Reserve price will impact sector, aam admi: COAI & AUSPI

In a panel discussion on CNBC-TV18, Rajan S Mathew, director-general, COAI (Cellular Operators Association of India) and SC Khanna, secretary-general, AUSPI (Association of Unified Telecom Service Providers of India) discuss the implications of meeting of the Empowered Group of Ministers on Tuesday.

Below is an edited transcript of the discussion on CNBC-TV18. Also watch the accompanying video. Q: The crucial decision on the reserve price that was eagerly looked forward was unanswered. Will the telecom sector have to live with the reserve price decided by JS Sarma? Mathew: I think the COAI is optimistic although things have not panned out as expected. We have submitted substantial documentation and data to the TRAI, the government and the EGoM explaining why the recommended high reserve price will be disastrous for the consumer as well as for the industry.
We hope that independent data and studies by Price Waterhouse, E&Y and several other analysts will convince the EGoM that the reserve price needs to be set much lower. Q: In the current political environment, won't it be political suicide if the government actually reduces reserve price? Mathew: I think it is appropriate to note that the matter at hand is the reserve price. In our opinion, the auctions should determine the final price as it was done in the case of the 3G auctions.
Reserve prices are never set at the near realisation rate. So all we are  asking the EGoM to do is to reduce the reserve price to reasonable levels and let the auction determine the final price so there is no loss of revenue to the government in that scenario. Q: The COAI and AUSPI have been parlaying with the government to see the industry's point of view as far as tariff escalation is concerned. So far you haven't met with much luck. TRAI under JS Sarma prepared a 34-page report analysing the impact of tariff. Do you hope to see something different under Rahul Khullar? Khanna: It's a very easy job. I don't know why government of India, all the groups of ministers and the bureaucrats who are members of the Telecom Commission have not been able to take a simple decision. The reserve price of Rs 18,000 - Rs 19,000 crore for 5MHz of spectrum the tariffs will go up and adversely impact the common man. Q: So you believe that if the government goes ahead with the reserve price as was publically presented earlier, there is going to be a tariff escalation of between 50-100%? Khanna: Tariffs will go up. Secondly, the common man, who is now using the phone at 40 or 50 paisa, will have to pay an unaffordable price of Rs 1.50. This would impact the telecom sector as the mobile phone is used more than the pen or pencil.
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We suggested the government take Rs 3,500 crore for 5 Mhz and start the auction. At the end if you find that the price is not right, the government has every right to reject the bid. It's a very simple method. Q: Two options were presented and the likelihood is that the EGoM will go for the auction of the 14 Mhz. So in that sense at least that’s a positive because it’s more than what was proposed earlier? Mathew: That would be a major disappointment to the industry because the Supreme Court, in its brief to TRAI and the DoT, has stated that the spectrum granted for 2G be re-auctioned.
So, we believe that indicates that all of the spectrum ought to be put up. Offering anything less than the full range of spectrum, is to artificially create scarcity and is another way to push the auction price up. Q: According to sources, a pre-bid conference is expected to take place shortly and the submission of bids by the auctioneer is meant to take place on July 5. The memorandum for auction is likely to be presented on August 6. Do you think the government will be able to meet these timelines and the Supreme Court deadline? Khanna: I think that they are taking too much time. If they decide, as they have decided on reserve price and the blocks as mentioned earlier, all the available blocks for which the licences have been cancelled must be auctioned because that will create scarcity and stifle competition.
The entire business model of telecom is based on competition. If you don't give enough spectrum, the competition will be discouraged and that will again lead rise in tariffs. Q: If the reserve price remains, is this auction going to be a failure? Mathew: Absolutely. I think the number of bidders that will enter the market will be considerably diminished and it will set back the whole industry. Khanna: The people, financial institutions, banks, the bidders as well as the service providers is interested to bid at this price at the moment.