Game-changer TRAI plays the trump card

Demolishing the “zero loss theory” of the UPA government for the 2G licences that was awarded in January 2008, the TRAI (Telecom Regulatory Authority of India) has recommended the new reserve price of spectrum to Rs3,622 crore per megahertz (Mhz).

The recommendations that was released by TRAI on Monday evening also asks the government to invoke its authority and invite bids for the spectrum already held by the existing telecom companies to ensure that subscribers don't face any hardship when the licences come up for renewal. If accepted, this will act as a major game-changer in the existing telecom market.

This is a massive hike from the earlier price of Rs1,659 crore at which all of the 4.4 and 6.2 Mhz of spectrum was distributed on a first-come-first-serve basis by the then telecom minister A Raja. Now, the telecom companies will have to dish out a massive price for every Mhz it bids for if it wants to establish a major presence in the market.

The TRAI came up with these recommendations after the Supreme Court cancelled all the 122 licences that had been distributed earlier after hearing a public interest litigation.

The fresh recommendations have raised the price significantly and it will have a major impact on those telecom companies that want to hold on to the licenses that were awarded to them in January 2008. The new recommendations, if accepted, will have a major impact on Uninor and Idea, who have the biggest stake in the fresh auctions. Uninor won the licence in 22 circles and Idea managed to swing it in seven circles.

This means that both will have to battle it out and bid aggressively to retain or get additional circles well above the Rs3,622 crore per Mhz reserve price.

While this will prove to be a major windfall for the government, it could also mean a major mayhem for the telecom industry with the escalation in costs.

The TRAI has been careful to justify the hike, bolstered in part by the CAG's findings that the auction of the spectrum in January 2008 had caused the exchequer a loss of Rs1.76 lakh crore. In addition to this, the TRAI has also said this spectrum would be "liberalised" and telecom companies can use it in any manner.

This means the spectrum "in any band can be used for deploying any services in any technology".

The TRAI's recommendations have also flagged the issue of the renewal of licences of major telecom operators such as Airtel, Vodafone and Idea. It has sought to "re-farm" the spectrum - an industry term for re-selling the spectrum - once the existing licences come up for renewal. Which means telecom companies will have to bid for the spectrum they currently hold.

TRAI has recommended that the auction for this spectrum should be done quickly so that telecom companies that lose out can make alternative plans to ensure that their current subscribers do not face any hardship.

If the telecom companies are, by any chance, unable to successfully bid for the spectrum they currently hold, it could lead to a major reshaping of the telecom market.

The current market leaders will have to bid aggressively to hold on to their spectrum if the government accepts this recommendation. "The Authority recommends that the re-farming of spectrum in the 800Mhz and 900Mhz bands should be carried out progressively at an early date but not later than the date of renewal of licences."

Therefore it recommends to the government to "actively explore the possibility of re-farming of the spectrum of 900Mhz ban immediately, by invoking the authority to change the licence conditions".