One-time charge good for incumbents; amid extremes: Experts

Experts Asim Abbas, lawyer, Khaitan & Co and Jaideep Ghosh, partner - advisory, KPMG explain to CNBC-TV18 that the start-up spectrum from  4.4 Mhz to 6.2 Mhz is a vested right of the telecom companies. Asim Abbas adds that charging a one-time spectrum fee for 4.4 Mhz is against the terms and conditions of the UASL agreement.  

Also Read: EGoM on telecom to meet again on October 8 Below is an edited transcript of the analyses on CNBC-TV18. Q: Do you think that the government's view of prospectively charging a one-time spectrum fee above 4.4 MHz is fraught with legal challenges even though it is not as bad as anticipated? Abbas: I think it is important to examine the provisions of the Unified Access Service Licence (UASL) licence agreement with respect to the spectrum. This legal position has also been confirmed by TDSAT in one of its decisions in 2010. The start-up spectrum of 4.4 MHz, is the vested right of telcos.
From 4.4 MHz to 6.2 MHz, the spectrum is not a vested right, but a contractual right subject to two conditions – the spectrum is available and satisfaction of certain parameters like subscriber base. Beyond 6.2 MHz, it is not the vested right of telcos. This is the legal position. Q: Does the argument presented by the telecom companies that this is not as per the existing contract, hold water? Abbas: That's right. Till 6.2 Mhz the charging mechanism as in the licence agreement is that the telecos will have to pay a royalty charge and some percentage of adjusted gross revenue as a spectrum usage charge. So, there is no provision of one-time spectrum charge up to 6.2 Mhz. So, if a charging mechanism is altered by the group of ministers or eventually by the Cabinet, then it will go against the terms and conditions of the Unified Access Service Licence (UASL) agreement. Q: Do you concur with the government's argument that this will actually help create a level playing field? Ghosh: This appears reasonable to me at this point of and based on information broadcast by the media. This definitely looks better for new entrants and bidders, but there may be problems that some incumbents may have to face because of this one-time fee. To that extent, there is an intent to create a level playing field. Of course there would have to be some changes in the terms and conditions of the licence from a legal perspective. Also Read: One-time spectrum fee will be prospective: Nirmal Bang Q: Do you agree? Do you believe that this will actually create a level-playing field? Abbas: I think the concept of the level-playing field does not mean that all operators should be treated alike. The principle of a level- playing field permits reasonable classification and means that similarly-placed operators be treated alike or similarly.
The level-playing field principle cannot be used to disturb the sanctity of a contract or to alter the terms and conditions of the licence agreement where the grounds to amend the licence agreement are only public interest and the interest of national security.
_PAGEBREAK_ Q: What kind of impact do you actually see as far as the big incumbents are concerned and also what does this actually mean for the sector? Ghosh: Firstly, incumbents and telecom service providers with spectrum beyond a certain limit were aware from 2008 that there would be some charge at some point of time. So in that context, I think there is some preparedness.
Now it seems that the decision is to not charge from the perspective of 2008, but from the date of the decision. To that extent, I think the burden would be lower on the incumbent and at the same time, there have to be certain payouts if this decision is approved and implemented.
So that definitely would impact their balance-sheet and their financials, especially given that the forthcoming spectrum auctions are going to start in about a month’s time from now. So definitely that’s something in the short-term that would hurt the incumbents. Q: What do you believe the impact of this is going to be as far as the 2G auction is concerned? On the back of the decisions that are likely to be taken by the Cabinet on October 19-20, do you believe this is going to impact participation in the auction? Ghosh: The participation in the auction is going to be far more reasonable and cautious vis-à-vis the 3G auction two years ago. Though we will be proven incorrect or otherwise, the impact of today's decision will probably be lesser on the spectrum participation and pricing and vis-à-vis a decision taken on the spectrum re-farming which entails moving telcos operating in the efficient 900 Mhz band to the 1800 Mhz band.
Depending on the nature of that decision I think that is going to have far more impact on bidders, pricing and aggressiveness. Q: Asim Abbas, a final word with you. Do you agree that it is perhaps the best case scenario as far as incumbents are concerned? Abbas: Yes, you are right. It is not a worst-case scenario. But I think the degree of preparedness was probably for giving a one-time spectrum charge beyond 6.2 MHz rather than 4.4 MHz. But the worst scenario was that at some point of time there was a discussion that the entire spectrum should be charged at a market-determined price.
So you are right, it is not a worst-case scenario. It is somewhere in the middle. But the logic of a one-time spectrum charge is more with respect to spectrum beyond 6.2 MHz rather than 4.4 MHz.