In an attempt to assess the spectrum requirement of operators per circle and to decide the pricing and allocation of 2G spectrum in order to optimise the spectral efficiency of the industry, the Telecom Regulatory Authority of India (TRAI) released its recommendations on “Spectrum Management and Licensing Framework”, in early May 2010.
TRAI’s recommendations are categorised under different heads, which deal with issues of spectrum requirement and availability, rollout obligations, assessment of demand based on the number of subscribers, the nature of telecommunication services in the next five years, and the overall growth trends of the industry. According to TRAI’s estimates, the number of subscribers is likely to be in excess of 1 billion by 2015.
The key recommendations made by TRAI are as follows:
Rollout obligations
According to the Unified Access Service Licence (UASL), operators are required to cover at least 10 per cent of the district headquarters with a telecom network in the first year of the effective date of the licence, and 50 per cent of the district headquarters within three years. In the metro cities, operators are required to provide street coverage of 90 per cent of the service area.
However, TRAI believes that the present rollout obligations are very lenient, besides being urban centric. The result is that even after 15 years of the introduction of mobile services in the country, the rural teledensity is below 25 per cent.
TRAI recommends a reduction of 0.5 per cent in the annual licence fee for service providers who cover 50 per cent of habitations with a population of 500 to 2,000. For operators who cover 100 per cent of such habitations (coverage of 90 per cent and above is to be treated as 100 per cent), a reduction of 2 per cent in the annual licence fee has been recommended.
Spectrum availability
TRAI expects a high requirement of spectrum over the next five years, given that the nature of telecom services is undergoing considerable change, from only voice communication to data and application usage. According to TRAI, with services like 3G, Wi-Max and even 4G kicking off in the next few years, fuelled by increasing availability of smartphones offering a wide array of applications, the requirement of spectrum in the next five years would be of the order of 500 MHz to 800 MHz including 275 MHz for voice services alone. However, the current availability of spectrum in the country is only 287 MHz to 450 MHz.
It is, therefore, important to provide additional spectrum for commercial telecom services. In this direction, the authority recommends that it should be entrusted with the task of carrying out a review of the present usage of spectrum available with government agencies, so as to identify the possible areas where spectrum can be refarmed, and to draw up a suitable schedule for doing so. The authority also recommends that a specific fund be created for spectrum refarming.
Spectrum assignment and pricing
According to TRAI, the amount of spectrum required for GSM is 6.2 MHz for most areas in the country, 8 MHz for districts having cities with a population of one million or more, and 10 MHz for the metro service areas of Delhi and Mumbai. For CDMA, not more than 5 MHz is required in the whole of the country except in the metro service areas of Delhi and Mumbai where 6.25 MHz of spectrum is required. However, keeping in mind the issue of a level playing field, both now and in the future, TRAI has recommended that the “prescribed limit” of spectrum, that is the amount of spectrum that can be assigned by the government to a licensee, would be 8 MHz/5 MHz (GSM/CDMA) all over India except in Delhi and Mumbai, where it would be 10 MHz/6.25 MHz. However, spectrum assigned beyond the contracted amount of 6.2/5 MHz (GSM/CDMA) will be paid for at the current price (3G auction price).
In terms of service providers holding excess spectrum beyond the committed limit (6.2 MHz) in some circles, the regulator recommends that operators need to pay a one-time fee. This should be paid at the current price for spectrum up to 8 MHz, beyond which it would be charged at 1.3 times the current price.
Further, TRAI has recommended that the subscriber-linked criterion be done away with while assigning spectrum.
Considering that the amount of 2G spectrum that is available after meeting the obligation of contracted spectrum is very limited, and that at any given time, the number of operators claiming additional spectrum would be extremely few (since they would be meeting the eligibility requirements at different times), TRAI believes that it is not feasible to subject the spectrum in the 800/900/1800 MHz bands to the auction process. As and when spectrum in the 800/900 MHz band is refarmed, the same would be put up for auction for 3G services or other technologies of the future.
Consolidation of spectrum
Considering the large number of service providers in each service area, and the position relating to the availability of spectrum, TRAI believes that measures to consolidate spectrum should be facilitated. These measures include mergers and acquisitions (M&As), spectrum sharing and spectrum trading. TRAI recommends that the three-year lock-in period after getting the licence need not be adhered to and mergers should be allowed, provided there are a minimum of six service providers post-merger. The market share of the resultant entity should not be more than 30 per cent of the total subscriber base and/or the adjusted gross revenue in a licensed services area. The distinction between wireline and wireless service is proposed to be removed and the entire access market is to be treated as relevant market.
Subsequent to the merger of licences, the total spectrum held by the resultant entity should not exceed 14.4 MHz/10 MHz (GSM/CDMA). Excess spectrum, if any, beyond these limits will have to be returned. While a fresh licence will be issued in the name of the resultant entity, the wireless operating licences will be issued separately for the two sets of spectrum, retaining the respective validity.
TRAI also recommends that spectrum sharing should be allowed between two service providers as long as each of them does not hold more than 4.4 MHz/2.5 MHz of spectrum (GSM/CDMA). Leasing of spectrum should not be permitted. According to the recommendations, operators sharing spectrum will have to share their entire spectrum; partial sharing of spectrum will not be permitted. Both the entities will have to pay the pro-rated current price of spectrum beyond 6.2 MHz/5 MHz (GSM/CDMA) in the ratio of spectrum held by them individually. Permission for spectrum sharing will be given for a maximum of five years and both the entities will pay the spectrum usage charges on the combined spectrum.
Licence fee structure
Currently, the licence fee is not uniform across licences and service areas. This differential licence fee gives rise to arbitrage opportunities that have been identified over the years. The authority recommends that there should be a uniform licence fee across all telecom licences and service areas.
Internet service providers (ISPs) hold a licence but pay a licence fee of only Re 1, except those offering internet telephony.
Also, in the case of tower companies, there is no separate law governing them, either on technical or on financial aspects, even though almost all the operators now have a stand-alone tower business. With about 260,000 towers, telecom tower companies that hold an IP-I licence have a turnover of nearly Rs 200 billion, and this is expected to register a growth of 15 per cent over the next few years. Tower companies are often the extended arms of telecom companies. Currently, infrastructure providers are not covered under any licence but hold registration. TRAI recommends bringing all IP-I licensees into the fold of the uniform licence fee regime.
TRAI’s overall recommendation in this space is to charge a licence fee from infrastructure providers as well as ISPs in a graded manner, beginning with 4 per cent in 2010-11 and reaching 6 per cent in 2012-13. Currently, access service providers are charged a licence fee of 10 per cent in the metros and Category A circles, 8 per cent in Category B circles and 6 per cent in Category C circles. This licence fee can be brought down gradually from the existing rates to a uniform rate of 6 per cent by 2013-14.
Finally, TRAI’s recommendations underline the need for strengthening the role of the regulator, so that it can ensure compliance with the licence conditions as well as effective management of spectrum. Simultaneously, the Wireless Planning and Coordination Wing of DoT also needs to be strengthened.
Shampa Bahadur
