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Government bans free spectrum

After calling the Comptroller & Auditor General (CAG) report on the 2G scam “totally erroneous,” the government on Saturday moved to overhaul the existing telecom policy along the lines suggested by the auditor. Under the new policy, whose fine-print will be announced by the TRAI shortly, operators will no longer get spectrum free of charge irrespective of whatever number of subscribers they may have. The shift from the current policy, under which operators get more and more free spectrum depending on their number of subscribers, is expected to result in a cumulative one-time cost of Rs 5,000 to Rs 15,000 crore to the first generation mobile operators such as Bharti and Vodafone.

“The existing policy of giving free spectrum to drive subscriber growth has given the intended result.. of creating competition,” said Kapil Sibal, the telecom minister who had earlier dismissed the CAG’s report on losses to the government due to liberal issue of spectrum. “With 10-12 operators in each circle.. and teledensity reaching 62%.. the broad contours of the policy needs a directional shift,” he added.

Under the new policy, there will be no free spectrum, start-up or otherwise, and all new operators will have to pay “market determined” prices for all spectrum. Existing ones will have to pay market rates for spectrum that was released to them from time to time on the basis of subscriber criteria, but can keep their initial chunk of free start-up spectrum.

Under the current policy, any operator who wins a license gets a free block of 4.4 MegaHertz of spectrum and free, additional chunks of roughly 1.5-2 MHz each upon achieving certain published subscriber milestones, going all the way up to 15 MHz. The policy has been widely criticized for telecom operators inflating subscriber numbers and ‘pilfering’ away free spectrum from the nation. It also made it difficult for telecom operators to launch spectrum-intensive services such as Internet access and downloads as they could not buy more spectrum from the government on demand.

The Comptroller & Auditor General of India had, in its report in November, pointed out that 9 operators held a total of around 150 MHz of spectrum beyond the 6.2 MHz that was promised to them in their licenses. This amount of spectrum was issued free of cost and without any legal requirement on the part of the government, it had pointed out. Based on various benchmarks, the auditor valued this spectrum anywhere between Rs 2,561 crore to Rs 37,000 crore.

The biggest chunk was with the state-owned Bharat Sanchar Nigam (BSNL), which held no less than 61.6 MHz of free extra spectrum, followed by Bharti Airtel, which held 32.4 MHz of free extra spectrum. Vodafone held 19.6 MHz, followed by Idea and MTNL with around 12.5 MHz each. While pricing will depend on which circles these spectrum are held, it is expected that BSNL, Bharti and Vodafone are likely to be hit the hardest by the new policy as they will have to shell out one-time market prices for the extra spectrum.

Operator ——– Extra Spectrum (MHz) — Circles
Aircel ———— 3.6 ——- 1
Bharti ———- 32.4 ——- 13
BPL (Mumbai) —– 3.8 ——- 1
BSNL ————- 61.6 ——- 19
IDEA ————- 12.6 ——- 6
MTNL ————- 12.4 ——- 2
Reliance ————- 1.8 ——- 1
Spice ————- 1.6 ——- 1
Vodafone ————- 19.6 ——- 7

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