrum or the prescribed limit for all the access licences issued on or after 2001 is 6.2 MHz / 5 MHz in respect of GSM/ CDMA respectively. Anything above that is to be paid for at the same price as discovered in the ongoing 3G auction. For example,the price in Delhi after 153 rounds of bidding for each MHz of spectrum stands at a whopping Rs 125 crore for 20 years of use. Thus,an operator in Delhi with 4 MHz excess spectrum and with five years of licence period remaining will need to pay Rs 125 crore. At this price some operators might choose to return the “excess spectrum” adding to the pool of spectrum that will then become available for others waiting in the queue to reach the “prescribed limit”.

Since demand will always remain greater than supply even after that,TRAI has also recommended priority in assignment. Licensees who were given initial start-up spectrum and are waiting to receive it will be first in the queue; followed by licensees who were assigned the committed spectrum,and are waiting to be assigned spectrum up to the prescribed limit. The last in line are those who are yet to receive the initial start-up spectrum. Operators in the last category will naturally be aggrieved,but one should bear in mind that TRAI is delicately attempting to correct errors of omission and commission made in the past. Any recommendations at this stage would throw up winners and losers,with losers willing to stop or delay the change.

In any case these are merely recommendations made under the advisory role of TRAI. To be notified as policy,DoT will have to first accept them,or at least some of them. Even if they’re accepted as is,there is likely to be litigation that will in all likelihood end up at the doorstep of the Supreme Court. I have a suspicion that TRAI itself recognised this aspect and thus the recommendations have a striking quasi-legal construction.

There are a number of other important recommendations buried in the 400 odd pages produced by TRAI,such as uniform licence fee and the need for sharing of spectrum. However,it is the recommendations on allocation,assignment and price of spectrum that will continue to hog the limelight in the near future. We should perhaps brace ourselves for another round on intense litigation in the sector.

The writer is a visiting professor at ICRIER,Delhi

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First published on: 14-05-2010 at 02:56:28 am
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