It is straightforward – even if appropriate – to blame the telecom regulator, Trai, for the dismal failure of the just-concluded spectrum auction exactly where just about a third of the quantity of spectrum was sold, and for significantly less than a fifth of the worth the government was hoping to get although telecom minister Ravi Shankar Prasad attempted to place on a brave face and say that the final proceeds of Rs 77,815 crore have been higher than what the government anticipated, if that have been accurate, why would the government place Rs 392,000 crore of spectrum on the block?
As it takes place, this is not the only auction that has bombed if you take all the auctions carried out due to the fact 2012, about 44% of the spectrum has remained unsold. While 67% of the spectrum remained unsold in 2012, this rose to 85% the next year and whilst it fell following that, no auctions have been held following 2016 till the one that has just concluded.
The purpose for auction failure, as this column has documented more than the years, is that Trai’s model has been one that ratchets up spectrum costs deliberately. In 2010, when a restricted quantity of 3G spectrum (2100MHz) was auctioned, the enormous shortage of spectrum – and the bullishness more than the new 3G technologies – ensured that the bid value for Delhi reached Rs 663 crore per MHz as compared to the reserve/base value of Rs 64 crore Mumbai was auctioned at Rs 649 crore and had the similar reserve value. So, in 2012, when 1800MHz spectrum had to be auctioned, even although it was employed for 2G services, Trai decided to use the 3G auction as the base and set the reserve value at Rs 717 crore for Delhi and Rs 702 crore for Mumbai.
The auction failed and, in 2014, Trai slashed its suggestions, to Rs 175 crore for Delhi and Rs 165 crore for Mumbai. That auction, as it occurred, fetched Rs 364 crore for Delhi and Rs 272 crore for Mumbai. This then became the reserve value that Trai suggested in 2015!
Similarly, regardless of employing many models to make its reserve value-setting physical exercise look effectively believed out (https://bit.ly/3qirIIE), Trai basically makes use of old auction bids and indexes this employing inflation to arrive at the new reserve value. In the auction of the 700MHz spectrum that was to fetch the maximum revenue this time about, the Trai’s miscalculation was considerably worse. In 2016, Trai employed some odd logic to argue that the band need to price about 4 instances what the 1800MHz band did (Rs 11,485 crore per MHz for pan-India spectrum vs Rs 2,644 for the 1800Mhz band), under no circumstances thoughts that it need to have been priced close to what the 800MHz band did (Rs 5,819 crore) contemplating they have been so comparable when blunders have been pointed out in Trai’s calculations, it lowered this to two in the next auction!
But all of this is effectively recognized, just as the Trai’s bias and the adverse comments that the telecom appellate tribunal, Tdsat, and the Supreme Court have created from time to time on the regulator’s functioning (read https://bit.ly/3bYyGgI and https://bit.ly/3bVQo4f). What remains unclear, although, is why the government has performed nothing at all about it certainly, in a initially for any regulator in the nation, the then Trai chief RS Sharma was even provided an extension when his term was more than, suggesting the government was really content with his work.
Given Trai’s track record, certainly the Digital Communications Commission (DCC) – a group of potent secretaries that requires all choices on telecom policy in the nation – could have lowered the reserve costs to more realistic levels? And, if the bureaucrats in the DCC didn’t want to take a possibility of becoming accused of favouritism, certainly the Cabinet need to have taken this get in touch with? If all that the government necessary to do was to rubber-stamp what the Trai stated, you do not want either a telecom minister or the Cabinet whilst an person minister could be concerned about taking a selection that can be questioned later, taking it to the Cabinet tends to make it the prime minister’s duty.
Indeed, most of the challenges the sector is facing today, and that involves enormous amounts of government dues becoming at threat, are due to a failure of the Cabinet to take a selection at the correct time. Despite it becoming clear that the AGR situation was becoming larger by the day, this was permitted to move back and forth amongst many courts rather of a Cabinet-stamped remedy. Had a appropriate remedy been worked out, as in 1999, all parties could have been asked to withdraw their circumstances and there would be no AGR trouble the net present worth (NPV) of what telcos owe the government on AGR is a whopping Rs 138,000 crore and more than a third of this is on account of the troubled VodaIdea.
Similarly, although the NPV of VodaIdea’s dues on account of spectrum it had purchased is Rs 62,000 crore – this is practically half what all telcos owe the government – the government persists with the policy of letting telcos spend the revenue more than time rather of all of it upfront. While this could make life a bit simpler for telcos, it ties the government’s future with the well being of the telcos as, if the telcos go bust, the government can stand to drop all its dues theoretically, it can get this by reauctioning the spectrum the telcos hold, but it is unlikely it will get that sort of revenue provided the industry’s finances.
Indeed, whilst the government is defending itself by saying it retains the correct to confiscate the spectrum in case a telco is unable to spend its dues, the flipside of this is government-owned banks are in really serious difficulty. Many of them lent tens of thousands of crore rupees to telcos on the assumption that they had the lien on the spectrum as soon as once more, the government not becoming capable to take a selection on this is worrying.
Even if the government does not want to scrap license charges and spectrum usage charges – although it need to provided these have been introduced in lieu of marketplace costs for spectrum – it has to transform its strategy towards the sector. Since the Trai method, for instance, is clearly not working, a remedy desires to be discovered. And there are also quite a few pending challenges – as certainly there are in sectors like electrical energy – that are crippling the sector. Till lately, it could be stated the Narendra Modi government wasn’t totally focused on the desires of organization. Over the previous handful of months, having said that, that appears to have changed so some fast selection-creating in telecom has to be prime priority.