The storm over Telecom Regulatory Authority of India’s (TRAI) recently released recommendations on “Spectrum Management and Licensing Framework for 2G Spectrum” simply refuses to die down. Most operators, especially GSM players, have objected to the recommendations, which require the operators holding excess 2G spectrum (beyond the committed 6.2 MHz per circle) to pay a one-time fee based on the current 3G spectrum prices.

Fearing a heavy financial outgo, operators like Bharti Airtel, Vodafone Essar and Idea Cellular, whose balance sheets are already stretched with huge funds committed towards 3G spectrum, are not mincing words to express their disappointment.

Bharti Airtel has termed the TRAI recommendations as shocking, arbitrary and retrograde. “It is designed to punish efficient and performing operators like us for contributing to the growth of the Indian telecom sector,” a company statement read.

Vodafone Plc, the holding company of Vodafone Essar, has expressed its dissatisfaction on account of the escalating spectrum costs and fierce competition. Vodafone Essar, in a letter to the Department of Telecommunications (DoT), has asked it to reject the TRAI recommendations on spectrum management, and has termed them as retrograde and perverse. “If accepted, the recommendations will lead to many investors rethinking their business plans and prospective investments in the Indian telecom industry. Besides, application of super 3G prices will make the 2G business case unworkable,” noted the company release.

However, the minister for communications, A. Raja, believes that 2G should not be equated with 3G. According to him, as 3G is three times more efficient than 2G, parity in their prices does not apply. 2G spectrum prices should be accordingly discounted. Telecom operators are hoping that the minister’s views will prevail, which would mean that operators would pay a third of what they would have to pay together according to TRAI’s recommendations.

However, not all service providers agree with the GSM operators. The Association of Unified Telecom Service Providers of India (AUSPI) finds the TRAI recommendations progressive and balanced, and believe that they will promote efficient usage of spectrum. In a letter to DoT, S.C. Khanna, secretary general, AUSPI, noted, “No operator, association or its members have got all that they have demanded from TRAI. Incumbent GSM operators have been receiving additional spectrum without paying any charges. TRAI has recognised this and has come up with a formula to make them pay for this largesse. It is regrettable that incumbent GSM operators have attacked TRAI viciously, arrogantly and publicly for its recommendations that were issued after a transparent consultation process of more than six months.”

TRAI’s recommendations have been silent about dual-technology operators. Tata Teleservices Limited (TTSL) waited for more than a year to receive the spectrum committed to it and has now been pushed behind the new operators in the spectrum priority list. AUSPI has pointed out that TTSL, despite facing these problems, did not pressure the regulator.

Reliance Communications (RCOM) and Etisalat DB also agree with AUSPI, and have hailed the TRAI recommendations, saying that they will provide a level playing field.

Meanwhile, TRAI chairman J.S. Sarma has affirmed that the authority will maintain its stance on the issue and that the recommendations were made in view of the spectrum scarcity. He said that efforts would be made by DoT to re-farm 800 MHz and 900 MHz of spectrum, which can then be made available to all operators.

TRAI hopes to complete the consultation process for linking 3G and 2G spectrum prices by mid-July 2010, and expects the government to wait for the proposals before taking a decision.

The regulator does not see any reason for anxiety among operators as the total one-time fee for excess spectrum will not exceed Rs 120 billion. According to TRAI, Bharti Airtel, which holds the maximum excess frequency, will have to pay Rs 34.9 billion, followed by Bharat Sanchar Nigam Limited (Rs 30.4 billion), Vodafone Essar (Rs 28.4 billion) and Mahanagar Telephone Nigam Limited (Rs 26.6 billion).

However, operators are likely to face another financial impact at the time of licence renewal, beginning 2014. The licences of 11 telecom companies will expire between 2014 and 2021. And if the government accepts TRAI’s proposal of linking 2G and 3G airwaves linked to 3G spectrum prices, operators may have to fork out Rs 1,030 billion to the government for licence renewal. These numbers are much more than the Rs 16.5 billion that operators paid for a pan-Indian licence, or double of what RCOM and TTSL paid for a dual-technology licence.

On the other hand, TRAI’s recommendation for an uniform licence fee (6 per cent of the aggregate gross revenue) may help operators save more than Rs 480 billion over 20 years. According to TRAI, the industry should save at least Rs 24 billion per annum even if its net revenue remains static at the current Rs 1,200 billion.

As things stand, the face-off between the regulator and the operators is likely to continue. Consultations with the stakeholders and DoT are very much on the cards.
Shampa Bahadur