‘Telecom companies have got used to good things in life’

Even as the telecom industry is trying to digest the unpalatable
recommendations put out bysector watchdog Telecom Regulatory Authority of India (Trai) on Monday, R Chandrasekhar, telecom secretary, says the sector is poised for transformation with liberalisation and more transparency. He tells Praveena Sharma players will have to get used to new realities.

Q: Telcos see the reserve price recommended by Trai as exorbitant, something that could make their businesses unviable. Considering such widespread protest, will the government stick to it?
A: It’s not even been three days since Trai came out with its report. We are still studying and have not firmed up our views but it would not be correct to look at that one number - the reserve price - in isolation. You have to look at a whole set of recommendations before you can form any view and that is what the government will do.

Trai has followed some methodology to arrive at a base price.

Apart from the base price, there are two or three other recommendations which are of extreme importance in deciding whether this reserve price is appropriate or not. Number one is that, unlike in the past, this spectrum is liberalised. With earlier spectrum you could use it only for 2G technology and could provide only certain kind of services but with liberalised spectrum you can use for any technology — 2G, 3G, 4G or any future technology which gets developed. Since this allocation is for 20 years, any benefit from technological advances can be availed.

This also has to be seen in conjunction with the fact that we are getting into the broadband era. More and more broadband and data services will come in. We are moving from pure voice market into voice-plus-data. Slowly data will go up. It was nearly zero. Now it is around 10%  and in many countries it is over 50%.  So, all of these will provide opportunities and revenues to people who get this spectrum.

The second important point is that spectrum usage charge has been brought down substantially. Today, spectrum usage charge is 3-8% of the adjusted gross revenue (AGR), Trai has recommended it should be brought down to 1%. One has to make a calculation to see what is the impact of this over 20 years.

The third aspect is that on the payment terms. When the 3G (third generation) auction took place entire payment had to be made upfront. In this case, what the Trai has recommended is only 33% payment should be made upfront and after a two-year moratorium, rest of the amount should be paid in instalments over 10 years. Of course, there is an interest element on the deferred payment, but the point is that it smoothens out the cash flow. We are analysing all these aspects and will firm up our views and go back to Trai with any questions or clarifications or suggestions or difference that we may have with them.

Q: The government, in its application to Supreme Court (SC), had asked for 400 days for conducting the auction, but it has given time only till August 31. Do you think the government will be able to adhere to the apex court’s deadline?
A: We have not yet received the order of the SC. We don’t know what it actually says. We will wait for it and then see what needs to be done. However, the 400-day schedule is the best estimate of the time required for the auction. There are many steps involved and all of them have been listed there. It may be possible that some steps could happen faster and some steps could take longer than anticipated. On our part, we are fully aware of the urgency, right from Day One.

The Trai recommendations came on April 23, we are working on it as fast as we can. In the normal course, a report of this magnitude would take the department (of telecom) one month to study and firm up its views.    

We are trying to do it in 10 days. Finally, steps indicated have to be taken. We cannot eliminate any of them because all of them are essential. All we can do is speed up each of them as much as possible.

Q: How does the government plan to offset waning investor interest with the tightening of the regulatory framework?
A: I don’t know how you have come to the conclusion there will changes in the investment climate. These are very premature and completely subjective and impressionistic views. What is being brought in is a very progressive regime. Liberalisation of spectrum is a very progressive regime because instead of government deciding what technology should be used which was being done early, it is left to the market. Secondly, an auction is among people who are providing services. So people will bid what they think is viable. In our opinion, the move towards liberalisation and transparency in a competitive framework is the best possible thing that can happen and best possible thing that any serious investor should want. So, I do not know how you can come to off-the-cuff conclusion that this is going to dampen investor interest. One should be careful in making such subjective judgment by following the herd mentality.

Q: If it comes to choosing between fiscal compulsion and investor interest, what would the Department of Telecom (DoT) settle for?
A: The draft telecom policy brought out balances interest of consumer, which is to make the tariff affordable, interest of industry, which is to keep the business viable, and interest of the government which is third corner of this triangle. I don’t see how anyone has come to a conclusion that fiscal compulsions are driving this policy. That is not at all the case. I think it has been several years of government and public discourse there should be competition in the allocation of the resources, especially when there is greater demand among the competing private sector participants than supply.  The best way to determine the price is through an auction process. It  (fiscal compulsion) has now been brought about because this is the only way that the government could get more revenue. It has not been the consideration from where it started.

Q: Many believe the government is being unmindful of the health of the industry in its pursuit of earning revenue, what do your view on this?
A: This whole analysis is purely on intuitive and impressionist basis, which cannot have any meaningful result. If you want a meaning dialogue it has to be based on hard facts and quantitative analysis. How much does the spectrum cost impact the cost of operation, what is the percentage of this cost in relation to the total cost? All this analysis is there in the Trai report and we are going to look it. We have not come to any conclusion, and for industry to have different point of view is understandable but it’s a point of view that must be argued with reference to facts and number. It cannot be argued purely on a qualitative basis.

Q: Do you think the industry has got used to the regime of cheap spectrum and huge margins?
A: Well, everybody gets used to good things in life and when they are not available then you miss it and when it is there you don’t realize it but that’s life. You move on.