Inconsistency on spectrum

The department of telecommunications (DoT) has set the ball rolling for the next round of spectrum auctions. It has asked the Telecom Regulatory Authority of India (Trai) to suggest the reserve price for air waves in the various bands of spectrum. Subsequently, Telecom Minister Manoj Sinha said in an interview that the DoT had started the groundwork and the auction would be held when the time was suitable. One of the stated objectives of the next round of auctions is to kick-start 5G, or fifth generation, telecom services in the country. But the 5G ecosystem will take at least a year-and-a-half to fall into place. Moreover, there are several reasons why the government should rethink its policy for telecom spectrum.

The government’s approach to allocating spectrum has not been consistent in the past. Initially, spectrum was allocated cheap in order to help the spread of mobile telephony. Once the required targets were achieved, such a method made little sense. Its inadequacy was squarely exposed in the 2G spectrum scam wherein companies that were allocated inexpensive spectrum made windfall gains by selling their stakes to foreign partners at very high prices. As a result, the government tried to bring in a greater play of the market forces by instituting annual auctions. Over the years, the government raised significant funds and hugely benefitted from such auctions. But this approach worked only so long as the networks generated sufficient cash flows and banks were ready to lend them money. 

Now, however, the situation is different. Thanks to a tariff war in the wake of Reliance Jio offering free voice and inexpensive data plans, the networks have come under great financial stress. Their earnings are expected to be in decline for a few more quarters. Moreover, the Reserve Bank of India has asked banks to become more cautious about their exposure to telecom networks. Collectively, the networks have a debt of over Rs 4 lakh crore on their books. That apart, the industry is in the midst of consolidation and till the dust settles, the networks will not have a clear idea of their spectrum inventory. Reliance Communications, Aircel and MTS have initiated a merger. And, in the most significant consolidation in the industry, Vodafone and Idea Cellular have decided to come together to form the country’s largest network. Only once these mergers are complete will there be any clarity on their spectrum inventories. Moreover, industry leader Bharti Airtel has tanked up on spectrum; it has in the recent past bought it from Videocon, Aircel, Tikona, Telenor, Augere and Qualcomm. It may not need spectrum for two or three years.

The question then is why force the networks to buy spectrum now? It would make sense to conduct the auction closer to the launch date. The industry has for long asked if it is reasonable to collect licence fees and spectrum user charges when spectrum is auctioned. It made sense when spectrum was allocated to networks at nominal prices. These are issues that need the government’s urgent attention.

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