Grant of 2G spectrum to new players justified

October 31st, 2008 - 10:05 pm ICT by IANS  

New Delhi, Oct 31 (IANS) The government Friday said it would not have been possible to levy higher spectrum usage charges in case the second generation (2G) spectrum was auctioned and not allocated on a first-come-first-served basis, as is being done. “It would not have been possible to charge higher spectrum usage charges of the order of 2-6 percent and maintenance and administration cost, which is typically of the order of 0.5-1 percent recovered in a judicial manner,” the Department of Telecom (DoT) said in a statement.

The government has handed over 2G spectrum (used for mobile communication) to select firms, triggering reports that it was biased towards a favoured few.

Last month, Swan Telecom, which had paid Rs.15.37 billion (Rs.1,537 crore) for its 13 telecom circles, was able to sell 45 percent of its equity for $900 million to the UAE-based Etisalat, the enterprise value was, therefore, $2 billion.

At the going exchange rate that meant Swan had got a value 5.9 times what it had paid just eight months earlier.

Since, Swan paid Rs.15.37 billion (Rs.1,537 crore) based on the auction price for the fourth cellular licence way back in June 2001, when there were just four million mobile phone users in the country it was obvious that the government would get a much higher price if it auctioned the spectrum, a leading business daily reported.

Since, the government got Rs.90 billion (Rs.9,000 crore) from the companies to whom it sold the spectrum last January, using the Swan valuation meant the government had got around Rs.441 billion (Rs.44,100 crore) less than it should have got.

Just a couple of days ago, the real estate firm Unitech, sold a 60 percent stake in its telecom firm to Telenor of Norway; it applied for all 23 circles and paid Rs.16.51 billion as licence fee.

Since, like Swan, Unitech has not rolled out any of its network and does not have a single subscriber, and has no knowledge of the telecom business, the Rs.61.2 billion it paid is only for the spectrum that it was allocated.

Given that Telenor has got a majority stake in the firm, which Etisalat did not, the Norwegian firm has naturally paid more.

Based on this, the loss to the government is to the tune of Rs.54,300 crore.


However, the government clarified saying the valuation of a company is based on terminal enterprise value, which includes acquisition of certain number of subscribers and generating certain revenue for the companies over a fixed period of time.

“Moreover, the details of the agreement of sale of the said company (Swan) is not available, it is not desirable to comment upon whether this valuation is on terminal enterprise value or their present valuation,” the letter stated.

Justifying its stand on the telecom policy, the statement said the basic aim and principles governing the sector is proliferation of telecom services in a competitive environment at affordable tariffs.

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