Don’t Overprice

The ball is in the telecom regulator’s court once again to decide the course of the industry at a challenging juncture. Last week, the Digital Communications Commission (earlier Telecom Commission) had asked the Telecom Regulatory Authority of India (TRAI) to review its 5G spectrum recommendations of August 2018, including the steep reserve price set by it then. While the DCC, the highest decision-making body in the government on telecom, took the right step in sending the one-year-old recommendations back to the regulator, keeping in view the stressed financials of the telcos and the overall low-key investment climate, it’s up to  TRAI now to show the way by not falling for the temptation of revenue maximisation for the government. The regulator should rather look at the health of the telecom industry, which is saddled with debts of Rs 4.3 trillion, rather than trying to get a big buck from the auction, to be spread across bands, including 3,300 to 3,600 MHz for 5G services.

It’s true that the spectrum money is a major revenue source for the government facing a difficult fiscal situation. But Trai’s primary responsibility is to ensure the industry does not go down further through extravagant bidding and that the element of competition remains. Established in 1997 by an Act of Parliament after the entry of private service providers, the stated mission of TRAI is to create and nurture conditions for the growth of telecommunication. More importantly, it has to “provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition”. TRAI must not ignore its mandate.

At the current reserve price for spectrum, across multiple frequency bands recommended by Trai for the upcoming auction this year, the government could mop up around Rs 5.83 trillion ($83.8 billion). But telcos, already caught in a tariff war after the entry of Reliance Jio and its disruptive pricing, could see a further erosion of their earnings if spectrum price, considered among the highest globally, is not brought down. Recent consolidation has resulted in making telecom a three-player industry, which once had more than 10 participants. Any further consolidation or exit will mean the telecom industry will be left with no competition. India cannot afford that scenario.

The aggressive bidding by telcos during the 3G auction in 2010 was the starting point of the industry’s decline. By 2016, when telcos were already bruised and had a substantial debt pile, they exercised restraint — the spectrum sale ended in just five days and the government could raise only Rs 65,789 crore revenue against Rs 5.63 trillion (base price) worth of spectrum put up for sale. If telcos do what they are claiming, the next auction could be a repeat of the 2016 flop show. Two leading companies, Bharti Airtel and Vodafone-Idea, have said they will not participate in the 5G auction at the current reserve price of Rs 492 crore per megahertz. According to telecom industry estimates, the recommended base price is 30-40 percent higher than the rates in markets like South Korea and the US. If the 5G price is not reduced and two top players opt out, it will spell the end of a level-playing field in telecom for years. It’s the turn of both Trai and the government, which has the powers to reject the recommendation of a regulator, to act responsibly.―Business Standard