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Written by Vrishti Beniwal | Updated: Dec 20 2007, 06:24am hrs
It looks like the first lap in the spectrum race is over and Anil Ambanis Reliance Communications (Rcom) seems to have emerged as the clear winner. But in this war where equations change with every passing day, one should not be so sure yet. In the long run its difficult to predict whos going to be the proverbial dark horse.

In the first round, the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) announced its interim order. There will be no stay on the plea of GSM lobbyled by the Cellular Operators Association of India (COAI)against the allocation of new licences, spectrum and permitting use of dual technology.

The Department of Telecommunications (DoT) had allowed use of dual technology, which enables Rcom to provide (along with CDMA) GSM services on the same licence by paying additional fee. As this would have meant Rcom getting into the precious and scarce resourcespectrum or radio waves on which the mobile phones workahead of several GSM firms, the latter were a worried lot and approached the TDSAT.

Since spectrum comes bundled with the licence and an operator does not have to pay any extra charge for acquiring it, post-TDSATs interim order, it seems Rcom is all set to bag this scarce resource by paying Rs 1,651 crore, a price arrived at in 2001 through bidding for licences. However, recently a new twist came in the plot that does not augur well for Rcom. Prime Minister Manmohan Singh, while speaking at a seminar, clearly hinted that there should be a price attached to spectrum and the government should not lose out on revenue.

The policy regime for making spectrum available should be fair, transparent, equitable and forward looking. It should not create entry barriers to newcomers.

At the same time, the revenue potential to the government must not be lost sight of, said Singh.

His statement came within two days of Bharti offering Rs 2,650 crore to DoT for additional spectrum allocation, offering to increase the bid further, if required. Aditya Birla-led Idea Cellular has also proposed to pay the government Rs 1,650 crore for additional spectrum of 4.4 Mhz. Though Union communications and IT minister A Raja has denied that there would be any auction of spectrum, citing legal barriers, reportedly a team of DoT officials is working to find a model to price spectrum. If that happens, the story may change altogether.

The Indian telecom story was moving on peaceful lines with the undertones of competition. However, the ongoing spectrum war was unleashed once the Telecom Regulatory Authority of India (Trai) in its recommendations on review of licensing conditions suggested in August that there is a need to tighten subscriber norms for operators to become eligible for additional spectrum for efficient use of spectrum. Since spectrum is scarce and a chunk of it is controlled by the defence ministry, Trai proposed enhancing of subscriber base by 2-5 times for getting additional spectrum.

The proposal created a furore among the GSM service providers, especially Bharti Airtel. The new Trai norms would make both Bharti and Vodafone Essar ineligible for any additional spectrum in metros like Mumbai. CDMA operators, on the other hand, welcomed the move.

Making things worse for the GSM operators, DoTs technical wing, Telecom Engineering Centre (TEC) proposed a further two-fold increase in the minimum subscriber base criteria proposed by Trai. For example, in Delhi, Trai had proposed to increase the GSM subscriber base criteria from 1.6 million to 3 million for allocation of 12.2 Mhz spectrum. TEC increased it to 6.3 million!

The result was an outraged GSM faction and a joyous CDMA lobby. An increase in the subscriber linkages by as much as 800% in the revised criteria that was reviewed only last year indicates that the objective is not to ensure spectrum efficiency but to ensure spectrum deficiency for the existing GSM players, says TV Ramachandran of COAI.

Lesser spectrum would mean more towers and in-building solutions, which GSM players are reluctant to do, as it would entail more capital expenditure. One may wonder why CDMA operators are face-to-face with their GSM counterparts when Trai had suggested an enhancement in the subscriber base for the operators of both the technologies. Its the battle of leadership and the fight to garner maximum market share. There are just two prominent CDMA playersRcom and Tata Teleservices Ltd (TTSL). As the use of dual technology has been allowed by DoT under the same licence, both these operators are eyeing a share of the GSM market.

With the new norms in place, new entrants and the ones in the queue will gain as against the pan India players like Bharti and Vodafone Essar. The biggest gainer will be Rcom. Idea, Vodafone Essar and Aircel will only benefit in circles where they have the licence but are yet to start services for want of spectrum.

Currently, Rcom is the second largest telecom player after Airtel and followed by Vodafone Essar, which is gradually narrowing the gap with Rcom. As Bharti and Vodafone wont get any additional spectrum till they add more subscribers, Rcom can tap into the growing market with the roll out of its GSM services.

The spectrum war doesnt end here. Everybody from Sunil Bharti Mittal to Anil Ambani has been writing to the PM offering their viewpoints. The issue got a political flavour when Telugu Desam Party president and yesteryears IT poster boy Chandrababu Naidu and Shiv Sena leader Manohar Joshi shot off letters to the PM asking for his intervention.

Efforts at broking compromise have not borne fruit as yet. DoT did offer a proposal for different stakeholders, asking them to accept Trais recommendations and a spectrum cap of 10 Mhz for GSM players and 5 Mhz for CDMA. But the divided house failed to unite.

One reason for the failure is the crisis of credibility of the institutions governing telecom as well as lack of trust amongst operators leading to constant levelling of charges and counter charges. The GSM operators have raised questions over the approach used by Trai and TEC to arrive at subscriber-linked spectrum allocation criteria. Vodafone Essar vice-chairman Arun Sarin said in a letter to the government, We are of the opinion that TECs analysis and recommendations are flawed and do not constitute a sound basis on which significant decisions affecting the future of our industry can be made.

Ambanis third letter to the PM on the issue added fuel to the fire. Contrary to the GSM operators demand of revising licence fee upwards for new players, he said there is a case for new entrants to be charged a much lower fee than paid by earlier licensees. The incumbents have already secured a significant long-term competitive advantage for themselves by capturing leading market shares and cornering excessive spectrum. The DoT should consider reducing the licence fee to be paid by new GSM entrants (including RCom) so as to make at least some headway in terms of providing a level playing field, Ambani wrote.

Even the GSM camp is a house divided. Split came when regional operators with pan-India aspirations like Aircel and Spice Telecom pulled out of the case filed by COAI in TDSAT. We feel there are different views in COAI. Everybody is playing differently. Sunil Mittal has written a letter on his own to the government. We are here to serve the customer, not to indulge in litigation, Spice promoter BK Modi said.

Mittal in his letter to DoT turned the heat on BSNL and MTNL by challenging the PSUs to demonstrate how to use the spectrum efficiently. Clearly, stretching the issue further will not solve anything. According to industry experts, its time for the government to resolve the matter by either forming a group of ministers or an inter-ministerial committee as has been done in the past to resolve such controversies. Though the idea may not go well with Raja, it is the need of the hour to settle the tussle at the earliest.