Big debt forcing telcos to resist norms: Trai chairman Rahul Khullar

NEW DELHI: Telecom Regulatory Authority of India Chairman Rahul Khullar has dismissed as 'scare mongering' the industry's fears of call rates rising steeply because of the regulator's proposals for upcoming airwaves auctions. The leveraged balance sheets of telcos, which have made it hard for them to raise funds, were the real reason for their opposition to his authority's recommendations for a high base price for the sale of spectrum, he told ET, in his first media interview after assuming office in May this year.

"The real difficulty is that the sector has a debt exposure of close to 2,00,000 crore. How can companies add another 1,50,000 crore when their debt-equity ratio is already high and the chances of raising equity are limited?" Khullar said.

"Do companies have the comfort level to raise 1,00,000 crore, or even 20,000-30,000 crore, from the equity market?" the Trai chief asked, adding that even cash-rich operators will not find it easy to raise money for the auctions.

Khullar said telecom operators were in trouble because of their legacy problems. "No one wishes to talk about this, but they paid too much for 3G as they grossly over-estimated demand... All of them have made some sort of mistake in the past. Why should the Indian citizen be asked to pay for their mistakes?"

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"You cannot continue a system where you under-price something (spectrum) and somebody (operator) gets rich. That's just not possible," he said, rejecting telcos' demands to cut the base price.

Trai, under Khullar's predecessor JS Sarma, had earlier this year recommended a base price of 18,000 crore for auctioning the spectrum held by the nine companies whose licences were cancelled by the Supreme Court in February.

'Telcos' Assumption Incorrect'

This was 13 times more than the Rs 1,658 crore that Uninor, Swan and others had paid for securing pan-India spectrum under former telecom minister A Raja’s controversial first-come-firstserved policy.

The regulator’s proposal to refarm, or redistribute, spectrum held by existing operators was also widely panned by operators, who said the recommendations would result in tariffs rising by 30-100%.

But Khullar, who has served as the commerce secretary as well as Manmohan Singh’s private secretary in the 1990s, has strongly backed his predecessor, disappointing those who felt he would adopt a more ‘pro-industry’ policy. He is one of the few Trai chiefs not to have worked in the telecom department.

Last week, in a presentation to the Empowered Group of Ministers on spectrum, he said the net impact of Trai’s recommendations could be offset by an average tariff hike of 5 paise per minute. Operators have criticised this assessment as ‘flawed, non-transparent and inconsistent with market realities’.

Khullar conceded that Trai’s proposals could force operators to raise tariffs by 8-20 paise per minute in some cases, but dismissed industry’s accusations that user charges could go up by over 100 paise a minute. “The actual increase in tariff required to offset the costs is nowhere as high as the industry is suggesting. As demand changes, you are able to spread the costs over a larger number of customers,” he said. The Trai has factored in every cost and made explicit and ‘very conservative’ assumptions, he added.

The government’s move to ask incumbent operators to pay auction-determined prices for the spectrum they hold for the remaining tenure of their 20-year licence was another issue troubling telecom companies. “It is true that the reserve price set for spectrum has an external effect of determining the price for nonauctioned spectrum. That is what is causing so much agony to the industry,” said the Trai chairman.