The Hindu Business Line : Some light on spectrum

Characters: Raja, 28, works in a service provider company; Priya, 25, Raja’s wife, works in a software company; Vijay, Priya’s dad, 62, retired government official; and Saranya, 57, Priya’s mom, housewife.

There was a knock on the door. Priya ran to open it. Her parents came in, bags in hand. Raja greeted them with a smile.

“Hey Raj, how are you doing today?” boomed Vijay. He had recently retired from government service. They had come for dinner to their daughter’s place. They did this quite often. Dinner would be followed by elaborate discussions about things which interested them.

The meal was an elaborately cooked south Indian meal. Soon afterwards they were sitting on comfortable sofas in the drawing room, sipping cocktails and juices.

“God, I am so full that I can’t even talk,” said Saranya, with a content look on her face.

Spectrum basics

“Ha-ha, I bet, let us get the grey cells working now. So what do we talk about today?” asked Raja.

“Well, I’ve seen and heard a lot about the spectrum allocation issue in the Indian telecom industry. Nothing makes sense. Will somebody explain to me what all the fuss is about?” asked Priya.

“Well,” started Raja rubbing his hands together, “India — which is seeing over 7 million mobile telephone subscribers being added every month — is one of the fastest growing stories in telecom. Every company worth its salt wants to get a slice of the action. Spectrum, the band of airwaves used for communication that is licensed, is scarce and its allocation to operators is based on subscriber numbers and satisfaction of the Department of Telecom’s (DoT’s) stiff service area rollout obligations. So when the Government decided to allocate more 2G and 3G spectrum, all hell broke loose.”

2G, 3G

“What’s the basic difference between 2G and 3G?” asked Vijay.

Saranya replied, “Unlike 2G spectrum which essentially relates to voice telephony, 3G systems support faster data communication, mobile Internet access, entertainment and triple play converged communications services. 3G has a markedly greater capacity and spectrum efficiency than 2G. The Government wants to treat the allocation of 2G and 3G in separate ways.”

“So why is the allocation being treated differently for 3G and 2G?” wondered Vijay again.

Raja spoke up, “Ideally they shouldn’t. The best way for optimum transparency would be to auction spectrum. But in the case of 2G services certain legalities come in the way for the Government. The existing operators have got spectrum in the past ‘free of cost’ and it may not be tenable under law to auction spectrum as it is discriminatory and capricious.

“In addition, the Government is under contractual obligation to give initial spectrum to those who got licence in December 2006. So the Government has decided to allot additional 2G spectrum for existing mobile operators with DoT prescribing an enhanced subscriber based allocation criteria which is rather tough and unrealistic.

“However new applicants can hope top get some piece of the radio waves in case the Government decides to continue with the existing ‘first come first served’ policy for allocating spectrum. DoT has earmarked 100 Mhz for 2G mobile services. Even with the existing efficiency of spectrum usage, operators can easily provide services to about 750 million subscribers. It will take about six years before 2G spectrum gets saturated.”

Not legally bound

“So what’s the story like for spectrum allocation for 3G services?” Priya asked.

Vijay burped. “I beg your pardon. Too much good food and too little exercise.”

“The Government is not bound by any legality like for 2G, so it can auction 3G services. However the tricky question that the Government has been dillydallying on is whether to constrain the eligibility of bidders to existing cellular and unified access licence providers alone. It is also wondering whether individual blocks of 5 MHz each of spectrums should be auctioned or more. It initially rejected the recommendations of TRAI.” Saranya continued, “This decision is important because it allows new entrants to start standalone 3G businesses, which would be impossible with 5 MHz. But soon the Government did a volte face and announced that 3G spectrum should be auctioned but bidding will be confined to existing cellular and unified access licence providers alone, in individual blocks of no more than 5 MHz each, in effect agreeing to the recommendations made by TRAI.

“Advent of 3G can now be expected by early 2009. This could substantially improve the consumer experience and hopefully, enhance further penetration in unconnected parts of India.”

Enhancing efficiency

“Well, it seems a remarkably complicated story with the involvement of multiple interested parties. What is the benefit to the customer?” asked Vijay

“To reduce costs to customers what is required is efficiency. One possible way to bring about spectral efficiency is to add more subscribers in a given band of spectrum using new emerging technology like ‘micro or Pico cellular networks’.

“The current method of spectrum allocation for wireless telecom is based on the criteria of subscriber base. A new hybrid model, where a combination of ‘comparative selection’ and auctioning should be used to bring about a ‘fair and transparent allocation policy’. Such a framework would ensure that all players ‘compete on a level-playing field’.

“Maybe comparative selection can be used for tier 1 service providers, where the criteria for selection could be rural coverage, quality of service and customer base.” drawled Priya.

GSM versus CDMA

Another thing I am not able to understand is the arguments of the GSM versus CDMA and the old players verus new players fight. “What is that about?” asked Vijay thoughtfully biting his lower lip.

“Everyone has his own point of view. The existing GSM players say they are fully utilising the ‘scarce’ resource to its full efficiency levels and needs to be given priority before issuing fresh licences. This means that the GSM players need to be given the first right of refusal before the ‘scarce’ commodity is offered to any new player. The new and prospective entrants accuse GSM players of holding excess spectrum without putting it to any use. CDMA players have blamed the GSM lobby of hoarding spectrum, thus depriving prospective and existing players from offering GSM mobile services.” said Saranya

“It would be premature to take a call on which warring camp’s argument holds true. With the growing need for telecom and communications services, the Indian consumer should not be bogged down with technicalities of the telecom industry. However, if the market economy has to be believed, increased competition brings in efficient services along with the best tariffs to the consumers.” Raja concluded.

“Anybody for some chocolate ice-cream?” asked Priya. All of them gave murmurs of assent. She brought big bowls of ice-cream. Raja looked at his small amount in the bowl in dismay.

“Leave alone complicated matters as spectrum allocation, even my share of the ice-cream has not been allocated properly.”

They all laughed heartily.

Racy@TheHindu.co.in

http://Racycases.blogspot.com

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