Officials at the Department of Telecom are a relieved bunch these days. One decision by the Supreme Court to cancel 122 licences has taken care of at least three vexed problems.

Firstly, they don't have to worry anymore about formulating an exit policy for the new players or figure out how to impose penalties for failing to complete rollout obligation.

The court's cancellation order has become the exit policy by default. The much talked about changes in the Mergers & Acquisition rules have also lost relevance because once the licences are cancelled, then the market would have automatically consolidated from 14 players in a circle to 7.

Secondly, from a difficult situation of being spectrum-deficient, there is now a surplus of airwaves which can be allocated to serious players. And thirdly, there is now no need to lose sleep over the pricing, method and timing of 2G spectrum allocation. All of this has been taken care of by the apex court's verdict last week, which ordered the Government to take back the spectrum given cheaply to operators in 2008 and reallocate to highest bidders through an auction mechanism in four months' time.

bold steps needed

But more than what the telecom department does not have to do, the key issue now is what the policy makers should be doing from here on. This development has presented Kapil Sibal & Co a rare chance to clear the mess in the telecom sector once and for all.

Ever since the telecom companies were given a migration path from a fixed entry fee to revenue share in 1999, this sector has been rocked by policy flip flops, litigations and scams. As a result, once the poster boy of India's reforms, the telecom industry is in doldrums with practically everyone reporting negative margins.

The Supreme Court ruling can change all this if policymakers use the opportunity on offer. But for that, the Government must take some very important and bold steps to ensure that the sector does not slide back into a regulatory mess.

The immediate thing to do would be to refund the Rs 9,000 crore collected from the 122 licensees.

That's because the Government is also to be blamed for what happened in 2008. It cannot be that the Government takes back the licences and also keeps the entry fee paid by the operators. The apex court's judgement clearly holds the Department of Telecom responsible for following a process that was flawed and arbitrary.

If the entry fee is not given back, then the operators whose licences are being cancelled could use the court's observation to sue DoT, which, in turn, will complicate things further. Some companies may still go to court but refunding the money will give one reason less for further litigation.

Ensure fair auction

The other thing to do will be to ensure that the auction rules are fair, unambiguous and transparent; just like 3G spectrum auction in 2010 and the bidding for the fourth cellular licence in 2001.

But unlike the previous instances where the Government had capped the number of permits to one or two bidders, this time the Government should make available substantial amount of spectrum enough for at least 5-6 players.

This will allow not only incumbent players to purchase much needed airwaves but also allow the new players a fair chance to buy back the spectrum taken away from them by the Supreme Court order.

It is estimated that the Department of Telecom will have about 25 Mhz of spectrum in the 1800 Mhz band in each circle after cancelling the 122 licences. In addition, DoT already has about 6-10 Mhz available with it, taking the total spectrum available to 35 Mhz in every circle.

If all of this is put on the block it should be enough to accommodate top 7 bidders with each getting about 5 Mhz.

While auctioning 3G airwaves, the Government had set Rs 3,500 crore as the base price for pan India spectrum and by the time the auctions ended, the price reached Rs 16,750 crore.

The base price for the 2G spectrum can also be fixed at Rs 3,500 crore, adjusted for inflation for two years and then even if the bids reach half of the price paid for 3G, the Government will end up making a windfall of Rs 50,000-60,000 crore.

The price discovered through this auction should then be applied on a per Mhz basis to the spectrum held by incumbent operators to charge them a one-time fee. This could bring an additional income of nearly Rs 50,000 crore to the exchequer.

Dual technology players

To address level playing issues, the Telecom Ministry should clarify the status of dual technology players who got GSM spectrum in 2007.

While the apex court has blamed DoT for following a flawed process right from 2007 onwards, the dual technology players are taking cover under the SC order as it states that only the licences issued post January 2008 should be cancelled.

If the Government does not have the courage to take a decision on this front then it should let the Supreme Court bite the bullet by way of seeking a clarification on this aspect.

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