The Hindu Business Line : In opposing camps

Should the Government freeze the number of mobile operators in a circle at current levels or continue with the existing free-for-all policy, given scarce resources of spectrum? Telecom players take sides.

“It is a fact that spectrum, which is the most vital raw material to offer mobile services, is in extremely short supply.”

Thomas K Thomas

The bugle has been sounded and the gloves are off. This is probably going to be the bloodiest battle that the telecom sector has witnessed till now. Bigger than the three-year-long war between the GSM operators and CDMA operators in 2000-2003, when the latter had sought to enter the booming cellular market with their limited mobility platform.

While the latest feud is once again around the exponentially growing mobile market, that’s where the similarity ends. For one, this war is not being fought along technological lines but between the well-established national operators such as Bharti Airtel, Vodaphone Essar, Bharat Sanchar Nigam Ltd and Tata Teleservices on one side, and on the other, those who want to enter or expand their presence in the mobile segment, such as Himachal Futuristics Communications Ltd, Internet service providers (ISPs), Spice Telecom and Shyam Telecom backed by Reliance Communications.

The heart of the matter

The issue that has split the industry down the middle is a probe being done by the Telecom Regulatory Authority of India (TRAI), on a request by the Government, on whether to freeze the number of mobile operators in a circle at current levels or continue with the existing free-for-all policy.

The reason for the review is the Government’s inability to find adequate spectrum to accommodate a larger number of operators as the mobile subscriber base skyrockets towards the 500-million mark.

At present, there are at least six-seven operators for each circle (equivalent of a State) and each operator is demanding at least 15 Mhz per circle. The existing operators with national footprint claim that they are already facing a huge spectrum crunch in most parts of the country and therefore whatever radio frequency is available should be first kept aside for their requirements before new operators are allowed.

“It is a fact that spectrum, which is the most vital raw material to offer mobile services, is in extremely short supply and thus it is most anomalous to have a policy of open competition in an environment of limited availability of spectrum. Once a service provider has been granted a cellular licence, he must be assured of adequate spectrum to offer his cellular services,” say Bharti Airtel executives.

On the other hand, there are at least 40 fresh applications awaiting clearance from the Department of Telecom, from companies wanting to offer cellular services but that cannot do so due to non-availability of spectrum. These applications belong to single-circle small operators such as HFCL and Spice and also semi-national operators, including Aircel and Idea Cellular.

COAI stance

Leading the front for these wannabe new national players is Mahendra Nahata, Chairman, HFCL. “It is completely wrong to say that only existing operators have the right to spectrum. As per the unified access licence conditions, only 6.2 Mhz bandwidth per operator has been promised by the Government. Once an operator gets that band then there are technologies that enable optimum utilisation.

The remaining spectrum should be given to new operators or auctioned out to the highest bidder instead of automatic reservation for only existing operators,” says Nahata, who has put in applications for over 20 new mobile licences.

The Cellular Operators Association of India (COAI), spearheading the fight on behalf of the large national players in favour of a cap, disputes these claims and has produced documents from DoT and the Wireless Planning Coordination wing, pointing to regulations post the unified access licence regime, which promise additional spectrum based on subscriber base.

“Internationally, GSM spectrum up to 20-25 MHz is being provided to each operator. In India, though the upper limit at present for spectrum allotment as per the subscriber linked criteria is 15 MHz, the same needs to be revised upwards in line with the international norms for catering to the anticipated growth of subscribers over the next three-four years. In case adequate spectrum availability is to be ensured for the existing operators who have made huge investments by way of entry fee and network Capex, it may not be possible to support more than five GSM operators in each service area.

Similarly for CDMA technology, where only 20 MHz is available at present, there should be a cap of maximum three operators,” says Brijendra K Syngal, Advisor, BPL Mobile Communications Ltd, and former Chairman of VSNL.

Nahata, however, insists that despite the notices and official letters from DoT on spectrum, the contract signed between the operators and the Government is for only 6.2 Mhz.

Agrees RCOM, “The subscriber-linked policy is a flawed way of measuring efficient spectrum utilisation. Existing operators can easily beef up their user base to get more spectrum and hoard it to prevent anyone else from entering the market. The Government should measure it on the basis of subscribers per MHz to know that Indian operators are among the worst efficient when it comes to use of radio frequency.” RCOM, which has a pan-India CDMA mobile network, has applied for a pan-India GSM spectrum.

The allegations of inefficient spectrum use are dismissed by COAI, which says operators are deploying state-of-the-art technology on their network.

CDMA backs COAI

Interestingly, even the CDMA Development Group is backing COAI in this battle. “The availability of spectrum is a key issue to be considered in any discussion of an ideal or maximum number of operators in a service area. As the number of subscribers grows and the variety of advanced services continues to expand, operators have begun to seek access to additional spectrum. The amount of available spectrum is not adequate to meet the needs of current CDMA operators, let alone potential new licensees,” says Perry LaForge Executive Director, CDG.

Highlighting the danger of capping the number of operators, Nahata says existing operators will form a cartel and prevent any further reduction in tariff. “This is short-changing the consumers as regulation will bring in monopoly. The Government will also lose revenues in the form of licence fee and spectrum charges it would get when new operators enter the fray.”

While the allegations going back and forth seem to be very similar to the GSM versus CDMA fight, where the former was against the entry of limited mobile operators, the stakes this time are much higher. If that battle was for a market that was growing at a few lakh subscribers a month at that time and the final resolution costing only Rs 1,500 crore, here at stake is the fastest growing market in the world at over 6 million subscribers a month, generating revenues estimated to be a whopping Rs 90,000 crore by 2010.

Though sharing of scarce resources such as spectrum is definitely the focal point of the debate, operators are also gearing up for the looming battle in a bid to get the larger share of this mouth-watering revenue pie. Even multinational mobile companies such as AT&T, which had given up hope on the Indian market and sold off its share in Idea Cellular a few years ago, are now looking to make a comeback and therefore supporting the free competition theory. However, those against such a move say that opening up the market would result in a financial mess.

For and against

“The Indian mobile market is already intensely competitive with six-eight access operators in every service area, which is higher than most developed countries. The per minute tariff is also the lowest in the world. So where is the need for more competition? Introduction of more operators may harm the competitive equilibrium and will have a negative impact on the quality of service and the threat of India becoming a high-growth, low-quality market cannot be underplayed,” warns Bharti Airtel.

Agree officials at Vodafone Essar. “The subscribers per service provider in India are lower than other countries of the world. We believe that this itself is an indicator of the fact that if competition is increased, it will put a big question mark on the overall financial health of new as well as existing operators.”

RCOM executives are viewing it differently. “The number of operators in India should be seen in the context of available demand. With around six million subscribers being added monthly and with the expansion of networks in uncovered areas, it is expected that this demand would continue for a long period. The excessive competition has not harmed any of the service providers as market size has grown and there is enough space for all the operators. Even with five-seven operators in each of the service areas, not more than 6-7 million subscribers are being added every month. This will take us many more years to increase the tele-density. Without more competition, the existing operators will become complacent and stop innovating and improving quality of service.”

Bharti executives counter it by saying that the low tele-density of 19 per cent is not indicative of the fact that scope exists for introduction of new players but rather, it brings out the fact that there exist bottlenecks that have hampered the spread of service.

‘Anomalies, complications’

However D.P.S Seth, former Member, TRAI, and Chairman, BSNL, says that the arguments related to finance and lack of business case for new operators are not good enough reasons to keep away new entrants. “Regulators and licensing regime should not decide the business case and decision of any operator. If a new operator finds it viable to operate in a market, then licensing regime should not come in the way. The issue to be tackled, therefore, is spectrum and its availability and it is being suggested that by limiting the number of service providers through regulatory or licensing regimes, this problem can be sorted out or at least minimised.

Let us assume a new service provider appears on the scene with a new technology, say, WiMax 802.16e and offers the same voice service besides a few other services. Can we really say that this is not a new service provider? Thus, putting a limit on the number of service providers will unnecessarily introduce anomalies and complications in the licensing process.”

Analysts too divided

Even neutral global telecom market analysts are divided over the issue. “As the circle-wise scenario, compared to the world experience, points out, we already have too much of competition in the telecom field. With the acute spectrum crunch, it is necessary to limit the number of operators in each service area. We may decide not to issue any more licences, and allow for consolidation of the existing operators into six or seven pan-India players. Further, licensing may be restricted only to adherents of new technology and that too on a national scale,” says V. Parthasarathy Head, India Operations, Strata-gems, US.

On the other hand, Spectrum Value Partners has suggested that TRAI should not intervene to regulate competition in the market. “The Indian mobile market is one of the largest worldwide and is experiencing rapid growth. It is already displaying a healthy level of competition, with all operators displaying positive EBITDA. New entrants have successfully gained market share, despite the presence of established operators. Spectrum Value Partners believes that due to the expected rapid and sizable growth of the market, the Indian mobile market is likely to be able to sustain additional competition.”

With sentiments running high on both sides, TRAI, which is expected to make a decision on the issue, is not in an enviable position. Unless it does a fine balancing act, any decision may signal the beginning of yet another long-drawn battle in the telecom sector.

tkt@thehindu.co.in

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In opposing camps