Ringing in competition

For the wireless operators in India, the spectrum issue is turning out to be a Pandora's Box. In a new twist to the ongoing controversy over allocation of spectrum, the industry regulator, TRAI, has recommended removal of the cap on the number of licences and operators in each circle.

Says Nripendra Misra, Chairman, TRAI: "The investment required for achieving higher tele-density (there's a target of 500 million subscribers by 2010) and penetrating into rural areas has to be mobilised at a faster pace than before. Relying upon a few operators (to do so) may not be an appropriate option."

To spur M&A in the industry, TRAI intends to allow an operator to buy up to 20 per cent stake in a rival telco in the same circle. Hitherto, the limit was 10 per cent. However, the regulator may not allow mergers that result in the combined entity having more than 40 per cent share of a circle, either in terms of revenues or subscriber base.

No M&A will be allowed if the number of wireless players drops below four. The existing rule mandates a minimum of only three players per circle. Misra is also in favour of auctioning spectrum, except those in the 800, 900 and 1800 mhz bands, to ensure its efficient utilisation. However, some operators believe that this would not only make the roll-out of 3g costlier, but it could change the business model, since 3g, operators claim, is a natural progression from 2g. The implicit argument: Auctioning would make 3g services expensive and hinder the sector's growth.

TRAI's Misra: Counting players

That may not be how things pan out, but there's no doubt that it's going to be harder for telcos to divvy up any additional spectrum. Once again, TRAI has something to do with it. The telecom regulator has recommended that operators offering services in Mumbai would have to pay Rs 16 crore for every additional 1 mhz of the spectrum over the cut-off bar (10 mhz) as a one-time acquisition charge.

Says Misra: "Allocation of the airwaves should be viewed very seriously. The objective is to encourage the existing service providers to deploy new technologies, and provide better quality of service for the utilisation of this scarce resource."

Understandably, the wireless operators are upset with TRAI. Describing the move as extremely arbitrary and stringent, Cellular Operators Association of India (COAI) Director General T.V. Ramachandran says: "The imposition of a steep one-time charge is unfair and would add significantly to the cost of service and adversely impact the achievement of national telecom objectives. The recommendation had proposed a tightening of subscriber-linked criteria by four-five times, which is completely illogical."

The operators are also upset that TRAI's recommendations will bring more players into the game. Several of the global players such as AT&T and nttdocomo are keen to get into wireless consumer telephony, given that the market is still adding 7 million subscribers a month. Their entry will make things even more competitive in a market that is already the cheapest in terms of tariffs.

Also, TRAI's recommendations are likely to help Reliance Communications expand its GSM services (currently, it's predominantly a CDMA operator) by paying an entry fee equal to that of a unified access service licence.

Meanwhile, Telecom minister A. Raja has promised that additional spectrum will be made available by year end. For all one knows, that may trigger another round of battle between the operators.