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News Heading  : Column : Try the NTP-99 solution – Mahesh Uppal

Post Date : 2012-07-18

News Source : The Financial Express

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News Details  :

By all accounts, there is a standoff in the telecom sector. The government seems set to miss the second deadline for holding spectrum auctions that the Supreme Court ordered last February when it cancelled 122 mobile licences. There is no closure yet on reserve price, choice of auctioneers and the fate of Trai’s related recommendations on spectrum and licensing. The pending proposals are worth thousands of crore of rupees for players as well as government. The crippling tug-of-war between stakeholders is therefore understandable. However, the elusive settlement also evokes how in 1999, when the telecom sector faced bankruptcy, the government’s new telecom policy (NTP-99) changed tack to reconcile competing demands that caused telephone access, operator revenues and government collections to soar. Can a similar radical shift work again?
For this, the government must accept that current patchwork proposals—charging for all or some spectrum retrospectively or prospectively—cannot resolve complex legacy issues of the sector. Correcting past “mistakes” or “losses” by revising fees several years later would be controversial, as it is. But basing the revised fees on auction results, as Trai had suggested and reiterated last week, is illogical, if not absurd. Auctions discover prices transparently, not uniquely. Their goals and design, e.g. focus on growth of revenues or investments, closed or open bids, number of bidders, etc, can dramatically impact bids.
Reserve prices figure in auction design to deter frivolous bargain hunters. They will deter serious players if they are as high as R3,600 crore per MHz of 2G spectrum, as Trai has proposed. The feeble relationship between auction results and user tariffs—falling 3G prices despite steep reserve prices and astronomical bids have settled that—seems to have escaped not just TV channels but even affected operators. Trai too seems keener to defend high reserve prices, arguing that a 5-10 paise price hike can absorb the new costs. However, it is less relevant that its explanation relies on optimistic data growth (35-50% by 2017 in metros) and significantly underestimates the additional capital expense caused by its proposals. The greater concern is Trai’s failure to justify the need for a reserve price that is many times higher than most countries its report cites. Is a high reserve price not tantamount to pre-empting the auction itself? Do they not reek of practices that transparent auctions are intended to prevent?
In each case since the 2G auctions of 2001, bureaucrats allocated and priced spectrum administratively without auctions, amidst allegations of mischief and collusion between government and private players. The CAG rightly highlights that in 2007-08 decisions on spectrum cost the exchequer several thousand crore of rupees (even if the actual estimates are debatable). Trai and DoT are within rights—even duty-bound—to explore fair allocation and pricing of spectrum that reflects its value in market.
However, it is outrageous that DoT and Trai, after actively setting earlier rules and fees, now seek to correct their own mistakes retrospectively at the cost of companies. This is an invitation for further litigation and instability that already plague the sector. It is patently one-sided for Trai and DoT to withdraw or re-price spectrum to correct their mistakes, whatever their magnitude, during the tenure of a licence. Only courts can and should do that, as happened in February.
The 1999 precedent offers a way: Migrate all companies to a new regime with a single unified licence delinked from spectrum. Regularise all spectrum allocated by government, subject to any directions by courts as to the legality of its allocation. Bring all licences at par with common starting date and tenure of 25 years with rights to provide any service with any approved technology. Fix target levies from telecom sector, possibly as a percentage of total sector revenues. Allocate all future spectrum by auctions designed to maximise efficient and ubiquitous usage, not revenues. Retain modest reserve prices. Ask Trai to prescribe minimum qualifications for those wanting to bid. Recover all annual licence fees from users of spectrum based on amount held. Levy token administrative fees on all other players. Let government continue appropriate security checks and monitoring of networks to prevent misuse by operators as well as end users.
This approach could be sustainable since it has incentives for most stakeholders. The government could protect its revenues by revising its own targets each year preferably as a proportion of sector revenues. Operators will welcome longer and flexible licences. Spectrum would be used more efficiently since fees are proportional to holdings, broadly in line with international practices. Freedom for “smaller” players would promote innovation, investment and growth of services, especially broadband, which is urgently in need of regulatory support.
Current provisions allow government to amend licences in public interest. Migrating to a new regime that applies uniformly to all players and addresses a serious crisis in a key sector should qualify. Like in 1999, tangible regulatory reform could promote greater and cheaper services, especially broadband, to users and the economy. Experience shows government and the operators too could be laughing all the way to the bank.

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