Court eases Indian telecoms
gridlock By Indrajit Basu
KOLKATA - India's mobile-phone companies
are increasingly resembling the country's
commercial transport operators, who wish the
country had something better than two-lane
highways to accommodate their growing fleets of
high-powered vehicles.
In an effort to
grab as much space as possible in their own,
less-earthbound, world, the mobile operators, led
by the likes of Reliance Communications (RCom) and
Bharti Airtel Limited, are trying to nudge each
other over to the hard shoulders of the telecoms
highway as they battle their way through a traffic
jam of conflicting interests. They are also taking
on the government and
the
telecom regulator, whose policing inadequacies are
threatening to slow development of the industry
and its contribution to the country's economy.
In a sign that the clog of interests might
be easing, the Supreme Court last week issued a
judgement that allowed the government to freely
grant spectrum - the core of the fight amongst
operators - to new players. The court ruling was
in response to a suit by COAI, the lobby
supporting GSM, or Global System for Mobile
communication, one of two competing technologies,
to stop the government from allocating spectrum to
new telecom license applicants. It means the
government is now free to offer spectrum to new
license holders as per its promises.
The
struggle for spectrum - specifically the range of
the electromagnetic frequencies that are allocated
by governments for use by telecommunications
companies - pits those operators using GSM against
rivals running Code Division Multiple Access
(CDMA) systems.
The clash involves some of
the country's most powerful business names. On the
CDMA side, RCom, part of the Anil Dhirubhai Ambani
Group, with a market capitalization of US$22
billion, is headed by Anil Ambani, ranked by
Forbes last year among the world's top 20 richest
people. RCom's subscribers amount to about 18% of
India's mobile phone users
One the same
side on some issues, but at odds over others and
with about half RCom's subscription numbers, is
Tata Teleservices, part of India's largest
conglomerate company, Tata Group. Under Ratan
Tata, the group pulled in revenues in the last
fiscal year of $28.8 billion, the equivalent of
about 3.2% of India's GDP, and a market
capitalization of $73.6 billion as of December 13,
2007.
The GSM operators have on their side
Bharti Airtel's Sunil Mittal, ranked India's
sixth-richest man last year. Bharti Airtel has
signed up almost a quarter of all India's
mobile-phone users.
If the various groups
ever got around a table to thrash things out, they
would be facing a government and telecoms
regulator struggling to formulate an allocation
policy that is acceptable to all parties. These
include the armed forces and government
organizations with their own spectrum
requirements.
Tensions have escalated
since mid-October, when in a landmark development
the Telecom Commission approved a policy to allow
mobile operators to offer GSM and CDMA cellular
phone services through a single license. Within
hours, RCom won permission to start a nationwide
GSM service and was also allotted the much-needed
additional (4.4 megahertz) spectrum for $413
million.
This infuriated GSM players, led
by Bharti Airtel Limited and Vodafone Essar and
including smaller regional outfits such as BPL
Cellular, Idea Cellular and Spice Communications.
These operators oppose both the crossover policy
and the granting of the GSM license along with
additional spectrum to RCom. They claimed that as
operators already faced an acute spectrum
shortage, existing GSM players should get priority
in spectrum allocation over new players. Some -
like Vodafone - also argued that India has enough
competition and does not need new operators.
The CDMA lobby - led mainly by RCom and
followed by Tata Teleservices and HFCL Infotel -
shot back, alleging that incumbent GSM operators
already have more spectrum than is due to them
based on international norms. Hence it is argued
their demands for more spectrum will not only
deprive new entrants but could also stymie
competition. Meanwhile Tata Teleservices, RCom's
closed CDMA rival, has questioned the process
through which RCom was granted a GSM license
almost instantly while the government is delaying
granting permission to Tata Teleservices to run a
GSM network.
The government meanwhile says
the country does not have the spectrum the
industry says it needs because part is used by the
armed forces. The government has also showed
indecision on how to distribute what it agrees is
available and at what price.
The clash of
views does not end there. The industry is fighting
over issues whether the government should allocate
spectrum at all instead of auctioning it, as has
been done in other countries; and if it is to be
allocated at what price; some players have also
argued for a law that would force telecom players
who have not grown enough to return their unused
spectrum.
The demand for more spectrum
comes after growth in mobile telephony that has
caught government and operators by surprise. The
country has the world's fastest-growing overall
mobile network, adding more than 8 million new
subscribers per month for a total of more than 249
million, achieving 250 million fixed and
mobile-phone connections two years earlier than
targeted.
The scorching growth has brought
its share of problems. For one, say operators, it
has brought overcrowding in Indian airwaves,
adversely affecting the quality of calls. A
continuous reduction of call rates amid fierce
competition has meanwhile reduced average revenues
per subscriber (or ARPU) to a level that makes it
difficult for operators to pump in additional
expenditure on infrastructure (mobile towers) that
could mitigate to some extent the problems linked
to the acute spectrum crunch.
Monthly ARPU
for the industry declined 7.4% to $6.97 in
September 2007 from $7.53 in June last year,
according to the Telecom Regulatory Authority of
India. That continued a decline from more than $8
in December 2006.
Spectrum distribution
has been a contentious issue elsewhere, with other
countries generally favoring allocation by
auction. So why is it emerging to be such a big
problem in India? The blame, according to critics,
falls squarely on "lopsided past policies" of the
government.
The government started to get
into the present mess in 2001 when in its
enthusiasm to spur telecom penetration it decided
to bundle entry level spectrum (of 4.4 Mhz) for
what according to some was a "mere" $413 million.
Other countries have put a far higher price on
what is basically a scarce natural resource.
Telecom operators in South Korea for instance had
to pay $994 million for 20 MHZ; operators in
Singapore paid $1.2 billion for 30 MHZ. In the US,
airwaves continue to attract top dollars when in
the latest auction operators there paid $2.5
billion for just 12 MHZ.
Soon the
government compounded industry woes by formulating
another policy whereby, unlike global norms,
additional spectrum was allocated free to an
operator on the basis of its subscriber numbers -
a "weird move'' according to Tata Teleservices
managing director Anil Sardana. Until that policy
was announced in March 2006 "nobody thought of
hoarding spectrum. But a coterie [meaning the GSM
operators] decided that it was a great idea and
why not use this opportunity [to hoard spectrum],"
Sardana said in a recent interview.
Sardana alleges that the government
subsequently, having realized that India was
running short of spectrum to satisfy all parties,
suddenly put an end to what was effectively
automatic allocation of spectrum with increasing
subscribers. Consequently, as it stands now, while
more-established have the fruits of growth with
grabbed additional spectrum, newer players are
left with none.
One solution lies with the
military and other government institutions.The
army, India's space research organization and the
railways control a large chunk of spectrum, given
to them before the mobile telephony era when
airwaves were hardly a scarce commodity. These
organizations are not yet ready to loosen their
grip on this resource, although the government
hopes to extricate unused spectrum from them by
the end of this year by paying them their "due
price".
Even so, the clash over allocation
of spectrum to commercial interests is likely to
continue until "the government comes out with a
transparent and equitable process for allocating
new spectrum or licenses,'' that is, through
tenders and auction, according to Rajeev
Chandrasekhar, who lobbies on behalf of the Indian
GSM operators as President of Federation of Indian
Chambers of Commerce and Industry (FICCI). With
the telecom sector haunted by "worrying and
unwarranted political interference," that may not
be easy, says Chandrasekhar, who in 2005 sold his
BPL Mobile Communications Ltd to a consortium led
by The Essar Group.
An early resolution to
the various issues is unlikely. Different stances
have been adopted since October by, on the
government side, the Department of
Telecommunications (DoT), the Telecom Regulatory
Authority of India (TRAI) and telecom ministers.
On the operators' side, GSM players want
the government to allot spectrum for free
initially and for subsequent charges to be based
on revenues. The CDMA players argue that the
government should offer spectrum for a price to be
decided by an auction process if need be, whenever
spectrum is needed or at the time of allocation of
a new license, whichever may be the case.
The CDMA players also want to be treated
on a par with the GSM players in terms of spectrum
allocation. At present for a given subscriber
base, the GSM operators are allotted double the
spectrum that goes to their CDMA counterparts.
CDMA operators also allege that the GSM companies
have over the past two years obtained more
spectrum by misleading the government regarding
their needs and subscriber numbers. They have
therefore also demanded that the government take
back such allocations. Needless to say, the GSM
players reject this charge vehemently.
The
regulatory authority has suggested that spectrum
should be auctioned, a line rejected by the
Telecom Minister for two reasons: 1 - in the
recently floated offer for new licenses (which
attracted 600 new applications) the government is
already committed to allot 4.4 MHZ of spectrum
clubbed with the new license against an initial
license fee of $413 million; 2 - auctioning of
spectrum could increase the cost of telecom
services dramatically, which would go against the
country's pursuit of increasing the countrywide
telecom penetration, particularly in the rural
areas.
As the various parties fight it out
amongst each other, with petitions to the Prime
Minister, public interest litigation suits, use of
the telecom tribunal, and so forth, they have yet
to sit together and thrash out a solution or a
mid-point.
Still, the Supreme Court ruling
does seem to have opened the way to some progress.
On Thursday the DoT issued letters of intent
(LoIs) to five new entrants to launch telecom
services in India and to three existing operators
- Idea Cellular, Tata Teleservices and Shyam
Telelink to expand their services on a pan-India
scale. The DOT said each LOI can be converted into
a telecom license after payment of $443 million.
DOT also said that spectrum allocation to these
players will be based according to the order of
their payment, that is first come, first served.
Indrajit Basu is a Kolkata-based
journalist.
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