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Telcos relent on cross-holdings

Telcos relent on cross-holdings
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First Published: Wed, Aug 22 2007. 04 16 PM IST
Updated: Wed, Aug 22 2007. 04 16 PM IST
With barely a week left to go before the telecom regulator makes its recomme-ndations on new rules governing consolidation in the booming industry and allocation of wireless spectrum to mobile phone service firms, one of the most powerful industry bodies has softened its stance on cross-holdings among operators, but dug in its heels opposing frequency auctions.
The Cellular Operators’ Association of India, or COAI, representing nine firms running GSM-based cellular services including market leaders Bharti Airtel Ltd and Vodafone Essar Ltd, has in the past challenged the government in court over regulatory changes. In recent months, it has been vocal in its protests over proposed changes that are expected to relax a 10% ceiling on cross-holdings among telecom service firms and possibly auction spectrum to the highest bidder among cellular firms.
The 10% cross-holding limit among telecom operators has prevented cellular firms using the CDMA (short for code division multiple access, a US-developed telecom standard) technology platform, such as Reliance Communications Ltd (RCom) and Tata Teleservices Ltd, from launching or taking stakes in firms that use the competing GSM (global system for mobile communications) technology platform.
A change in the rule will allow these firms to either start their own GSM services or buy an existing player. (Reliance Telecom Ltd was in 2003 allo-wed to continue its GSM service in eight circles, or licen-sed areas, despite having a co-mmon parent in RCom, as part of a one-time rule-change)
COAI on Tuesday said it is not opposed to easing of or removing the restriction on cross-holdings but stuck to its “one service, one licence” stance. “We are not against CDMA operators, or anyone else, entering the GSM business,” said the association’s secretary general T.V. Ramachandran, in a change from an earlier position communicated to the Telecom Regulatory Authority of India (Trai) requesting it to maintain the 10% cap. “But we are against letting them roll out both CDMA and GSM services when they are holding only one licence.”
COAI’s new stance (if it finds an echo in Trai’s recommendations and the government’s rules) will help both CDMA operators as well as strategic investors in such firms invest into and control GSM companies. CDMA players are currently prevented from doing so because they are present in nearly all the licensed areas and cannot acquire more than 10% in any other operator in the same area. For example, Reliance Telecom was prevented from expanding beyond its eight circles due to the presence of RCom in the rest of the licensed areas.
Ramachandran said COAI is no longer opposed to the entry of players such as Reliance Te-lecom into new areas, as long as the firm plays by the rules applicable to GSM operators. “If a CDMA player wants to start GSM services, it can either buy out an existing operator or apply for a new licence under which it can (provide) GSM services, like everybody else,” he said.
Analysts see the move as a positive for the industry, including COAI members, as it improves the exit prospects of investors in smaller GSM firms and will potentially free up spectrum. “Even for large players, such a move would be welcome since it will increase availability of spectrum in the industry as a whole,” said Poonam Nishchal, telecom analyst, ICICI Securities Ltd. “Ultimately, a healthy market can be achieved with just four private players.”
Ramachandran, however, clarified that COAI will oppose—even if it meant approaching the courts—any move by the government to change the way spectrum is allocated from a subscriber-linked, queue-based system to one based on auctions.
“The allocation method, which presently consists of putting in an application when you qualify and waiting for the spectrum, is (too) well entrenched to be changed overnight,” Ramachandran said, pointing out that many GSM players have applied for spectrum several months ago.
A senior Trai official told Mint that the regulator would make its recommendations on both issues next week. “There are some last-minute hurdles that are being sorted out,” said the official, who did not wish to be named.
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First Published: Wed, Aug 22 2007. 04 16 PM IST