TRAI recos snubbed: Experts slam DoT, foresee litigations

DoT's rejection of TRAI's recommendation on spectrum pricing has flummoxed the telecom industry and experts alike. While Rajan S Mathews Director General, Cellular Operators Association of India has slammed the DoT for sending the whole issue back to TRAI, Ramakrishna Maruvada, Telecom Analyst, Daiwa Capital sees the move leading to filing of numerous litigations.

Below is the edited transcript of the interview to CNBC-TV18. Q: What is your sense in terms of the impact if the Telecom Regulatory Authority of India (TRAI) recommendations are not taken, what would you expect will be the cost to cell phone operators? Do you expect that at least the Department of Telecommunications (DoT) will not go all the way to the previous situation of spectrum pricing? Mathews: TRAI did a very commendable and comprehensive job in all of the areas that they looked at. So, the fact that it should now go back on various issues on 1800 Mhz pricing, on spectrum trading, on spectrum usage charge (SUC), it brings back the uncertainty in the industry that we have been saying needs to be tackled for us to move forward. This flip-flop of raising issues which we thought were adequately addressed by the TRAI seems to be up for discussion again and that will continue to hang. Honorable minister in the open house had indicated that he is interested in moving the industry forward and we don't think this (the move) is conducive to that in terms of moving the industry forward. Q: How would you approach the entire sector now, again there is policy uncertainty and how do you think stocks like Bharti Airtel, Idea Cellular etc would move? Maruvada: In terms of the share price reaction, if one looks at the performance of stocks this year and the multiples they are trading on, clearly looking past the regulatory headwinds, they seem to indicate that the companies would overcome the regulatory obstacles. That seems to be what the market action seems to be indicating. However, clearly this is a minor hiccup but if one were to step back and think about what changes we have seen in the past year, the spectrum renewal fees seem to be far lower than what they were about a year ago. So, this is positive for the industry. In my sense we seem to have got a bottom for where the spectrum renewal space should be versus March which seems to be on the higher side. So, in terms of the payment quantum I think the final quantum should perhaps be in between these two numbers. But perhaps the more important aspect is the timing of the auction. We know that November 2014 is the deadline and clearly, that is something that would raise questions about when will auctions finally be conducted. But I would be more worried about potential litigation more than what DoT is doing at this point in time. Litigation could also come in from players who have paid very high prices in the previous auctions. That would be the key area of concern for me than the DoT sending back the whole thing back to TRAI. Q: Which would be the most disastrous for telecom companies in terms of recommendations being overturned? Would it be the spectrum reserve price if that cut is not absorbed or would it be the uniform spectrum usage charge that 3 percent if that is reversed or not taken forward, which would hurt telecom companies most? Mathews: The TRAI was wise in looking at the total comprehensive nature that it did, because to try and disaggregate the particular pieces just introduces further uncertainty. For example, clearly the Supreme Court indicated that 1800 MHz spectrum auction was imperative and urgent so, that clearly should be the focus in terms of getting something accomplished. Now the additional item in terms of 900 MHz spectrum, 800 MHz spectrum, spectrum refarming and SUC are all ancillary matters which will have an impact in terms of the auction process and the numbers that might be ultimately achieved. So, it is good to have a comprehensive look at it so that bidders have a very clear understanding in terms of what they are bidding for and how much they should pay. Hence, that should be the way forward. Obviously in terms of meeting the Supreme Court’s mandate, only the auction of 1800 MHz is of immediate relevance. Q: What about the auction process itself, last two auctions were clearly a big washout because of the higher reserve price, if it is hiked again do you think the same fate is going to be underway for the next auction as well? Maruvada: It is a little difficult to tell because clearly with the way the current reserve prices are, I would think that there should be some participation. Now the question is at some point depending on where the pricing is, there are always new entrants waiting. Hence, it depends on at what price they would be interested on. It is very difficult to say whether or not there would be any participation because we know that licences have to be renewed by November 2014 so the hands of the incumbent operators may be forced whether or not they are willing.