Spectrum trading norms will open exit route for struggling players

One of the key impact of the telecom regulator’s recommendations for allowing spectrum trading is that it will provide an exit route to struggling operators.

There are a number of operators that have been looking to sell out operations but tough mergers and acquisition norms have prevented them from exiting. Now, they can make some money by giving the spectrum usage rights to another player.

“We are happy with the TRAI proposals at it will help serious players acquire more spectrum. At the same time, struggling players will be able to exit without having to give the spectrum back to the Government,” said Rajan Mathews, Director General, Cellular Operators Association of India.

However, operators will be able to trade spectrum that they have bought through auction or have paid market price. Administratively allocated spectrum cannot be traded. According to the guidelines recommended by the telecom regulator, the Government will collect a transaction fee on spectrum being traded between telecom companies.

Spectrum trading is expected to change the dynamics of the industry as it will allow operators buy and sell airwaves according to their needs. For example, an operator with more subscribers in a circle can buy additional spectrum from another player. Currently, spectrum trading is not allowed in India.

The average spectrum holdings of telecom operators in India are low in comparison with international standards. “Presently, no mechanism exists for a telecom company to exit the sector after trading its spectrum holding. Thus, companies (investors) who entered the industry are locked-in: there is no way out (surrendering spectrum to the Government without receiving any refund is a commercial non-option),” TRAI said.

The proposed transaction fee would be one per cent of the transaction amount. Operators selling spectrum through the trading mechanism will have to notify the Telecom Department about the quantity of spectrum being sold and the price.

There is also a lock-in period for spectrum that is traded. If an operator buys spectrum through the trading route, it will not be permitted to sell any airwaves in the same frequency band for two years.

The seller is free to choose the mechanism to find a prospective buyer, including the auction route.

Spectrum trading refers to the transfer of rights to use the spectrum. The words ‘seller’ and ‘buyer’ are used in the context of transferring the rights from one user to another. When a block of spectrum is traded, the associated rights and obligations of the spectrum block shall stand transferred from the seller to the buyer.

Under spectrum trading, only outright transfer of spectrum is permitted, i.e. the ownership of the usage right is transferred to the buyer. Spectrum leasing is not permitted at this point of time.

Hemant Joshi, Partner, Deloitte Haskins & Sells, said, “One per cent transaction fee to be paid to the government might act as dampener for the actual trading.”

The TRAI proposals will be reviewed by the Department of Telecom before it is announced as a policy.