Spectrum Competition – War on Error?

Telecom Spectrum

Spectrum Competition – War on Error?

Spectrum price tweaking and Regulatory impact


There are times the telecom regulator (TRAI) is reactive or inactive and other times proactive.

Proactivity was on display when spectrum auctioning took centre stage and TRAI came up with its thundering pricing of spectrum last week on 11th May,2010.

SPECTRUM PRICING

In related recommendations, TRAIstated that existing firms will be charged market rates for the spectrum they have beyond 6.2 Mhz and that the price charged for 2G spectrum will be same as it is for 3G spectrum.

This made the minister’s position very awkward for a few days since it seemed like spectrum had been hopelessly underpriced until this point.

However, after the conclusion of the auction on 19th May, the government proudly announced that they had filled their coffers with five times more than the reserve price of Rs.16 odd crores.

TRAI Chairman, J.S. Sarma[1] justified both previous and current pricing in arguments that largely hinged on the following points:

  • The TRAI just realized that spectrum is a scarce national resource.
  • Price is a function of efficient use.
  • The characteristics of 3G are the same as 2G.

The Chairman recommended M&A guidelines (without consulting the newly set up competition commission).

This is one instance showing how India’s flippant policy climate throws sudden challenges storming all concerned service providers and regulators.

Can BSNL/MTNL Rise to the Challenge of Open Competition?Telephone Monopoly Image

After the auction ended on 19th May,2010, the value of a pan-India 3G slot stood at Rs.16,828 crores, five times more than the estimated price.

The government is expecting Rs 50,000 – Rs 55,000 Cr from the 3G auction and another Rs 11,200 Cr from 2G (collectively nearly 1% of country’s GDP). This pricing has an impact on BSNL and MTNL also. Although they already hold a substantial chunk of spectrum for 3G services, they will now pay the same license feesas private players. However, this impact may remain notional if they do not pay as promised. Both BSNL & MTNL, if actually required to pay within the strict time frame stipulated for private operators, are bound to find this equal treatment unfair.

In the first place, these entities are unlikely to leverage their opportunities in 3G in the same way as private players [2].

What irks PSUs – With the government being owner of all natural resources, is it reasonable to expect that companies owned by them pay the same price as the private sector?

Nonetheless, soon after the auction, the PSUs made their announcement of being ready for the challenge of operating on a level playing field.

We need to wait to see how long these incumbents can adhere to this promise while rolling out services. They clearly won’t be able to maintain their act of being an equal contributor for much longer given their entrenched public sector mindset[3].

 Spectrum getting costlier – DoT has already created an atmosphere of rejection on price recommendations, especially on 2G and 3G to be priced equally

So, how far have the popular liberalization oriented policies managed to achieve the much needed level playing field ?

BSNL got 3G earlier last year and they have not exploited this opportunity as private players would have[2].

Going by the trend so far, the incumbent BSNL & MTNL, if actually required to pay within the strict time frame given to the private operators, are bound to feel the pinch and wonder –

When government owns all natural resources, why should companies owned by them pay this heavy price which only private sector should pay?.

Is it truly a turning point in the history of state – run telecom majors –  a time to match the winning bid of 3G spectrum auction?.

Interestingly, now they naively claim to be cash rich and are willing to pay over Rs.10,000cr and Rs.6,524 cr respectively to the government.

Well, who dosen’t know that “The Hand That Rocks The Cradle Is The Hand That Rules and feeds The PSUs”.

BSNL gets ready for a makeover – as Sam Pitroda attempts to groom and turnaround the staff and structure. Soon after the auction, the PSUs made their announcement, of taking the challenge However, they have not yet gone through Sam uncle’s finishing school for changing their mindset[3]. They could well change directions on price vis-à-vis themselves.

Accountability and Measurement of Impact

Now TRAI is rolling out popular buzz words and phrases: pro-competition, bridging the digital divide, allocation of additional spectrum is linked to meeting roll-out obligations, 100% rural connectivity, efficient utilization of spectrum and the most laudable of them all – consumer benefit!

Will these outcomes have a chance to manifest themselves before another policy change?

There are several questions that need to be answered in this respect:

→ Will BSNL/MTNL be accountable for not achieving 100% rural coverage in a given time frame?

→ Will TRAI be accountable for the impact on cost and growth if the end result of the rollout obligations does not reveal a light at the end of the tunnel?

As per the recommendations of the regulator, operators with spectrum in 900 MHz band should be shifted during license renewal to the 1800 MHz band so that it may be used for 3G services.A TRAI official admits[4]: “It is a difficult proposition and, of course, it involves costs as they have to shift to a new band, requiring new equipment, and they have to be compensated, on which there will be consultations.”

So, more questions crop up then:

 Is TRAI quantifying the burden to the industry and consequently the rescuer / consumer, in terms of costs and service? Does it have a back-up plan?

 Is it announcing any recommendations to regulate the outcome of the pricing?

Talking about Caps

Does TRAI have any verifiable basis / logic for recommended caps?

Doesn’t this amount to penalizing market winners / pioneer operators who serve 70% of the market?

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If these questions aren’t properly addressed, we can start writing the obituaries that are likely to surface in six months.

 “ Separate the sheep from the goats”

Echoing Jesus’ prophecy that the sheep ( PSUs ) will sit on god’s right hand and will be rewarded and the goats ( private operators ) will sit on god’s left hand and will be consigned to eternal fire.


References:

[1]  Interview with J.S. Sarma in HTBusiness dated 12.5.2010

[2]http://www.cxotoday.com/India/Editorial/Impact_of_3G_auction_on_MTNL_and_BSNL/551-110797-904.html  and http://ibnlive.in.com/news/3g-auction-may-yield-rs-55000-cr-raja/114078-11.html?from=tn.

[3]  Pitroda committee Report in Telecom Live, April, 2010 issue

[4]  http://www.business-standard.com/india/news/trai-tries-to-change-horses-midstream/394575/


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