TRAI’s 2007 move to lift the cap on the no. of players seeking licences, ended in a deluge of applications.
October 2007: Riding on the strength and success of the Indian mobile telephony sector, which is currently adding more than 8 million subscribers a month, the telecom services market promises hefty returns to Indian as well as global investors. It is not surprising, therefore, that companies of all hues are making a beeline to join the telecom troupe.
However, what unfolded last month was nothing short of chaos. The extraordinary flurry of companies rushing in their entries for a unified access service licence (UASL) before the October 1 deadline set by the Minister for IT and Communication A. Raja was staggering to say the very least. The rush was even more pronounced in the last week of closing, when Raja made a surprise announcement of a closing date.
Companies from all verticals that could ready their applications within the week decided to throw their hats into the telecom ring. They included a motley mix of companies: AT&T, Bycell, Tulip, Meta Telecom, Prithvi Information Solutions, white goods major Videocon Industries, CD maker Moser Baer, Sterlite Industries, Ispat Industries, Balasore Alloys, Guntur Mines and HTMT. Interestingly, there was even a clutch of the country’s top realty developers – Parsvnath, Unitech, IndiaBulls Real Estate, BPTP, Aunita Properties, DLF and Omaxe.
At close, 300-odd licence applications had come in from 30 companies according to the minister (our calculations suggest the figure could be well above 500 applications from 45-46 companies).
The official explanation for the licence rush was the flood of opportunity presented to investors by the country’s rapidly growing telecom market. However, getting a UASL from the deluge of applications is equivalent to winning a lottery.
As a leading business daily pointed out, what should have been a serious bid to enter India’s mobile telephony market, with the biggest and the best in the world participating, was more of a garage sale where all that mattered was who comes in first.
Ever since the Telecom Regulatory Authority of India (TRAI) recommended lifting the cap on the number of players in a circle, companies had started queuing up for a slice of the action. This turned into a melee once Raja announced a closing date.
Analysts say that this was the start to the mess (see accompanying box. Without a formal announcement inviting applications within a specified time-frame, Raja’s announcing a closing date didn’t make sense. It also did not make sense that without any revised licensing policy or a policy on spectrum allocation, applications were accepted and even encouraged. For many it was like revisiting the “licence raj” days.
To contend with this highly irregular situation, the ministry set up a committee to work out the spectrum allotment criteria for both existing and new players. According to the existing guidelines, a licence allocated to a particular circle comes bundled with 2G spectrum on a first come, first served basis.
Analysts, therefore, do not rule out hoarding of spectrum as one of the key reasons for the rush to obtain licences. A countrywide UASL costs a little over Rs 15 billion. It comes with 2G spectrum, 4.4 MHz in the case of GSM players and 2.5 MHz in the case of CDMA operators. Therefore, given the current spectrum scarcity, a licence along with initial spectrum would definitely be worth multiples of the licence fee.
Had TRAI recommended auctioning of spectrum, the applicants would have been more circumspect. But since there were no allocation parameters, it became an open game for one and all.
There is also the risk that some applicants may be serving as proxies or fronts for existing players, as was suspected in the case of Essar and Shippingstop.com or Reliance Communications and Cheetah. For the Department of Telecommunications (DoT), this has made its job more difficult than just allocating spectrum. It will now have to sift the serious from the non-serious players, in a fair and transparent manner. In other words, it will have to discern whether a Moser Baer or a DLF would be a long-haul telecom player as against a Balasore Alloys or Guntur Mines.
The task is unenviable given the diverse range of companies in the fray and their sheer number. World over, this number of applications is rare. Very few non-core telecom companies offer such services. “They occasionally come in through MVNOs. For example, if you look at world players such as AT&T, BT, Sprint or Verizon, they are all hard-core telecom operators. In India, it has been somewhat different. Big players like the Tatas, the Birlas and Reliance are multi-sector players,” says telecom analyst Mahesh Uppal. “Of course, one could argue that a real estate or transport company may not have any real interest in the telecom business per se. But if it had to wrangle say a broadband deal from Bharti or Reliance for its township at the best rate, it may prefer to be the provider itself so as to capitalise on the flexibility and clout that comes with it.”
A senior official at Shyam Telelink also makes a case for competition. “Why hinder competition? Today, any vendor can put up a network and there is enough demand to make the operations worthwhile. It is entirely up to the entrepreneur or the business house to make a success of the venture. Also, why limit the competition in specific services like IPTV, broadband or long distance, which may come as a fallout of this rush for licences?” he asks.
At the moment, the DoT committee is still to announce its decisions. It is rumoured that the committee is considering “doing away” with the first come, first served clause, and that it may delink the granting of licences from spectrum allocation. Further, DoT is likely to recommend that the new norms be extended to the pending applications of existing operators like Vodafone Essar, Reliance, Idea and Spice. Further, DoT may grant no more than 90 licences in all – three to four per circle. However, this is mostly speculation.
Meanwhile, companies like Vodafone, Idea, Spice and Reliance (for its GSM ambitions), which had applied for 2G spectrum in many circles over a year ago, have asked DoT to treat their pending applications for mobile licences “on a different footing” from the new applicants. They have pointed out to DoT, through their industry association, COAI, that in the past too they have been discriminated against when the UASL policy was announced in 2003.
Further ruffling the feathers of the existing GSM and CDMA players, who are already squabbling over the allocation of spectrum, DoT has gone ahead and allocated up to 10 MHz of additional spectrum to state-owned Bharat Sanchar Nigam Limited for its GSM services in over 16 circles. This is while the private operators have been waiting for spectrum since December 2006.
Net net, while the intention may have been to drive up telecom growth by increasing competition, all that seems to have been achieved is chaos, confusion and controversy.
By Shampa Bahadur and Rasika Chandihok