TRAI recos sound death knell for sector: COAI (Problems for the Indian Telecom)

In an interview to CNBC-TV18,  Rajan Mathew, director general, COAI (Cellular Operators Association of India) says that the TRAI recommendations have sounded the death knell for the telecom industry in the country.The steep reserve prices, absence of economic viability and logistics hurdles have made investors shirk away from the telecom sector.

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: You have put out a press release saying that the reserve price for the spectrum auction is arbitrary, regressive, and inconsistent. Vodafone and Uninor have also released similar statements. Is there any justification in the telecom regulator fixing a price that is unanimously disliked?

A: I am glad that Sarma (TRAI chairman) has a point of view on this and has reason behind his argument. But from the point of the industry, this is really a sounding of the death knell. A true body blow to the industry for a lot of reasons.

Every person who expressed some interest in bidding in the 2G auction, after looking  at the benchmark reserve prices and shirk away in horror.

The total price has made it un-buyable because if one were to bid a price of Rs 4,500 crore for one Mhz of spectrum and the multiply that by at least 4 or 5 megahertz, the total investment required would be to the tune of Rs 14,000-15,000 crore.

That is certainly going to wipe out any significant viable person coming in. Those already in the industry are thinking twice. There is no viability in the buyback of 900 Mhz at the proposed prices and if one were to bid for 1800 Mhz. There is no correlation between the two and the logistics haven't been carefully sorted.

Q: What does the future hold with the government's support of the recommendations and the telecom minister and secretary saying that the recommendations were very forward-looking? Why isn't the government buying your argument?

A: Hopefully the government will look at the long-term interest of this industry. Currently, there is a not a single viable business operator making money of any sort. We are all in the red. The burden cannot be sustained either by existing players or by new operators proposing to come in. This price tag is going to drive them away.

Q: What does this mean now for tariffs? If the government was to accept the TRAI recommendations and the reserve price as it is, do you actually see any takers?

A: We don't see any particular takers stepping up at this particular price. Those who are bold enough to step up at this particular reserve price ��"the price at which you begin the auction- will go higher than that.

Anybody who has a business plan that makes any money in this scenario is a brave soul indeed. We don't believe that it can work. So, we are telling the government to look at the dichotomy between this 2G pricing and the national telecom policy.

Q: In your press release you said that the regulator's action appeared to be unfair and biased against all operators for reasons best known to it. Has this the government put out a reserve price in its quest for revenue maximisation or is it really trying to undo what happened in the 2G scam?

A: I wish I knew the exact reason. But again this dichotomy is becoming difficult to escape.

The government, in its National Telecom Policy (NTP), said that the sector was not a cash cow and would not maximise revenue from the sector because of the cascading effect. It's a well-known fact that a 10% increase in telecom density leads to a 1.4% increase in GDP.

These types of metrics have also got to be taken in and see in terms of the total context. You can't isolate a sector and maximize revenue. If that's the intention, I am afraid that it is not going to go anywhere.