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2008-5-28 Brief Note for FM

2008-5-28 Brief Note for FM

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Published by: Firstpost on Feb 24, 2012
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BRIEF FOR FINANCE MINISTERMeeting with Minister of Telecommunications and ITMay 28, 2008 1.DEA position on various issues relating to allocation andpricing of spectrum – 2G and 3G – has been summarized in theupdated position paper submitted to Finance Minister on April 29,2008. The main features of the recommendations are summarizedbelow:
Issues relating to 2G spectrum
2.It is legally and administratively tenable to impose a two parttariff for spectrum: a fixed, one-time “upfront” spectrum price for allowing the allottees of spectrum to use a public resource for private profit; and a recurring usage charge, whereby Governmentshares the profits accruing to the operator.3.Spectrum allocation upto 6.2 MHz for GSM (5 MHz foCDMA) may not be charged both for existing and new allottees.4.Spectrum allocation beyond 6.2 MHz for GSM (5 MHz for CDMA) ought to be charged, in terms of an “upfront” price, bothfor existing and new allocations. The principle employed for charging should draw from the initial entry fee of Rs 1,650 crore(for 4.4. MHz (GSM)/2.5 MHz (CDMA)) fixed in 2003-04 suitablyinflated for the growth in AGR/MHz between 2003-04 and 2007-08. Spectrum allottees not willing to pay this price can relinquishtheir allotments.5.The current practice of linking spectrum usage charges tobandwidth may be replaced by making spectrum usage chargescircle or category specific. The formulation recommended by DEAin this regard, while yielding maximum revenue (as compared tothe other formulations advanced by DoT, TRAI and CDMAoperators) also represents a break from the current practice andstrengthens the arrangement for a “two part tariff”. This manner of levying spectrum usage charges has also been recommended by
the Cellular Operators’ Association of India (CoAI) in their representation to Finance Minister dated May 08, 2008.
Issues relating to 3G/WiMax Spectrum
6.Allotment of 3G spectrum may be made on the basis of anInternational Competitive Bidding (ICB) process, with reiteration of the existing mandatory “roll out” clause and preconditions relatingto prior experience in the sector, net worth criteria etc beingspecified for pre-qualification of bidders.7.Both TRAI and CoAI (representation dated May 26, 2008)have argued in favour of auction among UAS (including ISPlicenses, for WiMax) license holders. The main arguments insupport of this recommendation are as follows:(i)The new entity bidding for 3G spectrum will need a UASLicense. There is a “queue” for this license and the practiceis to allot the license on a “first come first serve” basis. If thenew entrants are allocated spectrum through auction andthen granted the license subsequently, it would amount toeffecting a “backdoor” entry into UASL. On the other hand, if the entity is not granted a UAS License, it would amount tocreating a new class of licenses, which would needreference to TRAI.(ii)The existing licensees, who have huge investments ininfrastructure and systems, will be in a better position to rollout 3G services faster and at lower incremental cost.Presence of 13-14 UAS Licenses per circle will ensureenough competition to have a meaningful price discovery.8.These arguments are not found to be tenable on account ofollowing reasons:(i)Spectrum allocation for 3G services should be treated
sui generis
and not an extension of the 2G allocation process. Itis for this reason alone that with respect to allocation of 3Gspectrum, a spectrum acquisition price and a different
process for price discovery have been prescribed by TRAI;different rates for spectrum usage charges than being usedcurrently have been laid down; and, more stringent “roll out”obligations have been defined.(ii)The modifications required in the terms of license for 3Gservices can be effected using the power conferred onGovernment vide Clause 43.5(iv) of the UAS License, whichstates, “…the Licensor has the right to modify and/or amendthe procedure of allocation of spectrum including quantum of spectrum at any point in time without assigning anyreason…” This clause may be used to amend the allotmentprocedure of 3G spectrum and no reference to TRAI for creation of a new license is warranted.(iii)While the number of operators per circle has gone up afteaward of 120 UASL Licenses in January, 2008 andaverages around 13-14 per circle, it would not be correct toargue that mere presence of numbers would lead tosufficient competition. A preliminary analysis suggests thatnearly 70-75 of the total Licensees at present (279) havenone or insignificant prior experience of the Telecom sector;moreover, the actual holders of spectrum are not more than7-8 per circle. The competition, thus, in actual fact, isrestricted to these established players and there is everypossibility of collusion/ cartelization taking place amongstthese operators while bidding for 3G spectrum. The other licensees have been granted licenses but do not have anyspectrum allocation. Most in this category also do not haveany prior telecom experience and have not invested intelecom infrastructure as yet. Therefore, the argument of TRAI that existing operators have invested heavily ininfrastructure and will be at a disadvantage if ICB is done isnot correct in the context of such licensees.(iv)While presence of basic infrastructure, e.g. transmissiontowers, will lead to synergies in extension of telecom

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