Telcos seeking to expand their footprint in India, the world’s fastest-growing mobile telephony market, will be severely tested by the paucity of wireless spectrum even after the country’s military vacates some part of this, unless the government changes its allocation rules.
The companies affected include Reliance Telecom Ltd, a telco that’s part of the Anil D Ambani Group that offers services on the GSM technology platform (its associate Reliance Communications offers services on the rival CDMA platform), Spice Telecom Ltd and Idea Cellular Ltd.
Anil Ambani’s Reliance Communications is the country’s second-largest cellular firm but he now wants to expand his GSM business.
A spectrum is essentially a range of frequencies; telcos need to be allocated a certain ‘volume’ (or bandwidth) of a specific frequency to start offering their services. Although the military, which was occupying large areas of the spectrum, will free up parts of it by July, companies waiting to start their cellular services will find the going tough and slow.
That’s because the government hasn’t acted on any of the applications by the telcos, some dating back to the middle of 2006; some telcos and analysts question the government’s formula for allocating spectrum—on the basis of a subscriber-linked formula that favours incumbent telcos and not new entrants; and large telcos with a pan-Indian presence such as Bharti Airtel Ltd and Hutchison Essar Ltd want more spectrum as they grow their subscriber base.
The GSM industry, which accounts for seven out every 10 mobile phone users in the country, is itself divided on the best way to split the spectrum—20MHz—that the Indian Army will vacate. The current allocation of spectrum to GSM firms is 37.5MHz. Applicants with pan-India networks claim they have the first right over the spectrum under the government’s subscriber-linked allocation formula, but regional operators such as Spice Telecom Ltd and Idea Cellular Ltd are worried their expansion plans may remain on paper if the department of telecommunications (DoT) sticks strictly to the formula.
“There should be no doubt about the priorities for spectrum distribution,” says T.V. Ramachandran, secretary general of the GSM industry lobby Cellular Operators’ Association of India (COAI).
He suggests that the needs of regional operators, who want to acquire new licences and spectrum in new ‘circles’, should be met after enough spectrum is allocated to firms which already have services there. Circles, mostly analogous to states or large metropolises, refer to areas where companies have licences to provide services.
COAI suggests that of the 20MHz additional spectrum the DoT will have to parcel among cellular operators, existing GSM operators be allocated the spectrum under the subscriber-linked allocation formula. In number terms, that will work out approximately to an additional 2MHz spectrum for every five lakh increase in customer base depending on the circle. The remaining spectrum should be shared between regional telcos wishing to go national and new entrants, Ramachandran says.
However, the suggestion is likely to throw a spanner into the works of operators such Spice Telecom, Reliance Telecom and Idea Cellular, all of whom are waiting to hear from the government on their applications to start operations in new circles. While Spice wants licences and spectrum in 20 out of the 22 telecom circles India is divided into, Idea is keen to take its coverage from 13 circles to 22.
The government has so far issued licences only to the third regional operator Chennai-based Aircel Cellular Ltd, which had applied before the other two telcos. In December last year, the company received licences for 14 circles, nearly a year after it put in an application. Idea received licences only for Bihar and Mumbai in December.
ACROSS THE BAND (Graphic)
Spice Telecom is yet to hear from DoT, a senior executive of the company says, asking he not be identified since his firm has filed for an initial public offering.
A spokesperson for the Anil Ambani group says Reliance Telecom had applied for spectrum in mid-2006. However, the company faces legal challenges. Current laws prevent it from expanding its GSM operations through Reliance Telecom in circles where affiliate Reliance Communications is present. The laws also prevent a telco using the CDMA platform from applying for GSM spectrum. DoT has asked the country’s telecom regulator to review both these rules.
Although 20MHz can accommodate four new operators in each circle, under the government’s spectrum allocation policy, most of the new radio-waves will have to be parcelled out among the existing operators. For example, in Mumbai, which has the highest amount of radio spectrum handed out to GSM operators at a total of 37.2MHz, the biggest operator, Hutchison Essar Ltd holds just 10MHz despite being eligible for another 5MHz going by its 2.6 million customer base.
In the fiercely competitive cellular industry, a less-than-national coverage is considered a serious handicap to increasing revenues while controlling costs. “If the government chooses to give out spectrum according to the subscriber and traffic linked criteria, under the current situation, there will not much spectrum left for us,” says a senior official with one of the regional GSM companies awaiting a licence.
Mahesh Uppal a Delhi-based consultant to regulatory bodies says the government is not legally obliged to give additional spectrum to operators who already have 10 MHz. “The license conditions say that a maximum of 10 MHz will be given, but further allocation can be done based on guidelines issued from time to time,” he adds. Uppal is critical of the government’s policy of linking the cost of spectrum to the operators’ revenues, which has led to inefficient use of the resource.
R.N.Agarwal, a former wireless advisor to the government, too points to a need to be flexible about allocation policies. “There should also be an incentive to use the same spectrum more efficiently and for this, the option of changing guidelines is always there.”