Cautious move

The government has taken a major step towards auctioning of 2G telecom spectrum by fixing the base price at Rs 14,000 crore for 5 MHz for GSM operators and Rs 18,200 crore for CDMA players.

It is now planning to approach the Supreme Court to extend the August 31 deadline fixed by the court for completing the auction process. The decision will mean a much-needed boost to the exchequer with the one-third upfront payment of the expected Rs 40,000 crore proceeds from the auction easing the tight fiscal situation. The cabinet, on the recommendation of the empowered committee on telecom, lowered the base price recommended by the TRAI by about 22 per cent. This  was in response to the protests of telecom operators about the high price.

Ostensibly there may be a case for lower spectrum cost which translates into lower tariffs for the consumer. The telecom explosion in India was driven by a low-tariff and high-volume growth model. The economic and social benefits of high telecom penetration are considerable even after the government  forgoes  some revenue. If this argument was sound in the initial years of the telecom revolution, it has lost some of its value now.

It is likely that the operators are exaggerating the impact of the spectrum cost. TRAI had calculated that its proposed base price would cause only a 5 paise increase in tariffs. The government has also liberalised the auction terms with the requirement of only one-third immediate payment, a two-year moratorium and staggered payments of annual instalments over 10 years. The companies can also mortgage spectrum to raise funds from banks. These should take care of the complaint that the high cost of auction will impose a heavy burden on the operators.

There is a large number of operators and none of them has ruled out participation in the auction. Since there is a scarcity of spectrum and in view of the need to roll out value-added services, all companies will have to bid for additional spectrum. Only the actual outcome of the auctions will decide whether the price is realistic and which of the contending arguments has greater merit. But the government has done well not to be seen as ready to give away a scarce resource cheaply, as has often been done in the past. It should complete the process at the earliest.

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