Incumbent telcos must pay new 2G price: DoT


12 Jan 2012
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Incumbent telcos must pay new 2G price: DoT

India's beleaguered mobile phone companies are set for a Rs 1,20,000-crore shocker. A Cabinet note prepared by the telecom department proposes to make it compulsory for all operators to match the auction-determined price for their existing 2G airwaves for the remaining period of their licences.

Industry calculations show if the Cabinet approves the telecom department's proposal, the government can garner a minimum of Rs 1,20,000 crore from existing operators such as Bharti Airtel, Vodafone, Reliance Communications and Tata Teleservices.

The proposal has been sharply criticised by AUSPI, the industry body that represents dual-technology operators, which says it will impact its members such as RCom and Tata Teleservices far more than GSM operators such as Bharti and Vodafone.

"Our calculations show that on an average, each of the seven pan-India operators will have to shell out about Rs 15,000 crore at the Trai-prescribed base reserve price to match the auction prices. Dual-technology players such as RCom and Tatas will have to pay a higher amount because they hold second-generation airwaves for both GSM and CDMA services," said a telecom industry executive.

A panel of ministers, headed by Finance Minister Pranab Mukherjee, will meet on Tuesday to take a call on the reserve price as well as the quantum of airwaves that should be sold in the upcoming auctions.

The Cabinet note, which has been circulated to all ministries for their comments, says this 'one-time fee' is being imposed on all existing mobile phone companies for creating a level playing field.

While examining the implications of the Supreme Court order (quashing 121 licences issued in 2008 by former telecom minister A Raja), it was noted that several of the operators who have received spectrum ranging from 1994-2009 had paid price ranging from zero to Rs 1,658 crore on pan-India basis.

Consequently it was observed that in a situation where new players who will come in will pay for entire spectrum, there will be no level playing field between them and those who received spectrum at administrative price," the note said.

While the government plans to impose this one-time fee prospectively, the Cabinet note further said depending on the outcome of the Presidential Reference in the Supreme Court, a decision to impose this charge with retrospective effect could also be taken.

The telecom department has said the airwaves held by existing players could not be used for deploying any technology of their choice, but spectrum sold in the upcoming auctions would offer this flexibility. Paying this one-time fee will provide existing telcos 'with the same facility of liberalised usage of spectrum', said the Cabinet note, implying this would enable an operator to offer 3G services on 2G frequencies.

The Cabinet note said spectrum sharing would be permitted only after telcos paid the one-time fee.

The industry body representing GSM operators said its members were awaiting clarity on the proposed policy change. "Telecom Minister Kapil Sibal and other top government officials have been meeting mobile phone companies to get their feedback on this issue. We are awaiting clarity and details on the proposal," said Rajan Mathews, director-general of the Cellular Operators Association of India.

But AUSPI slammed the proposal and said it was "not legally tenable and completely contrary to the licence conditions to which licensee and licensor were bound'.

"This new proposal puts late entrants like Reliance and Tata at a disadvantageous position vis-a-vis all those GSM operators whose licences are due for renewal between 2014 and 2016. GSM operators anyway have to get their licences renewed as per the existing contract terms during 2014 to 2016," said AUSPI.

It pointed out that 8, 10 and 9 licences of Bharti Airtel, Vodafone, and Idea Cellular, respectively, were due for renewal during 2014 to 2016 and the impact on these operators would only be for 14, 13, and 6 service areas only. "However, the new proposal is going to impact practically all the licences of our member operators," said the industry body.

AUSPI further added that the DoT move would be in full breach of the binding terms and conditions of the licence agreement. "This new proposal would amount to the unilateral amendment /modification of a material clause of the licence agreement," it said.

But the telecom department said in the Cabinet note that while the tenure of the licences was 20 years, the government had the right to amend the terms and conditions of the licence anytime.

The upcoming 2G auctions following the cancellation of licences by the SC will be in the 1800 MHz band. But telcos hold 2G spectrum in two different frequencies - incumbents such as Bharti, Vodafone and Idea have 2G airwaves in the 900 MHz band, considered most efficient, in about half the country.

"As per Trai's recommendations, the reserve price of 900 MHz bands shall be at two times the reserve price of 1800 MHz band. In the absence of auction price, this multiplication factor or reserve price, if available, may be applied for charging in the 900 MHz bands from the service providers," the note adds.

The telecom department has also asked the government to reject Trai's proposal to levy a spectrum transfer charge for M&As in the sector.

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