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India's telecom sector is now in a new phase of transition — the latest in the saga that began in 1994 when the state monopoly ended in the backdrop of the rise of mobile telephony. With the government — apparently chastened by the 2G scandal that raised questions on how the scarce resource should be allocated -- deciding that spectrum will be auctioned instead of allotting it on a first-come-first-served (FCFS) basis, new questions have opened up on the future of the industry.
The Telecom Regulatory Authority of India (TRAI) has recommended a reserve price of Rs. 18,000 crore for 5 MHz of 1800 MHz band spectrum.
However, while the industry talks of a tariff increase linked to this, there is no undue need to worry for telecom subscribers. The fine print is that the spectrum is being allotted for 20 years and will cater to a larger market. Currently, there are more than 930 million mobile subscribers in India.
According to TRAI the tariff increase will not be more than 5 paise per minute if the operators pass on the hike in prices to the consumers.
In a presentation to the empowered group of ministers (EGOM), on Thursday, TRAI chairman Rahul Khullar justified proposed reserve price of Rs. 18,000 crore -- underlining that its impact on tariff will be only 5 paise per minute under normal circumstances.
If the impact of the proposed spectrum price is taken circle-wise, then the impact on tariff will be more in metros. For example, in Delhi, the impact will be 15 paise per minute.
However, there are currently eight operators in Delhi providing pan-India services. If, a standalone player provides services in Delhi, the company will have to match competitors and the chances of 15 paise per minute are negligible.
"Impact on tariff will depend on healthy competition and not on the actual price of spectrum that the government charges from operators," said Mahesh Uppal, a Delhi-based telecom industry consultant.
This flies in the face of telecom operators who have been arguing that the increase in tariff will be between 40 paise and Rs. 1.
In a report on the impact of spectrum pricing on tariffs, TRAI has criticised private operators who claimed that prices will increase sharply due to new proposed spectrum prices. "While industry associations have continued to maintain that the impact on tariffs would be high, none have provided any detailed modelling, statistical analysis and industry-wide computations, on which these conclusions are based," according to the report.
But industry associations defend their assessment of a likely sharp increase in prices. "Our report has been prepared by a reputed company," said S. C. Khanna, secretary general of Association of Unified Service providers of India (AUSPI). "We have discussed in detail the report with our members and with consumer organisations. TRAI's assumption on growth of market is wrong."
Independent analysts believe that it will be difficult for EGOM to reject the TRAI report. "It is next to impossible for EGOM now to ignore the TRAI reassertion of the fact that there will be a minimal impact of proposed spectrum prices on tariff," said BK Syngal, former CMD of VSNL. "The industry has been unnecessarily crying wolf in the name of consumers."
Consumers, of course, want good services at affordable prices. "Consumers are always willing to pay more provided good quality of services is ensured," said Bejon Misra, founder, Consumer Online foundation.
And consumers will hope that a just combination of regulation and competition will keep them away from unfairly high prices.
Posted by Veronica Silva Cusi, news correspondent
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Published: Monday, July 9, 2012