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BW Businessworld

Turning The Volume Down

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If the recommendations in the draft independent assessment by Telecom Regulatory Authority of India (Trai) are anything to go by, telecom operators will be paying only Rs 9,320.26 crore for the additional 2G spectrum they hold beyond 6.2 Mhz. This is roughly one-fourth of the Rs 36,993 crore that the Comptroller and Auditor General of India (CAG) had estimated as per its report tabled in Parliament in November 2010. CAG quoted the price saying Department of Telecommunications (DoT) allocated 2G spectrum beyond the contracted limit to nine operators, without any upfront charge.

Interestingly, in the report tabled in Parliament, CAG had observed that accepting Trai's earlier recommendation made on 11 May 2010 for pricing additional 2G spectrum could have fetched the exchequer Rs 36,993 crore. According to Trai, the price of incremental 2G spectrum has been derived based on the principle of opportunity cost. But that is being contested. "Operators paid a price for 3G spectrum that was more than 2G, so how can the opportunity cost be lower for additional spectrum?" asks a senior DoT executive.

This time round, however, the Trai has concluded that incremental 2G spectrum beyond 6.2 MHz is cheaper than 3G spectrum in metros and more valuable in Category A, and most valuable in Category B circles. Category A includes states such as Maharashtra, Gujarat and Andhra Pradesh, Category B includes Kerala, Punjab and Haryana, and Category C has states such as Bihar, Orissa and Assam.

The new estimates by Trai, if accepted by the DoT, could result in operators paying a total of Rs 9,320.26 crore for holding additional spectrum for 20 years. The cost of 2G in the 1,800 MHz band has been estimated at Rs 7,153.62 crore.

According to the CAG report, nine operators were allotted spectrum beyond the upper limit laid down in the universal access service licence (UASL). Aircel has 3.6 MHz (in one circle), Bharti Airtel has 32.4 MHz (in 13 circles), BPL (Mumbai) has 3.8 MHz, BSNL has 61.6 MHz (in 19 circles), Idea Cellular has 12.6 MHz (in six circles), MTNL (Delhi and Mumbai) has 12.4 MHz, Reliance Communications has 1.8 MHz (in one circle), Spice (Punjab) 1.6 MHz and Vodafone has 19.6 MHz (in seven circles).  
This assessment could become part of the final recommendations to DoT on 2G pricing. Interestingly, CAG says that in May 2009 — a year before 3G auction concluded — a technical committee appointed by former telecom minister A. Raja had suggested that additional 2G spectrum above the contracted spectrum should attract an upfront charge equivalent to the 3G auction price from the date of assignment, as against the 20-year period suggested by Trai in its draft assessment. 

On 11 May 2010 — just eight days before the conclusion of 3G bidding — Trai had told DoT in its recommendations on ‘spectrum management and licensing framework' that, since there were many differences amongst the operators on 2G pricing for spectrum beyond the contracted amount, it would initiate a separate study, to determine the 2G price. Till then, Trai had said, DoT may determine the 2G price at the current 3G price.

One thing is clear. If Trai's estimates were to be approved by the DoT, the older players — Bharti, Idea, Vodafone and MTNL — with additional 2G spectrum in metros, will be rejoicing.

(This story was published in Businessworld Issue Dated 07-02-2011)