The right price

Despite two failed rounds of spectrum auctions, the Telecom Regulatory Authority of India appears not to have learnt any lessons when it comes to pricing airwaves. Although the regulator has slashed the reserve price considerably, it is still disconnected with the ground realities of the sector. For instance, the reserve price of 700 MHz has been reduced by 43 per cent — but even after the cut, an operator would have to cough up nearly ₹33,000 crore for 5 MHz of spectrum pan India. Similarly, the price of 5 MHz pan India of 1800 MHz spectrum has been pegged at ₹16,400 crore. With sector revenues down by 30-35 per cent in the past five quarters, the balance sheet of telecom operators are too highly leveraged to acquire spectrum at these prices. At current tariffs, operators’ revenues are not able to cover their operating costs and network capital expenditure. The operators’ free cash flow is not enough to pay interest on spectrum acquired in the previous auction. The sector is under a huge debt pile of nearly ₹7-lakh crore.

There are other factors that need to be kept in mind while pricing spectrum. Multiple spectrum auctions over the last few years, consolidation among operators and trading of airwaves have led to a situation where there is enough spectrum available to telecom operators. There are only three large operators remaining so the need to hoard spectrum for future use is also not there anymore. Top operators are still in the process of rolling out 4G networks on the spectrum they acquired in the previous auction. Operators are likely to acquire spectrum only as and when they need it. Expensive spectrum is also counter-productive from the consumer point of view. Higher spectrum cost will put pressure on telecom operators to either increase tariffs or halt investments in rolling out new infrastructure. Neither is good for achieving Prime Minister Narendra Modi’s vision of Digital India. The Department of Telecom should ask the TRAI to review its pricing methodology. The days of maximising revenues for the national exchequer from spectrum auctions are over. The Centre should instead help revive the telecom sector by reducing the financial burden on the industry. Operators pay nearly 33 per cent of their annual revenues in the form of levies and taxes to the Centre. Some of these levies are unnecessary as they are a continuation of a policy followed when spectrum was given on subscriber-linked criteria.

The Centre has recently unveiled the National Digital Communications policy which envisages broadband speeds of 50Mbps to every citizen by 2022. Reaching broadband networks to the remotest areas gains precedence over revenue maximisation. A reduction in spectrum charges and other levies should not be seen as a largesse being doled out to telecom companies but as a means to boost the overall Internet economy.