It has become a ritual to criticise the Telecom Regulatory Authority of India (TRAI), whenever it announces reserve price for auction. It was no surprise when the industry started making war cry of 'unreasonable prices' of spectrum after recent recommendations by the regulator.
Same old arguments are being repeated. The industry, supported by the big five of Consultancy firms started telling how this would lead the telecom service providers on the brink of disaster and how the consumers would suffer.
However, a bit of number crunching and deeper analysis would reveal that such doomsday predictions are not very accurate.
While it is easy to sway public opinion by tom-tomming that the telecom operators would be doomed when they pay Rs 5,36,000 crore for spectrum and consumer would suffer, a different picture emerges when one goes deep into the numbers.
First, the entire amount is not payable upfront. The industry pays only about 30 per cent upfront. Then there is a moratorium of two years. Rest is to be paid in 10 annual instalments at 10.5 per cent interest.
Moreover, cost of the spectrum is available for amortisation as an intangible asset over its expected future life (20 years) with attendant tax benefits.
In case the cost of spectrum is funded by debt (in accordance with the prevailing industry debt-equity norms) interest element involved would also be liable to tax deduction. Of course, such direct financial benefits and effects on cash flow do not take into account the expansion of business, improvement in the quality of services and the potential for increased revenue translating into profits. Thus on the financial front if the potential benefits taking into account the time value of money, tax benefits arising from the amortization and interest and to the industry through improvement in operations are taken into account it would be clear that the industry's concerns are not true.
A basic calculation would tell that the industry would have to pay Rs 1,700 crore per month for first two years, and Rs 3,400 crore from third year onwards.
Considering that the industry earns revenue of about Rs 25,000 crore per month, it is not a very high price. If we look at the potential earning from the data it can be easily justified.
let us not forget that in 2001, when the customer base was only 25 lakh and tariff was Rs 6 a minute, the spectrum contributed only 80 paise per minute to the tariff at the best. The same spectrum is being used even now when the customer base is anything between 50 and 60 crores. This is nearly 200 times of the then customer base in 2001.
The debate on the Spectrum pricing should be based on facts and scientific analysis.
(The writer is a Senior Journalist)