Spectrum dispute: My solution

The spectrum dispute is here again and quick resolution is required to make sure that growth in the sector is not effected. At the same time solutions should not be a ‘quick fix solution’ which would lead to new dispute after sometime. Lets first define the problem/ objective - what we want to achieve

Objective

I believe, an effective solution should meet following 7 ground rules:

1. Solution should help accelerate the growth in the sector and should increase telecom density.
2. There should be effective utilization of spectrum (being a scarce resource). There should not be any hoarding of spectrum.
3. It should not cause revenue loss to government by benefiting one or few telecom operators. At the same time focus should be on growth rather than revenue maximization
4. The solution should be equitable. At the end of the day all players should be at equal footing and nobody should get unfair advantage
5. There should not be any entry barrier for new players
6. Existing players should not be at a disadvantage. Due consideration should be given to high cost incurred in past by existing players in terms of revenue share, license fee, taxes etc
7. The solution should not create legacy problem. History can’t be changed but it should not become a weight which keep pulling the sector growth rate down. Solution should have flexibility to adjust to changing scenario in future.

Solution

Following is the 3 step solution which I believe meet the ground rule laid above.

Step 1: Existing players should have only 4.4Mhz spectrum in each circle irrespective of technology used. All players who have spectrum in excess of 4.4 Mhz to surrender the spectrum. In circles, if any, where existing players have already exceeded feasible subscriber spectrum ratio additional spectrum limited to the excess subscriber base (in the same ratio), should be allowed to be retained – I believe there is no circle where it has already exceeded. The no of subscriber / Mhz of spectrum ratio should be very strict and set at highest level considering the best practices and best technology available. It should lead to efficient utilization of spectrum. There should be single standard for all technology so that there is an incentive to use the most efficient technology.

Step 2: No distinction should be done between GSM and CDMA technology. Players like Reliance who want to start GSM service should be provided single 4.4 Mhz spectrum for both technology. They might be provided option of surrendering the existing spectrum in case they want to switch technology and the new technology requires another spectrum band. Should not be charged 2nd license fee. Rs. 1651 crores paid by Reliance should be returned.

Step 3: Excess spectrum lying with Govt. should be auctioned with both the existing players and new entrants having right to bid. New entrants would have to pay licensee fee over and above the spectrum bid amount. Existing players can use the spectrum to enhance their network while new players can use the same for setting up new network. This would provide existing players’ fair chance to get additional spectrum if they need it at the same time there would be no incentive to hoard the spectrum. It will also make sure that non-serious players don’t enter the business and hoard the spectrum.

Impact

GSM players might resist step one while Anil Ambani would resist step 2. But seen as a whole the 3 steps make it fair for all the players including new entrants. Third step is providing new players an opportunity to enter at the same time existing player are getting the advantage of free first 4.4 Mhz spectrum to compensate for the past efforts, risk, cost etc. this also takes care of the policy legacy problem.

Conclusion

Couple of years back when the same spectrum dispute was going on I had supported Ratan Tata’s views on paying for spectrum. Here again I am suggesting need of market forces to decide value of scarce resource like spectrum. At the same time I would repeat what I stated in my blog regularly in past – telecom is highly taxed sector and focus should be growth maximization rather than revenue maximization. Govt. should look at reducing other taxes like service tax, revenue share etc. to accelerate growth in the sector.