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TRAI RECOMMENDS HIGHER BASE PRICE FOR SPECTRUM AUCTIONS, TELCOS MIFFED

inNEW DELHI: The telecom regulator has proposed to set the base price of 1800 MHz band in the upcoming spectrum auctions at 10% more than the previous round, a recommendation that operators and analysts say is likely to hurt an industry that is laden with debt and facing an uncertain business environment.

 

The Telecom Regulatory Authority of India (Trai) has suggested Rs 2,138 crore as the base price to commence auction for airwaves in the 1800 MHz band in 20 circles. Its recommended base price for the 900 MHz band is Rs 3,004 crore. The 900 MHz band is critical for top carriers such as Vodafone India, Idea Cellular and Reliance Communications, because the spectrum on sale is the same that they are currently operating on and on which their licences will expire next year. If they fail to win back the bandwidth, they may have to close down whole or part of operations in several areas, turning investments worth thousands of crores worthless.

 

Trai has cited increasing demand for data services, which are driving revenue for telecom companies, for recommending higher prices. It also urged the government to not conduct auctions unless more bandwidth across various frequencies and across India is available.

 

“Please do not auction as it is. The government must auction airwaves in the 900, 800, 1800 and 2100 MHz together as this will reduce the madness to buy airwaves,” Chairman Rahul Khullar said at a news briefing.

 

Trai has proposed that airwaves in both 800 MHz, typically used for CDMA services, and 2100 MHz, used for 3G, be auctioned together with those in the 900 MHz and 1800 MHz bands. It suggested exploring the creation of an extended GSM band by utilising part of 800 MHz as an extension of 900 MHz frequency used for GSM, and asked New Delhi to come out with a clear roadmap for auctioning spectrum in the 700 MHz band before conducting any sale.

 

The industry and experts welcomed the suggestion on auctioning more bandwidth, but were disappointed by the suggestion on price. The Telecom Commission makes the final decision on pricing, after considering Trai’s suggestions.

 

“We were expecting that the regulator would price airwaves in 1800 MHz at 85% of the last auction price, but Trai further increased it by 10%,” said Rajan Mathews, director-general of the Cellular Operators Association of India, which represents GSM-based operators. The recommended price of 900 MHz is also much higher than what it should be, he said.

 

Mahesh Uppal, director of Com First (India), a telecom consultancy, said the upcoming spectrum contest – if conducted as it is without taking into account Trai’s suggestions of releasing more airwaves for sale – will be intense, regardless of the slightly higher reserve price.

 

Reliance Communications (RCOM), Vodafone and Idea could see as much as 28%, 19% and 15% of their respective revenue getting wiped out if they fail to win back bandwidth, based on data from Trai. While RCom may be forced to rejig operations or even close down in four telecom circles if it fails to win back spectrum, Vodafone and Idea face the same threat in two circles each. In such a case, their customers in those regions will have to switch to other operators.

 

While RCOM said it will defend its turf vigorously, Idea has played down the criticality of the sale, saying it had bought back-up bandwidth in the previous auctions. Vodafone has admitted that it may have to shut shop in some circles if it can’t win back the airwaves.

 

The regulator too has recognised the importance of this in its recommendations. “In the 900 MHz band, only the spectrum held by them (operators) is available for the auction. These licensees will have to win back this spectrum to ensure business continuity in the licensed service area; if they don’t win, it places the large investment made in the LSAs in jeopardy,” it said. “The continuity of services to millions of customers is also at stake.” Trai suggested that the government free up more spectrum by taking back part of the airwaves given to state-run Bharat Sanchar Nigam Ltd, swapping 3G spectrum with defence forces and finally in notifying the extended GSM band, which would free up a lot of spectrum for 900 MHz auction.

 

The Trai chairman also criticised the telecom department for not being able to auction airwaves in the 800 MHz band, despite asking the regulator to give a reserve price.

(Source: The Economic Times, October 16, 2014)

 

INDIA SAYS WILL NOT COOPERATE WITH US ON IPR REGIME REVIEW

 

NEW DELHI: The Government of India has told American authorities that it will not cooperate with the out-of-cycle review (OCR) initiated by the Office of the US Trade Representative (USTR) as part of the latter’s annual ‘Special 301 Report’, on India’s supposedly slack intellectual property rights (IPR) regime.

 

New Delhi says it believes what the USTR is doing is unilateral and it is not “obliged” to participate or cooperate in the OCR process. However, it is geared to cooperate with the Indo-US bilateral dialogue mechanisms.

 

“India will engage with the US on IPR issues under the US-India IP working group that was recently formed when Prime Minister Narendra Modi visited US. Apart from that, we are not ready to cooperate on anything else on this issue,” said a top official, who requested anonymity.

 

The official also said India was coming out with a comprehensive IPR Policy, which would “settle the matter” forever.

 

The length of the OCR depends from country to country. The process starts with the USTR publishing in the Federal Register a request for the public to give its comments. It is generally open-ended and anyone can give comments — the American public and companies or anyone else.

 

Once all the comments are collated within a stipulated time, which in this case is October 31, it will be sent to the relevant government (India, in the present case) for reactions. A month is given to respond.

 

With India refusing, the US has plans to take up the matter strongly under the high-level IP working group, which will begin during the next India-US Trade Policy Forum (TPF), slated to take place here next month.

 

“The Indian government has stated that it will not participate in the process and not provide any input. We are waiting to have the meeting of the high-level working group (on IPR) and then talk to the Indian government on OCR, as this is a major engagement,” a USTR official involved in OCRs told Business Standard from Washington.

 

The official said the length of the OCR had not yet been determined, although it was not expected to be lengthy and “certainly not a permanent process”.

 

Under the Special 301 Report, issued this year on June 30, India continues to be kept on the ‘Priority Watch List’ (PWL) for being one of the worst IP offenders, according to American standards. As a result, USTR had decided to carry out an OCR to “engage more deeply” with India on IPR and patent laws, which it believes are not up to the mark.

 

India, on the other hand, has maintained that it is in compliance with the global IPR norms under the World Trade Organization’s agreement on Trade Related Intellectual Property Rights.

 

The USTR began conducting an OCR of India from Tuesday, in an effort to “redouble” its engagement with the country on IP issues related to all sectors, especially concerning access to affordable medicines.

 

India has been in the ‘priority watch list’ since 1989, when Special 301 was first issued by the USTR. However, this is the first time the US authorities are conducting an OCR of India’s IP and patent laws.

(Source: Business Standard, October 16, 2014)

 

GAS MIGHT BE PRICED 15% LOWER ON FALL IN CRUDE RATES

 

NEW DELHI: With global crude oil prices hitting a four-year low, global gas buyers, led by those from Japan, are asking sellers to shift to gas-to-gas pricing, rather than linkage with crude oil prices.

 

In India, the notified Rangarajan formula, which is yet to be implemented, has attempted such a linkage by considering the average price of the gas imported, as well as those in global markets. Most of this gas remains linked to crude oil prices.

 

Aditya Gandhi, director, Sapient Global Markets (India), says as Brent crude oil prices have fallen about 19 per cent and Henry Hub prices eight per cent, the price based on the Rangarajan formula should decline about 15 per cent.

 

“In fact, people have started debating whether gas-linked pricing will end up being costlier than oil-based pricing in the near term and some companies are already seeking to lock in some of their US liquefied natural gas (LNG) in long-term sales to the European Union to reduce the exposure to this.”

 

He added the industry expected by 2017, about 60 per cent of LNG contracts would be oil-based and 15 per cent gas-based; the rest would remain un-contracted and traded in spot markets. “Today, the spot market and hub-based pricing contracts account for a much smaller percentage but are starting to show active growth, with more and more buyers looking to book hub-based contracts and more and more sellers leaving some volumes un-contracted, to be able to sell in spot markets.”

 

GAIL India, the country’s biggest marketer of natural gas, buys about 30 per cent of its imported gas at prices linked to Henry Hub; 70 per cent is linked to crude oil prices.

 

B C Tripathi, chairman and managing director of GAIL India, termed the fall in crude oil prices “a phenomenon”, adding gas prices, too, were falling. In the US, the Henry Hub price is $3.6 per million British thermal units (mBtu). “These will soften further,” he said.

 

GAIL has a contract to import natural gas from the US in LNG form from 2017.

 

According to the Federal Energy Regulatory Commission, the estimated landed price of LNG in India was $17.63 per mBtu in March; now, this has declined to $14.10.

 

Prices of domestically produced natural gas are decided by the government. Last month, the Centre had decided to defer a decision on gas-pricing till the end of November.

 

Reliance Industries, the country’s largest private petroleum company, is selling gas from its KG-D6 basin at $4.2 per mBtu. A price revision for its gas has been due from April 1 this year.

(Source: Business Standard, October 16, 2014)

 

INSURANCE SECTOR TO GET A FACELIFT

 

MUMBAI: India’s insurance sector is set to get a facelift, with the insurance Bill likely to propose a host of changes. The Bill is scheduled to be tabled in the winter session of Parliament.

 

While the key amendment to the Insurance Act of 1938 is to increase the foreign direct investment (FDI) limit from 26 per cent to 49 per cent, it is likely to propose senior positions in insurance companies be held by Indians. It will also propose incentivising distributors to sell products.

 

The Bill was referred to a parliamentary select committee headed by the Bharatiya Janata Party’s Chandan Mitra, which has held talks with public and private insurers. It is expected the panel will give its final version of a scrutiny report on the Bill in four-five weeks.

 

Sources said insurers, both life and general, had made representations before the committee at a meeting on September 26.

 

Sources said the Bill proposed Indian management control of insurance companies. It is unclear whether the Indians will also account for the majority of the boards of these companies. Commission structures are also expected to be revised. As of now, the first-year commission stands at 15 per cent for five-year policies, with a fall in subsequent years.

 

Sources said the insurers were finding it difficult to retain agents. In the past three-four years, about 700,000 insurance agents had quit due to remuneration issues. Experts said the new Bill would have a more uniform commission structure. It is expected the Bill will propose seven-eight per cent commission for the first and second years; in subsequent years, the commission will be one-three per cent.

 

The new Bill will also emphasise health insurance. Insurers said health insurers and companies offering health products would have to bring this business under a separate section, headed by a senior team.

 

Sources said the parliamentary committee hadn’t taken a decision on allowing banks to act as insurance brokers. Currently, banks act as corporate agents; they can sell products of a life, a non-life and a standalone health insurer each.

 

It is likely the grievance-redressal mechanism will be focused on, with more stringent penalties for mis-selling. Insurance companies said penalties were already higher compared to five years ago.

(Source: Business Standard, October 16, 2014)

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