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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Will regulations doom a promising sector? 
(Wed, 16 May Pre-Open) 
 
The telecom sector is probably one of the most widely used services by our country's over 1 bn population. India has the dubious distinction of being a country which has more telephones than toilets, according to the 2011 census. This sector has another important characteristic, however. It is also probably one of the highest regulated sectors in the country. While the government does not regulate the prices directly, it regulates the costs, thereby influencing the pricing indirectly. Interestingly, India has one of the highest regulatory costs (as a percentage of total costs) in the Asian region. As a result, any increase in regulated costs can add pressure to the margins of the telecom companies.

Furthermore, issues like spectrum pricing, spectrum allocation as well as spectrum trading have been debated over and over again. The regulators have demanded higher prices for the spectrum held while operators have opposed such recommendations. The recent proposal of the telecom regulator to auction only part of the available spectrum at sky high prices has led to further troubles for the telecom sector. It is known that 2G spectrum is more valuable as compared to 3G spectrum. But TRAI's proposals have asked the minimum reserve price to be set at 1.08 times the 3G spectrum price. Naturally, operators were vehemently opposed to this. In an appeal, the Department of Telecom (DoT) asked the Telecom Regulatory Authority of India (TRAI) to review the recommendations it gave on the spectrum auction. But in response to this, TRAI retained its proposals on high reserve price for spectrum auction despite industry-wide criticism.

The regulator has decided to further burden the sector which is already facing pains in terms of high interest costs and low call rates. The Cellular Operators Association of India (COAI) is extremely disappointed by the regulators plan to stick to its proposals. COIA believes that this move would be detrimental to the interests of the consumers and would be the nail in the coffin for the struggling telecom sector.

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