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There has been an unprecedented rush for new telecom licences and amongst those vying for a slice of the market are real-estate players too. A snapshot of the action.

Adding to the scramble for a new licence are global telecom players such as US-based AT&T and Russian Sistema.

Thomas K Thomas

What is common to Indiabulls, Unitech, Sify, Next Gen and Sterlite? These could be among the brand names of your cellular connection a few months from now. While brands such as Airtel, Idea, Tata Indicom and Reliance Communication have become household names in the telecom sector, about 30 companies, including some real-estate giants and large global telecom players, have now put in their applications to get a licence for offering communication services.

The rush for a new telecom licence is unprecedented considering the fact that since 1995, when the Government had opened up the telecom sector to private players, the Department of Telecom has issued 96 unified access licences to just about seven operators as on August 8, 2007. Now 30 companies — such as Moser Baer, which has been making compact disks and storage solutions, and consumer electronic goods maker Videocon — have together put in 500 applications for getting a new unified access licence.

Reasons for rush

So what is driving these companies to jump into an already crowded telecom sector where there are seven-nine different operators in each circle (equivalent of a State)?

Reason number one is the booming mobile phones market and the growing valuations of existing telecom players. Operators are adding nearly 6 million new connections a month and with only 21 per cent of the population owning a mobile phone, this number is only going to grow upward. Recently, a medium-sized company such as Hutch got a valuation of nearly $20 billion, making a foray into mobile services an extremely tempting proposition.

Says Gagan Banga of Indiabulls, a real-estate company, “we see huge potential in terms of adding to our revenues by foraying into the telecom sector. With the kind of cash that we are sitting on, we can invest this in a booming sector.”

Agree Unitech executives, “The continuous rapid growth in India’s telephone services business indicates the enormous potential for future growth in this business. Further, it would help boost the group’s telecom and transmission tower manufacturing business. Thus, investment in this sector would provide immense potential for value addition to the group.”

There are at least six real-estate companies, including Parsvnath, DLF, Omaxe and Avinija Properties, in the fray to acquire a new telecom licence.

Expansion spur

The second major reason for the rush is to expand current operations. Operators such as Shyam Telelink, Himachal Futuristic Communications Ltd and Idea Cellular currently have presence in only a few circles and they are looking to expand their footprint to make their operations pan-India.

For instance, if Shyam Telelink gets the licence, it would double its valuation to around Rs 1,000 crore from about Rs 400 crore at present.

Adding to the scramble for a new licence are global telecom giants such as US-based AT&T and Russian Sistema, which are hoping to get a foothold in the world’s largest growing cellular market.

According to the Sistema chief executive, Alexander Goncharuk, “We consider India one of the most attractive markets with a high growth potential. We are pleased to be the first Russian company to enter the Indian telecom sector.”

Policy matters

The third reason is policy-related. Faced with a severe shortage of spectrum for mobile services, DoT has been hinting at putting a cap on the number of operators. A recent recommendation by the telecom regulator also suggested that third generation mobile licences may be given only to those operators who have an existing licence. This meant that, for example, if AT&T wanted to bid only for a 3G licence, it has to first get a 2G licence.

“The huge rush for telecom licence has been the Government’s own doing. Otherwise why have all these companies chosen to apply for a licence over the last two months? There has been no cap on the number of players till now, so why didn’t these companies apply all this while?” poses a GSM operator.

Existing operators are concerned that they not only have to share the market with more number of players but that they will also have to share a scarce resource such as spectrum. As per the DoT’s internal documents, the Government has only about 25 Mhz of spectrum for 2G mobile services by April 2008. With each operator needing at least 5 Mhz of bandwidth, the available frequency is enough just for accommodating five players. Existing pan-India operators such as Airtel and Vodafone want that the spectrum be first allocated to them before the Government thinks of giving it to any of the new applicants.

Existing operators have also expressed concern that the some of the new applicants could be proxies of rival operators who may want to hoard spectrum. “DoT should scrutinise each of these applications and unveil the corporate identity of each of these applicants. Spectrum being a scarce resource is highly valuable and if it goes to the wrong hands it can spoil the Indian telecom growth story,” says an official of the Cellular Operators Association of India.

Some of the applications have been made under names that do not reveal the promoters’ identity immediately. For example, the Essar Group has applied for a pan-India licence under Shipping Stop Dot Com banner, Reliance Communication has put in two sets of applications under its subsidiary firms Swan and Cheetah. There are other applications such as those made by Bycell, STel, and Datacom whose promoters’ identity could not be ascertained.

Processing licences

While the increasing private sector interest in the telecom sector is a credit to the reforms introduced by the Government over the past five years, clearly the sheer number of applications has rattled policymakers facing the tough task of processing them (at the time of going to print).

DoT has set up an internal committee to go through each and every application and seek further details from the various companies regarding the equity structure and financial data. “It may not be possible to give licence to everyone for offering wireless services, therefore we have to formulate a method by which we can eliminate non-serious players,” says a DoT official.

One of the options being looked at by the Government is to auction available 2G spectrum which would give all the players a fair chance to get a licence.

Delinking spectrum

The other option being looked at is to delink the licence from spectrum wherein licence may be given to all the eligible applicant companies but spectrum may be given to only a few. A unified access licence allows companies to offer any type of telecom service, including broadband and long distance telephony. It is only for offering mobile services that one needs spectrum. Therefore licences may be issued to those who want to offer non-wireless services.

The third option is to tighten the eligibility condition for qualifying for a telecom licence in such a way that that it automatically eliminates a few applicants.

DoT has instructed its internal committee to formulate new guidelines under which the new applicants will be issued licence and sources indicate that the Government may raise the bar in terms of minimum networth and revenues required to be eligible for a licence.

While a final decision on the fate of the 500 applications will be taken by DoT before the end of the month, one thing is for sure — the entry of even three-four out of the 30 new applicants would spill more blood in the highly competitive telecom streets even as consumers can expect more tariff cuts and freebies in the coming months.

tkt@thehindu.co.in

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