Spectrum Cap has become the most debatable topic during this season of merger and acquisitions. At the centre of discussion is the question – When Spectrum Cap is breached? There is a difference between breach and violation. Breach is unintentional and circumstantial, while violation is deliberate.
This is certainly important for mega mergers like Vodafone – Idea.
When the present rule of capping spectrum was applied, the policy makers had kept various factors in mind such as the status of industry, number of players, competitive environment and consumer benefit.
However, it resulted in fragmentation of industry resulting in inefficient use of resources, especially in 2007 when the government obnoxiously distributed Spectrum that resulted in 2G scam.
In any case, there was no upper limit in number of players but in order to have adequate competition the government set up a limit on minimum number of players – 3 (Private) + 1 (Government Player).
In all developed economies, there are four to five players in the market, which bring economies of scale, innovation, and provide enough choices for the consumer.
Despite the current acquisitions and mergers, there will always be four to five players in India. The existing players have acquired Spectrum either through auction or on first-come-first-served basis. The spectrum acquired under the administered price regime is not technology agnostic.
In circles, where the companies have acquired spectrum through auction the government should not put any condition of Spectrum Cap. Operators have paid market price for the spectrum and they should not be asked to surrender any excess spectrum.
If the government wants to withdraw the spectrum that merged entity have acquired through auction, then it should pro-rata return the money that it gathered at the time of auction.
However, in the case of spectrum acquired through first-come-first-served basis, the merged entity should be asked to pay the market price of the spectrum that was discovered through auction.