By

Ashish Barapatre (13034)

‘WE SEE A SILVER LINING FOR TELECOM’TRAI CHAIRMAN ‘RAHUL KHULLAR’ TALKS ABOUT THE REGULATOR’S

ROLE IN THE FORTHCOMING SPECTRUM AUCTIONS AND HOW THE WORST IS OVER FOR THE TELECOM INDUSTRY

(INTERVIEW BY ANJULI BHARGAVA DATE : 24 DEC 2013)

INTRODUCTION

• January is a big month for the telecommunications industry. Spectrum auctions are expected to fetch between Rs 14,000 and Rs 40,000 crore.

• For the industry, the auctions are critical as the operators need to keep their mobile services going (most of the old licences expire in 2014).

• For the government, they will serve as proof that it can raise the targeted amount and hold the auctions in a way that restores the credibility of the system.

• An interview with Business world, Rahul Khullar, chairman of the Telecom Regulatory Authority of India (Trai), spoke about the upcoming auctions, the state of the industry and other issues.

QUESTIONS

HOW MUCH IS THE GOVERNMENT LIKELY TO RAISE FROM THE JANUARY AUCTIONS ?

“How much the government finally realises is not the point. It is important to demonstrate that the government or the executive branch can take a judicious decision on a reserve price based on the recommendations of the regulator, conduct an impartial auction, and get the spectrum out. That is what is important”.

WHY DID THE MINISTRY GO AGAINST YOUR ORIGINAL RECOMMENDATION ON PRICES?• We had worked out the valuation of spectrum and then suggested reducing the value by 20 per cent to arrive at a reserve price.

• The Telecom Commission (TC) said metro and A circles are “very high value”; so, the TC accepted Trai’s valuation and reserve prices on everything else, but in the case of metro and A circles, the TC will set the price at exactly the valuations determined by  Trai that is, without a 20 per cent reduction.

DO YOU THINK THIS IS FAIR?

• My own sense it should work out fine.

• Reserve prices should induce bidding so that additional spectrum becomes available to the industry. Also, given that such a large quantum of spectrum is being put up for auction, long-term players would be foolish not to seize the opportunity now; you may not get another shot at spectrum for the next 20 years.

SO, WHAT WOULD YOU SAY ARE SOME OF THE DIFFERENCES BETWEEN THE LAST AUCTIONS AND THIS TIME AROUND?

• Three things have happened.

• First, the prices set for the last auctions were unrealistic and did not elicit a demand.

• Second, economic conditions have changed drastically. In November 2012, we were in bad shape. It was even worse shape by March 2013.

• Third the health of some of the telecom companies — even as the overall economy has worsened — has actually improved, although some are still in distress

WHAT ABOUT THE NEW MERGER AND ACQUISITION GUIDELINES?

• In a circle, even if one player has 50 per cent market share, we are willing to live with it. Earlier, the ceiling was 40 per cent, which essentially prevented anyone from taking over a company. People are arguing that it will still not help but I think things have been made easier

SO, ALL THESE STEPS WILL MAKE FOR A HEALTHIER INDUSTRY?

• Yes. The idea is to increase availability of spectrum. This will improve quality of service. If we can sell spectrum at a reasonable auction-determined price, where the players don’t sink under the burden of debt, we will help the industry turn around.

• As they start rolling out more services, their topline will grow faster than their costs.

• Please note: there is currently Rs 2 lakh crore of debt that has to be paid back.

• We finally see a silver lining for the industry.

WHY IS THE BROADCAST MEDIA SO UPSET WITH YOU? AND WHAT WILL HAPPEN TO THE 12-MINUTE ADVERTISING CAP EVENTUALLY?

• In May 2012, Trai issued a regulation imposing a 12-minute cap on ads. Broadcasters complained this regulation was unworkable, and appealed to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT)

• By mid-June, there was an agreement — they would reduce ad time to 12 minutes by 1 October. Many fell in line, some didn’t.

• The court issued notices, since it is a criminal offence. The broadcasters appealed before TDSAT, which asked us not to prosecute during the hearing. Now, the judgement is expected

THANK YOU