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.

(This article was published on June 11, 2012)
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