Telecom experts and associations analyse the reasons behind the flood of applications for licences, predict the possible outcomes, and almost uniformly emphasise the need to separate the wheat from the chaff…
S.C. Khanna, Secretary-General, AUSPI
It is understood from press reports that more than 300 applications have been received by DoT for new licences. We recommend that a thorough scrutiny of each application be carried out with respect to net worth and other eligibility criteria, so that non-serious operators are prevented from entering the telecom industry and spoiling the scene by hoarding the scarce spectrum without rolling out services.
T.V. Ramachandran, Director-General, COAI
First and foremost, the GSM industry is not opposed to competition; in fact, we thrive on it. All we want is fair competition and a level playing field.
In respect of the recent deluge of applications for mobile licences, it is important to note that there has been no cap on the number of players in mobile/ access services since 2003. The sector has also been growing at an exponential rate over the past three to four years.
Why the sudden rush for mobile licences? Some developments that have taken place in recent months need to be looked at more closely. First, some CDMA players have expressed interest in offering services on the GSM platform.Second, TRAI’s recent recommendations on review of the licence terms, etc. not only suggest crossover allocation/dual holding of spectrum under a single licence but also hike the subscriber linkages for spectrum allocation (anywhere from two to eight times). This, in one stroke, converts a very real scarcity of spectrum into a mirage of abundance, thus creating an opportunity for a host of speculative and vested interests.
TRAI’s recommendations on subscriber linkages are based, with all respect to the authority, on calculations and assumptions that are flawed. For example, the calculations have assumed 100 per cent loading of the network which is impossible. In real life, the loading factor is around 70 per cent, with a cushion of around 30 per cent for variation in traffic.
Coming back to the window created by the TRAI recommendations for new entrants, a glance at the recent applications for telecom licences shows that there are very few serious telecom players who have applied for licences. This interest from non-telcos could be financially speculative in nature, and possibly stems from the impression of abundant spectrum availability created by the incorrect TRAI recommendations. It is also driven by the prospect of spectrum hoarding and subsequent sale at profit to foreign telcos and/or Indian operators, the prospect of keeping all spectrum under M&A (as recommended by TRAI) and the 74 per cent FDI cap which allows licence holders to shop for foreign strategic investors.
It is also likely that the existing Indian players are applying under veiled identities in violation of existing cross-holding restrictions under their licences.
It is therefore imperative that all licence applications be scrutinised to ensure strict enforcement of cross-holding restrictions as provided under licence conditions. Strict conditions may also be applied to ensure entry of only serious and committed telecom players. These could include conditions like prior telecom experience, mandatory lock-in period, etc.
Also, while competition is welcome, adequate and optimal spectrum should first be made available/given to the existing licensees/operators.
Finally, equity and fair treatment demand that GSM operators should be given the same opportunity and treatment that was extended to the fixed operators in 2003 when they were allowed to migrate to a UAS licence with assured spectrum, and further given a one-time waiver on the cross-holding restrictions under licence.Thus, licence applications of GSM operators desirous of a pan-Indian footprint, pending as of December 2006 (when licences were last issued), must be placed on a different footing vis-? -vis other applicants and accorded top priority for issue of licences and initial spectrum on the same terms and conditions as extended to the December licensees.
Rekha Jain, Professor, Computers and Information Systems Group, IIM Ahmedabad
With the recent flood of applications, the operators are going to get worried. But I do understand the existing operators’ point of view. The government has not been able to come up with clear licensing terms for the quantum of spectrum as it has for geographic areas. Unfortunately, no fixed amount of spectrum has been put with the licence; the quantum of spectrum is subscriber linked. The government should define the quantity of spectrum for the operator, whether it is 12 MHz or 15 MHz, in line with international practice.In that scenario, fresh spectrum can be contested for in reasonably large chunks.Existing operators also have to realise that any new band of spectrum is new property.Moreover, if the operators want to bid high in the auction, it is their problem.However, the high bid amounts can be put in an escrow account, and as and when the operator rolls out the network, some percentage of the bid can be returned. Spectrum trading should also be introduced.
Finally, different kinds of aggregation should be introduced instead of the current method of bidding on the basis of circles. For instance, if operators intend to opt for a pan-Indian presence, then they should be able to bid on a nationwide basis. Similarly, an operator should be able to bid for the entire eastern or western region.
Saurabh Kaushal, Industry Manager, ICT Practice, Frost & Sullivan
The entry of new players in the telecom sector will increase competition. Many Indian companies will tie up with international players because the latter will provide global expertise and funds. For instance, a player like AT&T will bring with it global best practices. As far as spectrum is concerned, the government is still going ahead with allocation on a first come, first serve basis. Players like Aircel, Spice Telecom and Idea Cellular are likely to get spectrum first.
Moreover, I believe that in the current scenario, there is room for one or two more players in the field. Spectrum can be allocated to the newcomers as and when the defence ministry vacates it.These players will enter the market with new services, better tariffs, etc. in order to gain subscribers. The market dynamics are definitely going to change. It is a win-win situation for the consumer.
Romal Shetty, Director, Risk Advisory Services, KPMG
There are two or three main reasons for this mad rush for telecom licences. First, this represents an opportunity for companies with high net worth, such as real estate companies, to diversify their risk into different sectors. These companies are primarily looking for a joint venture with an international player. This is because without expertise in telecom, it will not be easy to take on players who are already entrenched in the business.Second, companies could also be entering the telecom fray purely for speculative purposes. They could just be aiming to get the spectrum that is bundled with the licence in order to trade it later.
Given the current status, this would result in about 12 players in each circle. Clearly, there is not enough space for so many players. I feel that most companies would be entering the telecom arena purely to make a quick buck with spectrum trading, and would not be serious about continuing in the business.
This rush would result in greater competition for the existing players.With the entry of new players, tariffs will get reduced further as the new players will have to adopt price-cutting strategies to gain subscribers.
The new players may also gain subscribers by coming up with innovative offers. For instance, in the US, AT&T is linked with the iphone. If it were to follow the same strategy and bundle a connection with an iphone, it would succeed in gaining subscribers as no operator would be able to offer the same service.
Net net, even though margins will be hurt in the short run with the entry of new players, in the long run, the market trends will depend primarily on the ability of new players to sustain their business models. But in the end, only when the government firms up the policies will it be clear how this issue pans out.
Prashant Singhal, Telecom Industry Leader, Ernst & Young
The scuttle by companies for the countrywide 23 service area telecom licences is a real-time pointer to the excitement and opportunities intrinsic to the telecom sector. As the licence for unified access services would allow provsion of an entire range of wireless and wireline voice and data services and a triple play of various services like IPTV, Wi-Max, broadband and all other services relating to the signal, the process is competitive.
The government has introduced a bidding process that is a throwback to the late 1990s and is bound to rake in more revenues for it. The surge in applicants makes it critical for DoT to devise a transparent methodology to grant licences, ensuring that non-telcos wishing to make a quick buck through arbitrage of spectrum are weeded out.
The licence sweepstakes highlight, yet again, that there is scope for further competition in the sector, and that the benefits would accrue to the subscribers in terms of choice of operators and tariffs. In any case, the industry looks set for a major overhaul.
Mahesh Uppal, Director, ComFirst
It is still too early to predict the outcome of the recent interest in the telecom sector. This flood of over 300 applications can be attributed primarily to the TRAI recommendations. These recommendations appear reasonable if taken individually, but when put together, give rise to speculation. TRAI has recommended that competition should be allowed in the sector and there should be no cap on the number of licensees.
Moreover, according to TRAI, the operators are not utilising spectrum efficiently and should have no claim to additional spectrum until they attain twice the number of existing subscribers.TRAI has also proposed an amendment to the existing M&A guidelines.
Given all these recommendations, even companies that do not have a clue about telecom have queued up for licences. The key ingredient here is spectrum, which can be equated to real estate in the telecom business.
Spectrum, a critical resource for the sector, is highly undervalued in India. A telecom licence, bundled with 2G spectrum, represents a wealth of opportunity for the new licensees, and is akin to getting a Mercedes for the price of a Maruti.
This explains the recent flood of applications. Once the licences are issued, the new licensees will have the option of either reselling the spectrum allotted to them or riding the telecom wave given the hefty returns generated in the sector. However, it remains to be seen whether the government finally accepts these recommendations. The outcome will depend to a large extent on the licensing norms that are to be decided by the government.
While the existing service providers are not likely to be affected immediately, they are understandably nervous given that there will be a major spectrum crunch in the long run. In fact, according to news reports, some telecom companies may have routed their applications through their holding companies.
