Friday, May 25, 2012

Clogged Connectivity

The Telecom Regulatory Authority of India (TRAI) and Department of telecommunication (DoT) it seems are in race to fill the exchequer by quoting higher reserve prices to auction spectrum than each other. Trai benchmarked 2G spectrum rates by keeping 3G auction price as their base price and came up with a figure of INR 3,622 crore per megahertz (MHz) for pan India license.

The figure discovered by the authorities would have been justified if the players involved in 3G spectrum auction would have been profitable after the purchase of spectrum, rather the players are finding it difficult to recover the cost through the operations as the 3G is still expensive for a middle men to use it for daily purpose and on the other hand taking 3G prices as the benchmark is also not justified because the scarcity of spectrum soared up the prices during auction. So to use the same standards or even higher prices for the ordinary 2G voice bandwidth would be a mistake, resulting in many companies dropping out of the auction and the rest would hike the tariffs which would definitely choke the development and spread of wireless voice services in the country.

Government has an aim to connect the entire nation through affordable connectivity but if the proposed auction turns to reality then affordability would be an elusive dream. It is reported by leading operators that with proposed auction plans the prices would be up by almost 30 paise to 1 rupee per minute and that is a huge jump. In the last half a decade or so, this telecom sector was considered as a rising star for the country, contributing a significant pie in the GDP growth but if the bandwidth is auctioned at exorbitant reserve prices then the gain will be lost.

Comparing the Trai’s suggested rates with similar auction elsewhere is a bit surprising. In 2011,Germany, Sweden and France auctioned spectrum in the 800MHz band for 2G voice communication. These prices were $0.95 per person per MHz in Germany, $0.54 in Sweden and $0.90 in France. And in similar terms Trai’s proposed charges would be eight times that of Germany, 22 times of Sweden and more than 19 times the French charges. These are highly overpriced.

Now, DoT wants to set these charges 17% higher at around INR 4,245 crore per MHz for a pan India license. That’s gargantuan in nature and should not be encouraged to do so. Rather the government should auction the spectrum at a base price derived from 2001 rates, indexed to inflation and it will attract more participants which would lead to the right price discovery too. Because doing so would also keep the Telecom Industry alive and that is really imperative to remain connected.