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Telecom minister rejects refund for cellcos overcharged for spectrum, threatens to defang DoT

12 Sep 2013

In an open house discussion telecom minister Kapil Sibal has all but ruled out a refund for providers that paid inflated prices for spectrum in late 2012 and has criticised the Department of Telecommunication (DoT) for applying the maximum applicable fine for all infractions rather taking into consideration the severity of the case and adjusting the penalty appropriately. The Economic Times writes that the minister has blamed the DoT’s insistence on imposing maximum fines on concerns that failing to levy the maximum amount would draw accusations of corruption: ‘The officials fear that if they lessen the penalty, they might be held accountable.’ Sibal added that the problem has had harmful effects on the sector without benefiting the government, as the fines are usually blocked by the courts. On how to solve the problem, the minister threatened to withdraw the authority to issue fines from the DoT and hand the power to sister regulator the Telecom Regulatory Authority of India (TRAI): ‘I hope officials in my ministry apply their mind on every infraction and impose penalty commensurate with the nature of the fault. If they don’t do that, and I don’t see any progress on that, I will have to give that power to TRA.’

Whilst Sibal’s attitude towards over-penalising operators was welcomed by providers, the telecom minister has virtually ruled out any possibility of a refund for cellcos that were forced to purchase spectrum at inflated prices. After several failed attempts to auction 1800MHz and 900MHz spectrum in the wake of February 2012’s mass licence cancellation, the TRAI earlier this week published plans to cut the price for spectrum by more than 60% in a bid to increase participation in the sale. The announcement followed a study earlier this year that noted that a balanced approach was needed to maximise revenues from spectrum sales: setting prices too high would discourage participation, whilst setting them too low meant that the sale was more vulnerable to collusion amongst bidders to keep end prices low. However, operators that paid the higher rate for the frequencies have called for the government to refund the difference between the price they paid for their spectrum and the price to be determined by the upcoming sale.

Sibal rebuffed the request saying that it would ‘never be accepted’, telling the operators that ‘nobody forced you to participate in the auction’. However, the cellcos affected by the Supreme Court’s February 2012 order were faced with an ultimatum – either repurchase their concessions or close down. TeleGeography’s GlobalComms Database notes that Videocon, Uninor Idea Cellular and Sistema Shyam TeleServices (SSTL) opted for the former, whilst a number of others including Swan Telecom, Loop Telecom and STel closed up shop and quit the market. In order to continue offering services, cellcos were forced to purchase spectrum at the rates determined by the TRAI and DoT in November 2012. As a consequence of the controversially high base prices set by the TRAI, bidding was extremely conservative and Uninor and Videocon drastically cut down their operational footprint to a handful of operating areas.

Videocon’s CEO has led the charge, complaining that the cellcos had ‘bought spectrum at distressed prices.’ The trio of GSM operators that were obliged to purchase spectrum in November 2012, Idea, Videocon and Uninor are reportedly planning to launch a legal litigation to secure a refund for the difference. Uninor, for example, paid INR40.18 billion (USD630.51 million) for four blocks of spectrum in six circles in the earlier auction. Under the TRAI’s new recommendations, the cellco could pay as little as INR27.15 billion for the same spectrum – a difference of approximately INR13.03 billion.

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