Cabinet decision on spectrum pricing to impact tariffs: COAI

The Cellular Operators Association of India (COAI), the GSM operators' body, has stated that the cabinet's decision of fixing the reserve price for re-auction of 2G spectrum at Rs14,000 crore per 5 MHz will impact tariffs to the tune of 37-49 paise per minute.

Further, the total industry debt will rise to anywhere between Rs3,70,000 crore to Rs5,40,000 crore as per the two separate scenarios provided by TRAI. COAI termed the cabinet's decision as against consumer interest and said it would have severe repercussions on the future viability of the industry.

The reserve price for spectrum in India is way above the international reserve price per MHz per population. The reserve price per MHz per population in India (on purchasing power parity basis) of Rs19.68 is enormously high as compared with Rs1.06 that Ofcom (the telecom regulator of the United Kingdom) has recently announced for auction of 1800 MHz band.

Similarly, for the 800 MHZ band, Ofcom has announced a reserve price that works out to Rs3.18 per MHz per population while that of India stands at Rs25.58 per MHz per population. Hence, it occurs that the Indian operator will have to shell out 1700 per cent more than the UK operator for the same amount of spectrum in the 1800 MHz band and 700 per cent more in the 800 MHz band.

The cabinet has not given due consideration to the fundamental issue of unsustainable high reserve prices, which will significantly increase costs, thereby invariably increasing the tariffs.

No mention is made as to how the industry that is already highly leveraged and under a debt burden of Rs2,00,000 crore will fund the high outflow on account of auction of 2G spectrum, especially in the wake of the banking sector's unwillingness to take on more exposure to the industry.

COAI also reiterates that continuing the slab-wise system for Spectrum Usage Charge (SUC) is unfair and will lead to continuation of the non-level playing field within the industry. According to the association, the dual spectrum operators are paying separate spectrum charges for 800 MHz and 1800 MHz; thereby enjoying a lower charge and causing significant losses to the exchequer.

Internationally, practices maintain that where spectrum has been allocated through the auction process, SUC is fixed at a nominal rate not exceeding 1 per cent to recover the administrative costs associated with managing spectrum.