TRAI GETS PRACTICAL: India’s telecom regulator Trai on Monday proposed reducing the base price for airwaves or spectrum, announcing several proposals vital to the future of the country’s telecom sector, but there’s more to the measures. Indeed, they mark the first time in recent memory that the regulator has admitted that it had made mistakes while fixing the base price for the airwaves in May 2012. The Telecom Regulatory Authority of India (Trai) has done a fair bit of soul searching on its role and concedes that it was influenced by the prevailing negative atmosphere in the country. The earlier recommendation on pricing was made in the wake of a Supreme Court order that cancelled 122 licences on the grounds that there were irregularities in their allotment. Among the various arguments weighed by the court was an audit by the Comptroller and Auditor General that put a notional loss of Rs.1.76 trillion to the state on account of the irregular allotment of these licences in what is now known as the 2G scam. Speaking his mind, Trai chairman Rahul Khullar justifies his decision to reduce the base price for airwaves, and confesses that the regulator’s earlier recommendations (which had called for a high base price) happened “during a period when there had been a steady erosion of public confidence in executive decision-making”. “In a sense, our country got carried away with its navel-gazing. The vicious atmosphere of the past two years has led to self-flagellation on a national scale. There is little doubt that this has contributed to despondency in the private sector and adversely impacted the mood of domestic and foreign investors. The processes and outcomes of decision making became shrouded in doubt and subject to unusually intense scrutiny. The Authority could not but be influenced by the prevailing atmosphere. It also had to bear in mind the Honourable Supreme Court’s scathing observations on the administrative allocation of licences and spectrum. In retrospect, the Authority’s recommendations of May 2012 need to be seen in this light,” the regulator admits. Trai has also accepted that it is time to learn from history, especially after the recent failed auctions. “The irrational exuberance surrounding the 2010 auction has abated. India’s economic prospects have lost lustre and the market’s mood has become far more sombre. Times have changed as has the situation.” Khullar is also frank in his opinion that valuation of spectrum is difficult and not infallible, and adds that valuation changes over time, and can be a product of both evolving economic circumstances and rapid technological change. “The Authority is no soothsayer; it is impossible to predict what the value (price) of spectrum would be five or 10 years from now, much less 20 years hence, the terminal date for a spectrum licence. In fact, valuations five to 10 years forward may be far higher than today’s estimates... Now judging by the perfect vision of hindsight, in 2023, the 2013 estimated valuation may appear low compared to actual prices in 2023. Do we then presume that in selling spectrum on the basis of estimated value in 2013, we have incurred a presumptive loss?” Khullar asks. Going further, the Trai chairman had also taken potshots at the national auditor and said that the fear of “presumptive loss” was irrational and unfounded. “The Authority cannot allow itself to be bogged down by considerations of misplaced fears of prospective hypothetical ‘losses’ on this account,” he has said. “The estimate of losses based on presumptions has, in some measure, contributed to the pernicious atmosphere leading to the decision standstill. While no one questions that there was indeed a loss, the egregious estimates of losses that were initially bandied about to sensationalize the issue no longer carry credence. Within the government, the lurking fears that motives will be imputed for any decision have had its own fallout. And, all of this has entailed real economic losses.” Khullar’s admission that “valuing spectrum and setting reserve prices is part science and part art” is also commendable. “The Authority is clear that there is no single correct and precise valuation of spectrum or the reserve price. There are different ways of arriving at the value of the spectrum, all of which have their merits as well as their drawbacks...The driving consideration throughout this paper has been Carveth Read’s observation that: “It is better to be vaguely right rather than exactly wrong,” he concludes.
Posted on: Tue, 10 Sep 2013 15:55:23 +0000
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