Trai-ing Times For Telecos

Talk about a summer surprise. The telecom regulatory Authority of India (Trai) on 12 May gave public sector telecom operators — mainly Mahanagar Telephone Nigam (MTNL) and Bharat Sanchar Nigam (BSNL) — and entrenched private sector players an unpleasant jolt with its recommendations on spectrum management and pricing of 2G spectrum. Some fear that if the recommendations in the 437-page report are accepted, it might be the end of MTNL and BSNL.

Two recommendations in particular can also hurt market leaders Bharti Airtel and Vodafone badly: a one-time additional fee for spectrum held in excess of 6.2 megahertz (Mhz), and the return of ‘excess’ spectrum. The one-time fee will be based on 3G prices. Bharti Airtel had three words in response: shocking, arbitrary and retrograde, which pretty much captures the sentiment among the entrenched players.

Take MTNL, which has 12.4 MHz in Delhi and Mumbai. It also has 3G spectrum ahead of other operators. Under Trai’s recommendations, to retain its current 2G spectrum and get its 3G spectrum for Mumbai and Delhi, it will have to pay Rs 11,720 crore — MTNL announced a loss of Rs 895 crore for the quarter ended December 2009.

BSNL will also have a hefty bill of Rs 17,000 crore for excess spectrum — an amount that could enable BSNL to give all its 350,000 employees voluntary retirement, according to some. “We are in no position to pay this,” says a senior official in the finance department of BSNL. Especially when the company is likely to announce a loss of Rs 3,800 crore for 2009-10.

Gautam Balakrishnan, director at Mumbai-based telecom consulting firm Optsoe Consultants, says, “Spectrum is like any asset and its value can appreciate or depreciate over time. To value 2G spectrum previously allotted at today’s 3G pricing is incorrect.”

Others have different views. Jaideep Ghosh, executive director at KPMG, says, “6.2 Mhz is sufficient to operate in a circle.” He says those who cannot pay can opt out. It is an option private operators have, but not BSNL and MTNL, who have been using 3G spectrum for more than a year now, have over 100,000 subscribers, and have spent Rs 2-5 crore on advertising.

Most companies say they are still reading the report, but initial responses suggest a mixed bag of positive and negative recommendations. For instance, Trai has attempted to address the problem of spectrum hoarding by a few operators, and has also tried to remove impediments for mergers and acquisitions of companies.

Cellular Operators Association of India (COAI), the apex body of GSM operators, said in a statement that it was disappointed. Rajan Mathew, director-general of COAI, says, “These recommendations are not in sync with the country’s growth path in which mobile communications plays a critical role.”

However, Reliance Communications’ response was positive. “Most of the recommendations appear to be forward-looking, pro-consumer and pro-competition. Also, the recommendations are pro-spectrum efficiency. Good for the industry and the sector,” a company statement said. The impact on RCom is minimal, about Rs 20 crore.

Given the opposition, will the government accept Trai’s report? They could accept a part of it. “We would like the Department of Telecommunications to adopt the recommendations in totality. If they wish to drop some of it, we would like them to discuss with us,” says J.S. Sarma, Trai’s chairman.

Bharti Airtel said it was confident that the government would take a rational approach and summarily reject these arbitrary, impractical and perverse recommendations. Some telecos have even said that they may go to court. The last word on the issue has not been said.