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Last Updated : Feb 05, 2014 01:24 PM IST | Source: CNBC-TV18

2G: Demand suggests we got the price right, says Khullar

Speaking to CNBC-TV18's Malvika Jain, Khullar said they were always upbeat about the auctions.

The 2G auction has entered the second day but demand remains robust. Telcos continue to haggle for spectrum as the bids have hit Rs 46,000 crore. This is against the government's target of Rs 40,000 crore. For this fiscal the Centre is likely to exceed its target of Rs 11,300 crore. Strong demand for 900 megahertz spectrum as Delhi and Mumbai remain the most wanted.

Chairman of the Telecom Regulatory Authority of India --- Rahul Khullar told CNBC-TV18 that strong demand shows that the Centre got its reserve price right.

Remember, before the auctions, the TRAI and the Telecom Department were at loggerheads about the reserve price. The TRAI wanted the reserve price to be lower and dot wanted it higher before the telecom commission stepped in to find a middle ground.

Speaking to CNBC-TV18's Malvika Jain, Khullar said they were always upbeat about the auctions.

Below is a verbatim transcript of the interview

Q: The government is extremely happy with the manner in which the auctions are progressing, particularly in view of the fact that the previous two rounds did not see such a favourable response from the industry. Are the auction results actually up to your expectations?

A: I always expected the 900 Mhz auction to be fiercely competitive and that has been proven. I also think the 1800 Mhz auction will prove that it too shall be successful. The numbers published already indicate that in many circles, even in 1800 Mhz, you are already in situation of excess demand or very small excess supply situations, which roughly translates into you getting the price right because market is clearing.

The important takeaway on the auctions is two fold. One is that the auction is merely a device for price discovery. Once you accept that you need to recognize that you cannot set a reserve price out of the earth. You can't get discovery that way.

Q: Do you think that had the TRAI not done the brave thing, given the atmosphere at that time and taken the first step and said, ‘no the reserve price needs to be lowered significantly’; you wanted a much lower reserve price things would have actually panned out the way they are turning out to be?

A: It would be both not particularly humble and perhaps a little too self-righteous to claim credit for these sorts of things. I think the second takeaway from the auction is something, which we articulated in the spectrum report that it is essential for government and the authority to rebuild and regain public trust and confidence.

When we have gone through this process, we made recommendations, the government examined those recommendations. The sovereign then took a decision on the price and then decided notwithstanding everything else to go ahead with the auctions. I don’t think neither the government nor the authority is looking for credit in the matter. If we have in some ways regained public trust or public confidence that will be the greatest achievement the auction actually makes.

Q: If you were to compare the situation in 2010. What are the lessons that need to be learnt by the government and also by the industry?

A: There are different ways of valuing spectrum and no one particular way is right. That is lesson number one. Number two is something, which the authority quoted in the report, which was it is better to be vaguely right than precisely wrong. You have had two auctions, they have not succeeded. Then you have to say to yourself there is a problem. You cannot keep on going on as you have in the past and that requires you to choose a different path. Then when you choose that different path, you run the risk that: look, that path will also not lead to success. But you have to take risk of going down that road.

We went down that road and it has proved so far successful. From the industry perspective the difference is that, it is again something, which we wrote in the authority report that 2010 was a time of irrational exuberance. Industry went mad bidding for spectrum. I have said this before on public forum that the problem in 2012 was that you had this huge legacy costs. You had bought this huge spectrum and you are not able to rollout services or there was no demand for services. Then there was the complicated problem of intra-circle roaming because of the quantum of 3G spectrum.

All said and done, if I was an industrialist looking back at what I did in 2010, I would say it was not a very smart decision to do what I did in terms of the bidding.



Q: Do you think the industry is making the same mistake now because for 900 Mhz spectrum if you look at the figures that the government published yesterday, the bidding has taken place very aggressively whether it is because a Bharti Airtel and a Vodafone have to necessarily bid or you are seeing a new entrant in the form of Reliance Jio. Do you think they are again going overboard?

A: I don’t think they are going overboard. I think that you will see the 900 Mhz auction essentially conclude in the next day or two. If you looked at the excess demand numbers, in Mumbai there is an excess demand of 5 Mhz ,which basically means, one guy is fighting for that–5x1. In Kolkata, it is excess supply of one. Delhi you are down to just a very small amount, almost even. The market is about to clear in both Delhi and Kolkata and Mumbai is left.

Mumbai is a fight because somebody wants to enter, whoever wants to enter has to displace somebody, it is going to be hard. That is why you are seeing it. Is it viable very honestly my view is at some point of time a corporate is going to decide okay so far and no further. Then you are going to say I am probably better off buying 1800 Mhz in Mumbai why should I bid more for 900 Mhz. I think you will see that start happening in the next few days.

Q: If I could go back to your previous question, you spoke about spectrum sharing. That is again an issue that telecom companies are quite keen on because that is actually going to significantly bring down their cost. In fact the kind of bidding that you are seeing may be would not be required if spectrum sharing in to-to is permitted. What are your personal views in this regard?

A: I am in a position where I cannot have personal views. I didn’t specifically mention sharing but I think three things go together, spectrum trading, spectrum sharing and the merger and acquisition guidelines. You need all three for different reasons. You need the trading and the merger and acquisition guidelines to make sure that consolidation takes place within the industry.

You need spectrum sharing to increase efficiency of spectrum use. They are three different things now. We had sent recommendations on sharing and M&A some years ago and it has not fructified. On trading we held our guns and we said you agree to the recommendations inprinciple and we will give you the guidelines. As you know last week we have given the guidelines.

We are now in the process of waiting for what DoT does with both the trading guidelines and what it does on M&A. We are having a second look at sharing and how to move forward. These are all taboos or were taboos till six months ago.

Q: So was SUC for that matter?

A: SUC was taboo, trading was taboo, M&A was taboo, sharing was taboo and mobile virtual network operator (MVNO) is still taboo. I think the authority’s perspective at this point at least looking forward to 2014 is how we revisit these taboos and start thinking about them coherently and working with industry to develop something which will actually help turnaround the industry.

Q: Even though we are seeing a revival in sentiment do you think its corporate rivalry which continues that is hurting the sector more than actually the policy issues or the policy paralysis or policy ineffectiveness that has hurt the sector?

A: A lot of damage was done by corporate rivalry and all that precedes the time I came here. On my watch at least I have tried my level best to bring CEOs and owners to the table, talk things through with them and to reduce as far as I can the potential friction between the corporates.

Q: Are you seeing any change?

A: Yes and no. I think on one hand they have all learnt a very bitter lesson. They have burnt their fingers very badly on the tariff war. That is a lesson they will not forget. So, this race to the bottom which allowed all of you to have phone calls or voice at 30 paisa a minute or 35 paisa a minute that will not come again.

Q: That is really bad news for the consumers in that case.

A: Consumers had it very good for a long while. The other thing is that there are other new corporates entering. How this will affect the industry? It is too early to say quite simply because the rival has not actually rolled out the network. I don’t think corporate rivalry that you saw between 2003 and 2010 that sort of thing will carry on any further. Also, I think there will be a consolidation. The American word for that is shake-out which means industries will die, firms will die and some firms will survive.

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First Published on Feb 4, 2014 10:56 pm
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