Asking incumbents to pay the new rate for spectrum is like forcing someone to pay today's price for property acquired 15 years back.
The Government's move to impose a one-time fee on incumbent telecom operators for their existing spectrum, linked to market prices determined in the upcoming auction of 2G airwaves, defies economic logic. The Telecom Ministry had originally proposed that the auction-matching charges be levied retrospectively from the date of grant of license. This has now been reportedly diluted to cover only the balance period remaining of the 20 years for which a license, and the associated spectrum usage rights, is valid. But whether prospective or retrospective, there can be no justification for charging anything that would amount to amending the terms and conditions of a license after it been issued. The Government's defence is that the proposed fee is intended to create a level-playing field between incumbents already having spectrum and new players who have to pay more for acquiring the same.
The above argument is flawed. There can never be a level-playing field in any industry as far as old and new players go. A new steel plant today would inevitably face higher capital costs vis-à-vis an already existing and fully-depreciated unit. Does it, then, entitle the project promoter to complain about ‘unfair' competition? On the contrary, his new plant would be more energy-efficient and labour-saving. The embodied technical progress resulting from that will, perhaps, far outweigh the disadvantages from higher depreciation and interest outgo. The same holds true for spectrum. The companies that entered the cellular telephony space in 1994 braved an element of risk by betting on a completely virgin business: Nobody ever thought India would have close to 95 crore mobile subscribers in less than 20 years from then. The new operators, by contrast, would be entering a mature industry, saving them the cost of ‘learning' from scratch, apart from being able to deploy the latest switching and network technologies. Asking the incumbents to match the current auction rate for spectrum is no different from forcing someone to pay today's price for property, which he or she acquired 15 years back in an underdeveloped area.
At the same time, the Government would be well within its rights to charge even existing players the market rate for airwaves they will require as and when their current licences are due for renewal from 2014. It is equally important to ensure that the spectrum auctions – not just the one coming up in the next couple of months, but also those on account of expiry of licenses – are kept open for anybody to bid. That includes the incumbents, the operators whose licenses face cancellation because of the Supreme Court's order last September, or even totally new players. This would translate into a true level-playing field, which can only be ensured for a given point of time and not across different time periods. Attempting the latter, even if to correct for past wrongs, would unnecessarily open a new legal minefield.
Keywords: impose a one-time fee, incumbent telecom operators, existing spectrum, linked to market prices, upcoming auction, 2G airwaves, defies economic logic
Comments:
The government's logic in the spectrum allocation matter is bewildering,sir,to say the least .After Pranab Mukherjee prepared and presented this year's budget,the nation's economy has been allowed to go in the reverse gear,just to salvage a bruised image from the spectrum scam.There is no economic sense in some of the tax proposals Pranab made and the government is only compounding the problem by persisting in wrong policies.
"But whether prospective or retrospective, there can be no justification for charging anything that would amount to amending the terms and conditions of a license after it been issued." As rightly viewed, amending the terms and conditions of a licence, after it has been issued, is patently perverse; being bereft of any logic. In fact, the proposal runs counter to the very fundamental and commercially acceptable governing principle. It is so, ‘looking at or through’ (to borrow for a while the phrase coined by SC in Voda’s case) the faulted proposal from any angle. It is basically no different from the underlying principle of the proposition of law that in case of any contract (agreement), it has to be necessarily acted upon subject to/within the parameters of such terms and conditions as agreed at the time it is entered into. In other words, it is not open to either party to change, more so unilaterally, or act in contravention or deviation of the originally agreed terms and conditions, even if there be any compelling reason or justification otherwise to do so. In this context, one is provoked to recall a bizarre real life story related to banking. To narrate: At a given point in time, the rules book of concerned bank provided for no ‘charge’, by way of revising and reducing agreed rate of interest, in the event for a premature closing of time deposits (FDs). However, on premature closing, the FD holder(s) came to suffer a loss. When questioned, the reason given was a ‘policy change’ made by the bank in the interim; though surreptitiously, with the FD holder(s) having had no notice thereof. The sad commentary is that, RBI, the concerned regulatory authority, itself has chosen to remain a mute spectator. This is , perhaps, only one of several such instances where, by and large, the gullible investor community is taken for a ride, by investees having vested interests resorting to unethical and unlawful practices with no scruples whatsoever.
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