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Q. TRAIs proposal to fix spectrum usage charge: The Telecom Regulatory Authority of India’s proposal to fix spectrum usage charge is based on flawed assumptions and complicates the already messy issue of spectrum pricing. Discuss
Jul 20, 2016 Related to : GS Paper- 2 and 3

Ans :

Introduction-

Recently The Telecom Regulatory Authority of India (TRAI) has proposed its own weighted average formula to calculate the spectrum usage charge (SUC) based on revenue generation to replace the formula based on operator’s total spectrum holding approved by the Telecom Commission.

Issue-

According to TRAI, the formula suggested by DoT may not be close to reality and it can at best be a temporary solution. Under the existing rules, operators pay different rates based on the type of spectrum they own. But TRAI’s own formula is based on flawed assumptions and complicates the issue further.

Analysis of TRAI’s formula-

  • Many argued that TRAI’ formula to fix spectrum usage charge based on revenue potential of the operator not only further complicates the already messy issue of spectrum pricing but is also based on flawed assumptions.
  • Revenue generated by an operator using a specific frequency band is dependent on a number of factors including network quality, marketing prowess and tariff offers. Else, revenue earned by all operators offering telecom services using a particular frequency band would have been identical, which is clearly not the case.
  • It is wrong to equate the final bid price of spectrum in an auction to the revenue potential of the frequency band. Because it assumes that all operators value all spectrum bands equally. Though most frequency bands can now be technically used for offering 4G services, the value of airwaves depends on a number of factors such as the operators’ existing network configuration, fitment with their overall spectrum holding and the capital expenditure required for offering services.
  • For example, operators who already have networks based on the 800 MHz band will find it more valuable to acquire more of the same compared to another operator using the 1800 MHz band.

Conclusion-

Fixing spectrum usage charge has always been a complex exercise. It becomes more complicated with TRAI’s new formula based on revenue generation, which is based on flawed assumption. To encourage more bidders, India should follow fair and transparent spectrum pricing regime.  Hence government should take all stakeholders on board before finalising the spectrum pricing.


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