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Telecom Honchos Make Joint Pitch Against Trai

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Rankled by the Telecom Regulatory Authority of India's (Trai's) recommendations for 2G spectrum auctions, telecom companies on Wednesday made a joint pitch to top government functionaries, including Home Minister P Chidambaram and Finance Minister Pranab Mukherjee, for not accepting the "catastrophic" recipe of the industry watchdog.

Bharti Airtel Chairman Sunil Mittal, Vodafone Chief Executive Vittorio Colao, Idea Cellular Chairman Kumar Mangalam Birla and Telenor CEO Jon Fredrik Baksaas first made their case with Chidambram and Mukhejree and then followed it up with meetings with Planning Commission Deputy Chairman Montek Singh Ahluwalia and Telecom Minister Kapil Sibal.

They also met Pulok Chatterji, Principal Secretary in the Prime Ministers Office and possibly also Commerce Minister Anand Sharma besides a host of top bureaucrats, including secretaries to the department of telecom and commerce.

"This has been the most destructive period of regulatory environment I have seen in 16 years," Mittal said saying Telecom Regulatory Authority of India's (Trai) recommendations will be "catastrophic" for the entire telecom sector.

Almost every telecom operator has something to hate in the 176-page Recommendations on Auction of Spectrum, which outgoing Trai Chairman J.S. Sarma released last month. In the short run, it threatens to create more disruption before things settle down.

Almost every operator has reason to complain. For incumbents the cost of doing business will go up sharply. First, they will need to buy spectrum in the 1800 band at the discovered price. Second, they will want to retain the 900 band in key circles. Third, they will need to re-configure existing networks to match the 1800 band. That would be a neat 50 per cent increase in capital expenditure, by some estimates.

Telenor's Baksaas said the auction policy should be catalyst for "affordability, competition and investments" rather than leading to tariff hikes as would be case with TRAI setting a very high base price for the auction.

"If the decision are taken in interest of the industry, they (TRAI recommendations) have to be changed. I think the current recommendations will kill the industry," Birla said.

Trai has suggested a base price of Rs 3,622 crore for one megahertz (MHz) for pan-India spectrum, which is around 10 times higher than the price at which 2G licenses bundled with 4.4 MHz spectrum were allocated in 2008 under the then Telecom Minister A Raja.

Though the order impacted mostly new players like Uninor, Sistema Shyam, Loop and Etisalat DB, the latest recommendations by sectoral regulator Trai have come as a blow to the entire industry.

Telecom Regulatory Authority of India (Trai), in its recommendations, has suggested a base price of Rs 3,622 crore for a megahertz (MHz) of pan-India spectrum, which is around 10 times higher than the price at which 2G licences bundled with 4.4 Mhz spectrum were allocated in 2008 under the then Telecom Minister A Raja.

According to Trai, a minimum of 5 Mhz spectrum should be allotted, which means that pan-India airwaves in 1800 MHz band will cost Rs 18,000 crore.

Bharti Airtel, India's biggest mobile operator, will face higher operating costs due to possible bandwidth purchases, further eroding profits that have been battered by fierce price competition for more than two years.

Mobile carriers including Vodafone's Indian unit and Idea Cellular are opposing regulatory changes proposed last week that will lead to billions of dollars of spending on new spectrum bands before their permits expire starting in 2014.

"What really concerns us is how the regulatory environment is shaping up for the telecom sector," said P. Phani Sekhar, a fund manager at Angel Broking's portfolio management services.

"The kind of spectrum costs companies will need to pay just to keep business going, and the incremental capital expenditure if spectrum gets refarmed, could potentially wreck even the strongest of telecom companies such as Bharti," he said.

Significant Implications
In a statement, Bharti Airtel Chairman Sunil Mittal said, "The recent regulatory developments in India will have significant implications on the future of telephony and broadband, as well as India's global competitiveness."

Despite the 28.2 per cent dip in net profit on account of higher interest costs and foreign exchange fluctuation losses, the company remains hopeful of its investments paying out.

"We have made massive investments, be it in 3G, 4G or in Africa. We believe that we have made all necessary investment in all forms...We enter next year as a very fundamentally strong year. We are poised to grow and exploit massive potential in India and Africa," Gupta said.

The company plans a consolidated capital expenditure of between USD 3 billion and USD 3.2 billion for FY'13.

However, this will exclude any potential payment for spectrum, Bharti Enterprises Group CFO Sarvjit Singh Dhillon said.

"The ability to make large investment will depend on the outcome of continuing debate on the recommendations.