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  The telecom overhaul

The telecom overhaul

Published : Feb 2, 2016, 11:00 pm IST
Updated : Feb 2, 2016, 11:00 pm IST

A couple of months back came the government’s “eureka” moment when it agreed on spectrum sharing and trading between telecom operators.

A couple of months back came the government’s “eureka” moment when it agreed on spectrum sharing and trading between telecom operators. Telecommunications fireworks have since shown no symptoms of stopping. The department of telecommunications (DoT) is planning a massive spectrum auction in June this year and has even gone beyond, urging the International Telecommunications Union (ITU) to identify additional usable spectrum bands for 3G and 4G services. So basically, the government has gone all out to put to bed the issue of spectrum scarcity.

For mobile services with persistent issues of call drops, poor Internet and bad reception, the operators had always put the blame on spectrum scarcity. Not any more! Additional spectrum at auction, and an option to share/trade spectrum, is likely to optimise spectrum utilisation and, in the process, raise the quality of service (QoS) for mobile services. Poor infrastructure is another grouse, but that is a different story.

 

From creating artificial scarcity of spectrum, by restricting spectrum from changing hands, to launching a revolutionary drive to make additional spectrum available to operators, it seems like DoT has gone from being a villain to a hero. Some government enterprises, sitting on the bulk of unutilised spectrum, have started pondering over (considering) its release to help addressing the spectrum scarcity. The ministry of defence is thus expected to release 150 Mhz of spectrum in the second quarter of 2016.

Since the release of sharing/trading guidelines, there has been a downpour of prospective deals and collaborations. Examples may be drawn from: Reliance Communications Ltd (RCom) acquiring Sistema Shyam TeleServices Ltd (SSTL) and getting into a prospective merger deal with Aircel; Videocon selling spectrum for two circles to Idea and possibly to Telenor as well and; Bharti Airtel acquiring a stake in Augere Wireless. RCom has also got into a strategic alliance with Reliance Jio, which shall soon launch its 4G services in India, to share a combined rich pool of spectrum. Now the most speculated unanswered question is: How will this transform mobile connectivity in India

 

The guidelines have definitely brought a respite for some players. Some operators may now seek a graceful exit from the sector by selling spectrum. After procuring spectrum at insanely high prices in auctions, some operators, despite making losses, could not exit their business as they didn’t have the option to sell off their spectrum. They could only pray to be acquired, for which the unfriendly DoT’s mergers and acquisitions guidelines offered little help. The DoT is now said to be considering guideline-related issues on a case-by-case basis. However, establishing a more transparent process in this regard would be useful.

India has 10 mobile operators with Reliance Jio joining soon. Free competition is considered beneficial for consumers, but in the case of mobile services it may not be so. With 11 players competing for a limited resources, each will get an inadequate spectrum, resulting in poor services. With no provision for market exit, it looked like the Telecom Regulatory Authority of India (Trai) and DoT had taken the famous Winston Churchill quote “Never, never, never give up” a little too seriously.

 

With another big spectrum auction on the horizon, the operators are caught in a dilemma to share/trade spectrum or to buy spectrum in the coming auction. The spectrum on auction, valued around `5 lakh crore, might land a devastating blow to the already-indebted telecom operators. How the operators would deal with this, while combating the stiff competition, would be intriguing.

On the other hand, even the sharing/trading guidelines offer big hiatuses, which may see the objectives fall at first hurdle. Restricting inter-band spectrum-sharing, allowing trading of spectrum only two years after auction and converting non-auctioned spectrum with available with the operators to tradable through seller paying the difference from the market price, shall limit the purpose. The guidelines also bar leasing of spectrum, which leaves pooling or trading as the only options.

 

All sharing/trading deals would earn the government one per cent of the deal value, which becomes the buyer’s liability and two-fold earning for the government. Intimating the government 45-day beforehand on deals and restricting operators holding more than 25 per cent of spectrum in a circle and 50 per cent in specific band again amounts to over-regulation. Even Rahul Khullar, former Trai chairman, has suggested that the capping to be raised by 10-15 per cent.

The spectrum auctions of 2001 and 2013 were fierce enough for spectrum prices to tear through the roof. Still, the government’s appetite for revenues has seen spectrum usage charges increase by 0.5 per cent of the adjusted gross revenue and a non-refundable processing fee of `50,000 to be paid individually by each licensee. So the more the trading or sharing, the richer DoT will get.

 

Despite the odds, the recent moves on sharing/trading, freeing unutilised government-held spectrum and auctioning the entire remaining spectrum, are welcome moves by the government. It is facilitating consolidation as well as market exits. With limited operators, each would have enough spectrum to cater to their consumer base efficiently and the next spectrum auction shouldn’t go as brutal as previous ones, as the market should now be able to determine market price for spectrum on its own.

Consolidation in the telecom sector is taking place across the world. In 2015, Liberty Global acquired Cable & Wireless Communications in Latin America and similarly, Hong Kong’s Hutchison bought Telefonica’s O2 UK and merged it with 3UK. Elsewhere, AT&T acquired Iusacell and Nextel in Mexico, Rogers merged with Mobilicity in Canada. In France and Italy, Orange may merge with Bouygues and Hutchison with Vimpelcom.

 

Another factor that needs to be addressed is the harmonisation of spectrum. Featuring on ITU’s global agenda, harmonisation means uniform allocation of radio frequency bands across entire regions and not just individual countries. This would minimise radio interference along borders, facilitate international roaming and reduce the cost of mobile devices. India’s top four operators have already urged the government for a speedy harmonisation of 1,800 MHz band.

Spectrum and infrastructure were claimed to be the biggest culprits for call drops. Now that one has been eliminated and the other is being addressed, services should definitely improve soon. If that does not happen, the telecom operators should be warned that consumers’ faith will dwindle.

 

The writers work at CUTS International