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TRAI justifies spectrum price

Rahul Khullar is right behind his predecessor, and is doing some nifty arithmetic using inflation to justify the reserve price of spectrum by the Telecom Regulatory Authority of India’s previous chairman JS Sarma. Manoj Gairola reports. Spectrum economics: The fine print

india Updated: Jun 20, 2012 00:55 IST
Manoj Gairola

Rahul Khullar is right behind his predecessor, and is doing some nifty arithmetic using inflation to justify the reserve price of spectrum by the Telecom Regulatory Authority of India’s (TRAI’s) previous chairman JS Sarma.

Khullar told the the Joint Parliamentary Committee (JPC) on the 2G spectrum scandal that 17 years ago, operators had bid Rs 10,040 crore for 4.4 MHz of spectrum for 18 circles (except four metros) for 10-year licences.

Simple calculations show that if the number is adjusted for inflation at 12.63% (the prime landing rate of SBI), its present value would be Rs 75,832 crore — more than four times the TRAI recommended reserve price.

In April, TRAI had recommended a pan-India spectrum price of Rs 4,170 crore (not counting Mumbai, Delhi and Kolkatta) for one MHz of spectrum in the 900 MHz band. For 4.4 MHz, it comes out to be Rs 18,348 crore. Telecom operators say that the regulator has recommended a very high reserve price.

Notably, the higher price set by the TRAI covers a 20-year period — or twice the time for which the first round of spectrum was rented out.

Also, operators have a higher chance of selling value-added 3G and 4G services such as video-conferencing and movie downloads in the new era of telephony, a far cry from the plain-vanilla voice days of 1995.

“These two factors make spectrum much more valuable than what it was in 1995,” said an industry analyst. “A longer period of spectrum allocation helps in the project as everything is funded for 20 years,” said an industry analyst.

Khullar’s presentation also pointed out that in 1995, the companies were required to pay the bid amount in 10 years and later migrated in 1999 to a revenue-share regime saying they had quoted too high in their bids.

And in 2008, two companies diluted their equity holdings at a valuation of around Rs 10,000 crore, which is about Rs 15,735 crore at present value, Khullar said.

The presentation said that the TRAI recommendations were based on the price discovered in the May 2010 auction of 3G spectrum.

"We are satisfied with the TRAI chairman's presentation," said a member of JPC. "We are convinced that the regulator has done his work thoroughly and in a scientific manner in calculating the reserve price."



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