SPECulation on spectrum TRUMped

As per Economic times, the indian government has today given in-principle approval for allocation of spectrum to GSM operators who have been waiting for frequency since 2006, CDMA players entering the GSM segment and to new aspirants in that order.
With this, Indian government has met GSM operators' demand that they should be given priority ahead of others in spectrum allocation. Among the beneficiaries, existing operators include Aircel, Vodafone-Essar and Idea cellular, while Reliance Communications, HFCL and Shyam Telecom would benefit under the dual technology clause. The process would begin by issuing Letters of Intent (LoIs) to all the eligible players. As regards new aspirants, according to an official statement, the government would issue LoIs to all the eligible applicants, who have applied before September 25, 2007, on a first-come-first serve basis.

The news was expected as this was an option that will ensure regular incremental income to Government of India (GOI). The government's revenue from spectrum fee levied from mobile operators is poised to more than double to Rs 7,000 crore in 2008-09, without really impacting the tariffs. The Department of Telecom (DoT) is reported to be working on enhancing spectrum charges, collected based on annual revenue, to the government and its implications on the tariff of telecom services. The idea for charging spectrum fee in this way is to ensure that the government gets incremental revenue over the years based on growth of the sector and keeps telecom services cheap as upfront auction charge would lead to higher initial investment which would be reflected in higher tariffs. In 2006-07, the government received about Rs 1,956 crore from mobile operators as spectrum charges and at current rate it is likely to increase to Rs 3,000 crore in 2007-08. However, if spectrum charges as percentage of gross revenue are enhanced by about 75 per cent, the government will get Rs 7,000 crore in 2008-09 and will grow every year without any impact on tariffs.

Currently the mobile operators pay 2 per cent of Adjusted Gross Revenue (AGR) as spectrum charges for 4.4 MHz and 3 per cent for 6.2 MHz and this goes up to five per cent for 12 MHz of spectrum. DoT is of the view that these charges can be revised and that too without any impact on the tariffs. On the other hand idea of auctioning of spectrum may lead to legal implication as it would be a major departure from the existing policy. Telecom regulator TRAI, in its recent recommendations, has also not suggested auction of 2G spectrum.

Personally I feel that auctioning of spectrum would have resulted in impractical bid prices (as happened when DoT called for licence fee bids when mobile services started in India). Those who are new entrants will pay more because by grapping the spectrum at exorbitant rates they could have blocked the expansion plans of existing players (a move that might have given serious blow to telecom expansion in India). The existing players would forcefully have bid exorbitantly knowing their future depends only on the spectrum. As a result, the overall telecom growth in India would have been jeopardised.