Ostensibly, the telecom sector is headed towards another big mess, which could tarnish the shine it has gained over the past few years. Telecom experts say litigations look inevitable. Of course, perspective on the latest round of controversy depends on the stakeholders one is talking to.

Despite being one of the most visible success stories in the post-reform period, the telecom sector has often run into some controversy or the other. Going by the history, the issues of the present conflict may not sound new?whom to award spectrum and at what price, at what point should additional spectrum be given to existing cellular operators, who to award new licences to, and whether the spectrum and the licence should come bundled.

Going by the past, there?s every reason to believe that the government and the industry would tide over the storm. However, the timing could not have been worse. The new set of controversies have erupted at a time when it seemed that the sector had bid goodbye to the teething troubles and was running full steam towards a big communications revolution.

Simply put, at the heart of the present controversy are two major issues: allocation (and efficient use of spectrum) to the existing telecom operators and possible entry of new companies in the telecom arena. These issues have arisen in view of the massive telecom growth that has happened in the past few years, making India the fastest growing cellular telephony market in the world. Both technologies put together, GSM and CDMA, India is adding about 8 million subscribers a month.

To make things even more lucrative, despite declining Arpus (average revenue per subscriber), the existing telecom companies are gathering mouth-watering valuations as was seen in the Vodafone?s buyout of Hutch to enter India. It paid about $11.1 billion for 67% stake, and in the process catapulted the minority partners, Ruias of Essar group to the list of the world?s richest. This, when the mobile telephony penetration is just about 20%, with 200 million cellular subscribers for a population of a billion plus.

Effectively, India is still an addressable market of 500-800 million, depending on your levels of optimism. India?s official target is 500 million subscribers by 2010, which, according to Cellular Operators Association of India director-general TV Ramachandran, would lead to a penetration level of 45%, leaving 50% market still for grabs. People in many rural areas are still to see a cellphone.

All these developments have raised crucial questions such as: should only the existing players be allowed to corner the entire cellular market and hence increase their wealth indefinitely? Or should new entrants be allowed to participate in the country?s growth, while keeping strong competitive pressures in the market for the good of the consumer? Should the existing players keep getting additional spectrum (radio waves on which mobile phones work, the real estate for cellular operators) on the basis of subscriber base, as envisaged in the current policy?

The present chaos occurred when the government sought telecom regulator Trai?s opinion on these issues. Trai recommended a few things. First, there should be no cap on the number of operators (which was effectively the current policy as well). Secondly, after allotting 10 MHz of spectrum to the existing operators, the legacy system should be modified and they should be given more spectrum on payment. More importantly, Trai raised the number of subscribers 2-5 times for eligibility for additional spectrum, which raised questions about the efficient use of spectrum by the existing GSM players and infuriated them. Trai also suggested changes in the M&A norms.

All put together, there was a big gold rush post the recommendations. About 46 companies applied for 575 licences (each telecom circle, roughly equal the area of a state in most cases, is a separate licence). It also led to calls for auctioning of spectrum (instead of giving it away to existing operators), although Trai ruled that out for 2G services.

In the din of points and counter points of all hues, the government has said that it would announce new terms and conditions for the sector within a week and has indicated that there may not be any major changes to the existing policy.

Actually, after starting the entire process, the government itself is finding it hard to answer questions with much consistency and clarity. It has discovered that the issues are not easy to address. For instance, if one were to argue that only those companies that have experience in telecom should be given fresh licences, there would be an immediate response that most of the present successful players in telecom came without any prior experience. Or, what if one major company sets up a front company, or is an investor in two new licence aspirants and ends up hoarding specturm? Even communications and IT minister A Raja is finding it difficult to answer such questions. Flooded with a spate of new applications for telecom licences, Raja suddenly put on hold the process declaring that no fresh applications would be accepted after October 1. He then said that his department would come out with fresh guidelines to award new licences. Later he backtracked stating that how could he change guidelines mid-way and would stick to the present ones albeit with minor changes.

Against this backdrop is the fundamental problem. There is not much spectrum available for commercial cellular services in this country, say the experts. The defence is set to vacate 20 MHz of spectrum in the 1800 MHz frequency for 2G services. And it is not coming in before another few months. In fact, private operators are fuming that their networks are choked and they have not been allotted more spectrum in the past 18 months or so.

As one telecom expert put it succinctly: ?If you give spectrum to the existing service providers, which you may have to, on the basis of existing subscriber norms; and if you give first preference to those licensees who are waiting for spectrum for more than a year, the likely balance won?t be more than 7-8 MHz on average in 1800 MHz frequency. It effectively means that there can?t be more than one new player in the telecom sector.??

Well, that could be either the end of all arguments or the beginning of a long spate of controversy and yet another round of litigations.

Not that there are no solutions around. Licences can still be awarded bundled with spectrum, but subject to its availability in which case new applicants will have to wait for years to start rolling out services, if they get lucky. There are companies at present who have been awarded licences and not granted spectrum for some eight months. Else, new applicants can be encouraged to go for newer technologies like WiMAX and be given a host of incentives to offer broadband services. Remember, it was the entry of new players like state-owned firms BSNL and MTNL as well as private companies like Reliance and Tatas on CDMA technology, and entry of Bharti into long distance (STD/ISD) services that repeatedly led to fall in tariffs, spreading the telecom boom.

At the same time, since the incumbents have contributed to the telecom growth and are mid-way their roll outs, putting breaks on their growth would be harmful for the sector as well as the country?s image. Operators like Bharti Airtel, Vodafone and Reliance have already announced plans to invest over $8 billion on cellular infrastructure this fiscal itself. Certain amount of spectrum should be reserved for them.

Sure, entry of new players and greater competition would be an important achievement but so would be a smooth functioning of this crucial infrastructure sector that has done much good to India?s economy and its liberalisation programme.