Cellular operators have finally?albeit unofficially?started a bidding war to garner additional spectrum to offer 2G/2.5G services that predominantly facilitate voice calls, SMS and slow-speed Net/data connectivity.
This is how telecom industry experts view GSM operator Bharti Airtel?s offer this week to pay at least Rs 2,650 crore to the government for an additional 4.4 MHz in the 1800 MHz band. Bharti?s offer came in retaliation to the government?s move to allow CDMA operator Reliance to cross over to GSM cellular technology. Reliance paid Rs 1,650 crore for 4.4 MHz in the 1800 Mhz band, a price based on the 2001 GSM auction. Later, another GSM operator, Idea, also offered to pay for spectrum, although only as much as Reliance.
Officially, however, signals on an auction for 2G spectrum continue to be confusing. At the much-anticipated telecom seminar on Wednesday, while Prime Minister Manmohan Singh indicated that auction was the way forward, communications minister A Raja ruled it out. Singh said India needed to make use of ?this precious and limited resource optimally and all technological options must be explored to maximise its utilisation?.
The PM said the policy regime for spectrum should be fair, transparent, equitable and forward looking. Besides, he made it clear that the policy should not create entry barriers to newcomers and that the revenue potential of spectrum to the government must not be lost sight of.
Implicit in the PM?s remarks, industry observers say, was that fact that if telecom operators have the ability and willingness to pay, possibly through an auction, for 2G spectrum, then why should the government be averse to it. However, after Singh?s statement, Raja said that though an auction for 2G spectrum is a good idea, it cannot be done due to legal issues.
Some industry observers said they expected the PM to offer a way out of the spectrum conundrum, but without a clear message from him, the raging corporate war shows no sign of resolution. ?Things look very dismal for the sector as of now,?? said an industry official who requested anonymity. Faith in institutions and offices directly related to the telecom sector is at an all-time low and the PM did not exactly clear the air,?? he added.
Acknowledging that spectrum growth could be a growth constraint for the telecom sector, Singh did say that the government has taken steps for the vacation of spectrum by existing users (mainly defence). He said that he has asked the group of ministers (GoM) looking into the matter to expeditiously conclude its deliberations and suggest a roadmap and schedule for spectrum availability.
But committees on spectrum have not yielded results so far and only fuelled the ongoing spat between GSM operators led by Bharti Airtel, Vodafone and Idea and the CDMA lobby led by Reliance Communications and Tata. It is against this backdrop that Bharti, which already has 8-10 MHz of spectrum across telecom areas, made the offer to pay substantially higher than Reliance for 4.4 MHz across India to keep its lead in subscriber additions and maintain service quality.
The GSM industry has long maintained that existing rules allow them spectrum up to 15 MHz based on a subscriber-linked criteria without additional payments or bidding. Of late, that view has been challenged and companies like RComm that bet on CDMA technology soon realised they needed to play in the GSM arena to capture greater marketshare and raise their business valuations. RComm has made the first switch to GSM, infuriating existing GSM operators, who claim first right to spectrum in view of its scarcity.
CDMA operators accuse GSM players of blocking competition and hoarding spectrum to jack up their valuations. This led to the Telecom Regulatory Authority of India and the department of telecommunications? technical wing, TEC, to increase manifold the subscriber norm eligibility for additional spectrum. So bad has the spectrum mess become that now Bharti, Idea and the like have done a U-turn and decided to opt for bidding as a lesser evil than letting RComm overtake them.
But it is not yet sure whether their offers ended the war or just started it. Says Usha Rajeev, infocomm industry leader at PwC India: ?Spectrum is finite. First, we need clarity on the amount of spectrum available. Then, we need to decide the number of new (and total number of operators per circle) India needs or wants to have.??
On the amount of spectrum available, industry sources say that for 2G and 2.5G services (like GPRS, EDGE, etc) a total of 75 MHz is available in the 1800 MHz band. Of this, about 15 MHz has been already allocated to operators and another 20 MHz is being vacated by the defence services for cellular services. ?We believe that although DoT needs another 20 MHz vacated by various agencies some time soon, it certainly has 20 MHz in hand and needs to allocate it to operators,?? says an industry official. ?The truth is that the world over, an operator needs at least 12-15 MHz to operate services in an efficient way. This effectively restricts the number of players to six or seven, and we already have about that many in many circles.?
That leads to the debate over whether GSM operators are hoarding spectrum and should be made to pack more and more subscribers into their existing bandwidth. GSM operators have listed global practices to say that they are doing better than the rest of the world as far as technical efficiency goes. Indeed, GSM lobby group COAI has picked holes in the TEC methodology and called it flawed. Says PwC?s Rajeev, ?The issue of optimal level of customers that can be supported will need to be a techno-commercial decision, necessarily keeping in view the current operating environment and infrastructure. Clarity is required to even begin to address the spectrum issue.??
Now, even as the PM has stressed once again the need for quick vacation of spectrum, the entire issue has become entangled in red tape, with no deadline for resolution in sight. The defence services, which have to vacate some 40 MHz, continue to maintain that it would not be in a position to do so unless the alternate wireline network is built by DoT. DoT, on the other hand, says that since spectrum was allocated to the defence in stages, the vacation should also take place similarly.
Meantime, a sub-committee formed under national security advisor MK Narayanan with DoT and the defence secretary as members is still to submit its report on the roadmap. Even if the vacation of spectrum is done in stages, the broad contours are outlined, but clarity still eludes the principle of allocation and its optimal utilisation.
The good news for now is that the spectrum tussle hasn?t shown signs of derailing telecom growth, which is seeing 7-8 million subscriber additions a month. At Wednesday?s telecom seminar, it was unanimous that achieving the target of 500 million phones by 2010 was not a tough task. India beat the target of 250 million phones by the end of December in October itself. Even COAI director-general TV Ramachandran, who is fighting the spectrum battle hard, said current monthly subscriber additions could go up to 10 million. A senior official said that the dispute is not over growth, but about leadership among the top three players.
Whatever the outcome, going by the current availability of spectrum one thing seems likely: no matter how desirable, an auction won?t introduce a large number of new players to spur competition that would benefit consumers. If anything, the corporate war has all the signs of cost escalation for subscribers, poor service and a delay in the next generation 3G services, which promise high-speed download of video, music and data.
As one expert warned, future growth should not be taken for granted. ?It would require smooth functioning of the sector that has been a shining example of India?s liberalisation programme, despite its history of corporate wars, litigation, regulatory hitches and policy conundrums.?
