Spectrum war

Indications are that the policy on spectrum allocation, instead of using the opportunity to lay down transparent guidelines, may yield to pressures from the telecom lobbies. - A. ROY CHOWDHURY

An unprecedented number of applications have been filed for mobile phone licences amidst fears about spectrum shortage.

Indications are that

MOBILE telecom operators are locked in an ugly fracas over the allocation of wireless spectrum, the key resource that enables them to provide services.

The issue remains tantalisingly poised, waiting for a decision from the custodian of the resource, the Department of Telecommunications (DoT). The referee, the Telecom Regulatory Authority of India (TRAI), has already given its views on the contentious issues. Meanwhile, rival lobbies slug it out, predicting dire consequences if the forthcoming policy statement does not suit their interests. As the DoT dithers, picking and choosing from the TRAIs prescription, it is becoming clear that the issue is not merely about the allocation of the precious resource. Dominant players are evidently lobbying to use the scarcity of spectrum as a barrier to the entry of fresh competition in the booming telecom business.

Amidst the drumbeat of fears whipped up by contending lobbies about spectrum shortage, an unprecedented number of applications have been filed for mobile phone licences. By the third week of September, the DoT, overwhelmed by the headlong rush of applicants, announced that no new applications will be accepted after October 1.

Even so, 46 companies filed applications for 575 licences for Unified Access Services (UAS) to provide services in the countrys 23 circles. The rush to Sanchar Bhawan started soon after the TRAI released its recommendations on licence reforms and on capping the number of service providers on August 29.

The TRAI ruled out fresh auctions of spectrum in the 800, 900 and 1,800 MHz bands. While the 900 and 1,800 MHz bands are allocated to operators who use GSM (Global System for Mobile communications) technology, the 800 MHz band is reserved for operators who use the CDMA (Code Division Multiple Access) technology. Dominant players in the GSM space are Bharti, Vodafone and Bharat Sanchar Nigam Limited (BSNL) whereas Reliance Infocomm leads in the CDMA space, with Tata Teleservices coming a distant second. Reliance is a significant player in the GSM space too.

Companies remotely connected with the telecom business among them real-estate and construction companies, and others acting as proxies of dominant players filed applications for licences. This gave credence to the apprehension that the policy vacuum provided spectrum squatters an ideal opportunity to make a quick buck by trading the resource if and when they win a licence.

The rush of the speculative applicants was based on the expectation that they would get their first tranche of the spectrum (4.4 MHz) bundled along with the licence, which would cost Rs.1,660 crore. This amount would be fraction of the spectrums worth given the scarcity scare. This price of the licence is linked to the last auction in 2001, which determined the fourth mobile licence in each of the telecom circles.

Since 2001, the mobile telephony market has grown dramatically. The subscriber base has increased from four million to more than 200 million today. Obviously, many of the applicants have no intention of spending the estimated Rs.25,000 crore that would be needed over a three-year period to establish a countrywide network.

Union Minister for Telecommunications A. Raja has drawn flak for failing to enunciate a clear, fair, predictable and consistent policy on spectrum allocation. In particular, there is consternation that the Ministry failed to use the TRAIs report (see box ) as a guide to resolve legacy issues while fostering greater competition. The TRAI report had pointed out that the policy regime ought to maintain the sensitive balance between consumer welfare and facilitating growth of the telecom sector. It identified the availability of spectrum, its allocation criteria, pricing methodology and method of evaluating utilisation of the spectrum as among the central issues.

It observed that the continued uncertainty about the availability of spectrum has generated apprehensions and anxieties among stakeholders. This, it pointed out, made them take firm positions resulting in polarisation of viewpoints in the matter.

The quantum of spectrum allocated to operators holding Cellular Mobile Telephone Service (CMTS) or UAS licences governed by a set of three basic criteria: the number of subscribers, the technology deployed (CDMA or GSM), and the nature of the service area. These are loosely referred to as the subscriber-base criteria.

For instance, a GSM-based service provider offering services in Delhi and Mumbai is allocated a pair of bands (one for uplink and the other for downlink) of 6.2 MHz (2x6.2 MHz); a CDMA-based service provider in the same service area is offered a pair of bands of 3.75 MHz (2x3.7 MHz).

The GSM service provider is eligible for the next tranche of spectrum when his subscriber base crosses 0.6 million; for CDMA-based operators in the two metros this threshold is set at one million subscribers. The threshold is calibrated at higher levels for the other two metros (Chennai and Kolkata) and the three grades of telecom circles A, B and C.

The Cellular Operators Association of India (COAI), a dominant industry lobby representing the major players in the GSM space, prefers the continuation of the subscriber-base criteria, which, according to it, served the industry well in the period of explosive growth during the last five years.

The lobby representing the CDMA operators, the Association of Unified Telecom Service Providers of India (AUSPI) of which Reliance is a major part, has argued that the demand for extra allocations of spectrum is grossly exaggerated. It says that the focus should be on the efficient utilisation of spectrum rather than more allocations. It says that the government should not allow spectrum hoarders to prevent competitors from expanding their networks at a time when the sector is growing at a scorching pace.

While the existing policy clearly needs to be amended, taking into account the evolving scenario, it should not be allowed to create havoc with the situation. At the same time, it is necessary to create space for potential new entrants because the market is clearly oligopolistic. In fact, there have been allegations of cartelisation, illustrated by the manner in which rival players, acting in collusion, have fixed tariffs.

The legacy issues in telecom policy stem from the way in which the policy evolved, in controversial circumstances, in the last decade. In particular, the allegation that some network operators have been favoured has been a favourite theme of critics. The governments moves on the spectrum issue appear to suggest that policymakers have learnt little from experience. In October, the Telecom Commission, the policy-drafting wing of the DoT, approved Reliances proposal to offer GSM-based services.

This may appear inconsequential from a regulatory perspective, but has an important bearing on Reliances access to spectrum resources it will get more spectrum in the 900 and 1,800 MHz GSM-specific bands in addition to the spectrum bands reserved for its CDMA operations. Fresh allocations of spectrum can be made only when the defence forces vacate 20 MHz in the relevant spectrum by the end of the year. Since 10 MHz is to be reserved for the expansion needs of existing operators, there is only enough spectrum to meet the basic needs of two new operators in each telecom circle (4.4 MHz each).

The approval given to Reliance cannot have come at a more opportune time because it will be first in the queue when additional spectrum is offered to operators. These developments are in keeping with the companys controversial entry into mobile telephony. In 2001, it was allowed to convert its fixed-line service into a full-blown mobile service using CDMA technology, after paying a fine.

It is not only Reliance that has been jockeying for spectrum. Bharti, which has the highest market share, has complained that it faces a serious shortage of spectrum resources and that it should be the first to be allotted spectrum by virtue of having the highest subscriber base.

Vodafone, which has grown rapidly to occupy the second spot in the GSM space, wants existing operators and new entrants to be placed on an equal footing in spectrum allocation. Idea Cellular, of the A.V. Birla group, also wants more spectrum. To compound the confusion, there are firms, such as Aircel, which have been given licences but do not have any spectrum to operate them, and they want it first now.

Pressure from various lobbies indicate that instead of using the opportunity to lay down clear and transparent guidelines for spectrum allocation, the policy is likely to adjust itself to the pressure exerted. In the days ahead, this is likely to strengthen the oligopolies of the mobile phone business.

The emasculation of the state-owned BSNL, which is the only potential countervailing force in the market, is ominous in this context.