A file photo of representatives of mobile operators standing in front of Sanchar Nigam in the Capital as DoT issued Letters of Intent to new players.
K. Venkatasubramanian
BL Research Bureau
Way back in 2007, it all seemed to going well for the telecom industry. With seven million subscribers being added every month and healthy growth rates in financials, mobile players never seemed to have it so good. There seemed to be no dearth of global players with experience of operating vast networks of mobile telephony and some influential local players wanting to get a piece of the action.
With robust subscriber additions and most pan-India and some regional operators becoming profitable (most of them had more than 30 per cent operating margins), there was clearly a case for putting a premium on spectrum allocation to operators.
Spectrum, the licensed airwaves that is the “raw-material” for mobile operations, was in short supply. With subscriber-linked allocation being the norm, operators who easily satisfied the condition were queuing up for incremental airwaves.
The options that the authorities could have adopted to allocate incremental spectrum included auctioning and/or increasing annual spectrum fee substantially.
The contention
But in a curious move, the Department of Telecommunications (DoT) set the ball rolling by calling for fresh licences in September 2007. Some 300 new applications were received, including those from completely unrelated sectors such as real estate and consumer electronics. And, inexplicably, the last date for submission of the application was advanced by a week. Among those that managed to get their foot in the door within the revised deadline, 122 new licences across India were issued in January 2008 to 9-10 operators, some existing and several new. And this at a price, based on rates frozen in 2001, when mobile services were yet to take off in any meaningful way.
The licence fee fixed per-operator (Rs 1,651 crore for pan-India operations) has become the biggest bone of contention, and has led to the huge outcry over the alleged loss to the exchequer. The licence came with a free start-up spectrum of 4.4 MHz.
Back in 2001 operators were hardly able to make a dent in terms of meaningful subscriber additions and almost all of them were loss-making.
It was a difficult situation and the authorities adopted a different route to incentivise mobile players. Hence a revenue share arrangement was worked out then. Operators paid an annual fee of 6-10 per cent of adjusted gross revenue linked to their revenues for licence and 2-6 per cent as spectrum charges depending on the quantum allocated so that they paid fee linked to revenues.
On the grounds that existing operators did not have to participate in auction as a means for being allocated spectrum, the same logic was applied to the new players who came into existence in 2008, to have a “level playing field.”
In taking this decision, the Telecom Ministry is alleged to have ignored the advice of the Law and Finance Ministries to auction spectrum, especially in light of the changed scenario of healthy financials of telecom companies. It is alleged that a precious national resource (spectrum) was given at a steep discount to what may otherwise have been realised, had a market-determined price been established through an auction.
Using several subsequent events as benchmarks, the size of the potential amount allegedly lost by the exchequer started to get quantified. Some existing players sold stakes to foreign partners immediately after wining licences. As these companies had no existing operations and only had the start-up spectrum, valuing air waves became easier. For example, Unitech sold a 67.25 per cent stake to Telenor in their joint venture, Uninor, for Rs 6,120 crore. If this were used a benchmark, the equivalent value for the 4.4 MHz spectrum would be significantly higher.
Then the 3G spectrum auction happened and over Rs 1 lakh crore was raised. There was also an offer made by one operator STel to pay Rs 13,752 crore over 10 years.
Also, some operators such as Reliance Communications and Tata Teleservices were allowed to offer both CDMA and GSM services. All these subsequent events have led to new valuation benchmarks for spectrum.
Based on these, the Comptroller and Auditor General has come out with the figure of Rs 1.7-lakh crore as the potential loss to the exchequer. The ensuing vociferous protests have resulted in the Minister concerned putting in his papers.
http://www.blonnet.com/2010/11/18/stories/2010111851710700.htm
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