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Sep 21, 2013, 05.38 PM IST | Source: CNBC-TV18

Averaged many valuation methods to get spectrum rate: TRAI

TRAI chairman Rahul Khullar says the telecom body did not rely on any one method to derive the spectrum price. The telecom regulator has cut 900 MHz spectrum reserve price by 60% and 1800 MHz spectrum reserve price by 37%.

The valuation was derived from a different set of methods working bottom-up and candidly we offered all these methods to stake holders and said give us comments.

Rahul Khullar

Chairman

TRAI

Days after recommending a new path for spectrum valuations for future auctions, TRAI chairman Rahul Khullar spoke exclusively with CNBC TV18's Siddharth Zarabi on a whole gamut of issues related to telecom and even broadcasting. Here are the excerpts from that exclusive conversation.

Also Read: TRAI to take up TV channels pricing issue

Below is the verbatim transcript of Rahul Khullar's interview on CNBC-TV18

Q: Why did you suggest such a drastic cut in spectrum prices, given that there had been so much hype that spectrum has been sold for a song and that the nation has lost thousands and thousands of crores of rupees?

A: The TRAI was acutely conscious of the fact that two auctions had already been held and markets had already revealed their preference. If we had gone ahead and done exactly what we did before, the problem was not going to be solved. Secondly, we looked at the problem in a completely different manner.

Traditionally, the approach from the time of the 3G spectrum auction in 2010 was to arrive at a pan India valuation, which was then allocated across 22 telecom circles. This is what we did the last time around. We indexed the 3G price for inflation and then applied it across the circles. That approach had two problems: firstly, arbitrary allocation from a pan India level to an individual circle ended up distorting the level of relative prices. And this was more than apparent when you look at the prices of 1800 Mhz band spectrum, because what they reflected was the relative prices of the 3G auction.

So, we decided to go bottom up rather than top down. That’s the one big change we made and once we did that, then we had to find out the value of spectrum at the local service area. We came up with five or six different methods econometric, cost production function, opportunity cost model among others. Broadly speaking, most of these models gave you completely different valuations.

Q: Why did they give different valuations, because the 3G or BWA spectrum auction was a completely different ballgame from the 1800 or 900 Mhz spectrum? Some people, say they are not comparable. Why did the valuations fall off the cliff? There is a feeling that the TRAI has completely reversed the clock in the other direction.

A: That is wrong. The TRAI has not reversed any clock or done any such thing. All we have done is to impart scientific methods and used market information as revealed in the auctions to derive prices.

Q: Did the previous TRAI not use scientific methods?

A: I would not say that. I think scientific method varies from time to time. My method is somewhat different from their methods. The question is not so much about method but the way you approach the problem of spectrum. The truth of the matter is that how a TSP values spectrum from its individual perspective is not known to me.

All the authority can do is to try and make an objective assessment of what these valuations would be and come up with an average. We cannot do all possible valuations because we would end up doing that for the next 20 years. Hence, we restricted the methods that we had on hand, and that is why we came up with these numbers. So the valuation was derived from a different set of methods, working bottom up.

We had offered all these methods to stakeholders for comments and told them that if you don’t like them, give us some other alternatives. Nobody, gave us an alternative which was workable. 

Q: Post the recommendations, the COAI, which represents the likes of Bharti Airtel, Idea and Vodafone among others, said even these reserve prices are unrealistic and that they should not be the floor to start the next auction from.

A: I will not comment on what industry associations say. I think the authority has done a fair job. We have been transparent and shared every possible approach, at every stage. It was then that we finalized these recommendations. Individual parties are free to comment on them, but the Authority can no longer entertain this as an ongoing discussion for ever and ever. Our recommendations are made. It is over.

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