Cabinet clears spectrum trading norms

New Delhi: In a move that could encourage consolidation in India’s highly competitive telecom sector, the Union cabinet on Wednesday approved the rules for spectrum trading, that will allow the telcos to buy and sell spectrum among themselves.

“Spectrum is owned by the government and only its right to use can be traded,” communications minister Ravi Shankar Prasad said after a Cabinet meeting.

The move is designed to allow telcos to utilize unused airwaves better. It also allows telcos to acquire spectrum outside of the current auction system and helps struggling telcos looking to exit the business to sell the airwaves they have.

The decision comes a month after the Cabinet approved spectrum sharing guidelines that enable telcos to pool their resources for significantly increased efficiency in spectrum usage.

According to the approved guidelines, telcos will have to inform the government 45 days before the transaction and will have to pay 1% of the transaction amount as trading fee. Last week, the telcos had made a presentation to the government, asking that the trading fee be kept to a minimum, as otherwise it would amount to double taxation and act as a deterrent.

Analysts welcomed the move.

“It would provide bigger players who have congested networks to buy new spectrum and improve the quality of service for customers. They do not have to wait for the spectrum auction to get additional spectrum and will give agility and flexibility to operators. This will also help government to gain revenue from these transactions and would also result in optimum utilization of a scarce resource. All in all, it is a good move for consolidating the industry and helping the industry grow further. Companies entering into trade agreements will have to only inform the government and no approval is required,” Hemant Joshi, partner with partner, Deloitte Haskins and Sells Llp said.

“This is a very positive step leading to ease of doing business in India. The government has given liberal policy for spectrum trading and along with spectrum sharing, it would go a long way in improving and innovating communication services in India,” he added.

The telecom commission, the highest telecom policy decision making body in the government, approved the guidelines in June, and submitted it to the Cabinet for approval, almost a year and a half after the Telecom Regulatory Authority of India (Trai) first submitted its recommendations to the Department of Telecommunications (DoT).

Currently, there are around 11 telcos in the country as compared to the five that is considered healthy for any market. This, coupled with the scarce quantum available for the communications services, and fears of radiation from telecom towers in the country, has led to poor service quality, especially in metro areas.

Telcos are facing severe pressure from the government to fix the call drop problem, with the latter saying that there is enough spectrum in the country.

The first impact is expected to be on the ongoing merger talks between Russia’s Sistema-owned Shyam Sistema Teleservices Ltd (that runs the MTS brand) and Anil Ambani Group promoted Reliance Communications Ltd (R-Com). The latter needs the merger for its business continuity purposes.

R-Com will see much of its spectrum expiring in the coming years and has not been able to acquire the necessary airwaves in the last three auctions.

Existing telecom merger and acquisition rules do not allow the merged telco to hold more than 25% of spectrum across the country and 50% in one circle.

Telecom stocks surge after the announcement, with R-Com gaining as much as 17%, Bharti Airtel 5.3% and Idea Cellular 6.5%.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.