How long, this winding road?

How long, this winding road?
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First Published: Wed, Jan 16 2008. 10 12 PM IST

Updated: Wed, Jan 16 2008. 10 12 PM IST
The department of telecommunications (DoT) has historically been so obsessed with competitive processes for even the most unimportant purchases and licences that its former chief N. Vittal, often called it the department of tenders. Even today, the DoT-controlled Bharat Sanchar Nigam Ltd (BSNL) is handicapped because, unlike its private competitors, it must tender for all its equipment. For DoT, then, to abandon the competitive process and give lucrative mobile licences to several cellular companies at 2001 prices, as it did last week, is not just uncharacteristic but also undeserved generosity to commercial entities.
Last week’s mobile licences come with spectrum that virtually all regulators believe is too scarce and valuable to be allocated by administrative rules. That’s why in the European Union, where all other telecom licences are free, a transparent competitive process for spectrum is mandatory.
DoT’s decision to grant new mobile licences in several circles is the most questionable of the several controversial initiatives it has taken since the current minister took charge a few months ago. But its genesis may lie in the decision taken in his predecessor’s tenure to grant mobile licences without a competitive process in 2006 to companies such as Aircel, Idea and Vodafone (then Hutchison Essar). The companies paid the full 2001 price for licences obtained without getting spectrum. The decisions invited no publicity or protest from rivals, presumably since without spectrum, the companies posed little threat and would be invisible in the market. There were admittedly few applicants then, and the unorthodox decision to separate licences from spectrum was unique and would, in hindsight, appear rather shrewd.
These decisions were against the explicit recommendation of the Telecom Regulatory Authority of India (Trai) that future licences be auctioned, which was accepted by the government in 2003. Even if the rules, simplistically, envisage that spectrum be allocated on a first-come-first-served basis to existing players, to use the rule for newcomers and to determine this priority on the basis of which company executive sprinted faster to the payment window would be hilarious if payments involved paise, not crores of rupees.
Several companies which won their licences in auctions would have legitimate grounds to oppose the entry of rivals on vastly easier terms. But, since GSM firms Idea and Vodafone have now received two and six licences, respectively, without any competitive process, in addition to the 14 that Aircel has picked up, they can scarcely complain. The Mumbai licence alone, for which Idea has paid Rs203 crore, is perhaps worth several thousand crores. The C circles, which go for less than Rs10 crore each, have some of the most rapidly expanding markets.
Several members of the Cellular Operators Association of India (COAI), the GSM operators’ group, are thus beneficiaries of these arbitrary rules for mobile spectrum. So, COAI lacks credibility, even when it—rightly—opposes DoT’s patently non-transparent allocation of spectrum to CDMA player Reliance to cross over to its members’ business.
To disallow companies to cross over to a different technology during the course of their licence may be restrictive, but to prioritize them over others waiting for months for the scarce spectrum is indefensible. Last week’s decision means that newer licencees that actually receive spectrum might exhaust it before larger GSM companies qualify for it. That the decision stays unexplained takes away any remaining legitimacy.
The decision to issue mobile licences without an auction is a slap in the face of the many who have argued that, leave aside the new licences, even existing mobile operators must bid for additional spectrum, given the demand far exceeds supply. Current rules encourage waste, over-reporting of subscribers, irrational technology decisions based on rules and loss of revenue to the government. Trai accepts this, but contends that licences of existing players may come in the way of changing rules midway. It recommends auction for all mobile spectrum in future. So, to use discredited older rules for new licences smacks of irresponsibility.
Trai has complained that, contrary to DoT’s assertions in the Telecom Disputes Settlement and Redressal Tribunal (TDSAT), the latter has departed significantly from the regulator’s recommendations on allocation as well as pricing of spectrum. The law requires a second reference to the regulator in such cases. Trai would be well within its rights— indeed duty bound—to recommend that allocation of spectrum be stopped till a fresh review. Trai has powers to make suo motu recommendations, and the government is bound to respond. It is equally worrying that a matter of such importance and bitter dispute was adjourned by TDSAT in minutes without even a hearing. Trai and TDSAT may thus have unwittingly become a party to the most retrograde decision on spectrum management that the government may have taken to date. This, when the expanding role of wireless technologies has made efficient use of spectrum a strategic priority worldwide.
India is the world’s most crowded spectrum market with up to seven operators in each service area. While more competition may be even better, arbitrary licensing of new players without the hint of a clear policy defies logic. The obscure and brief press releases on DoT’s website are not just poor policy; they will distort the telecom market and deny the government thousands of crores in fees.
Mahesh Uppal is a regulatory affairs consultant. Comment at theirview@livemint.com
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First Published: Wed, Jan 16 2008. 10 12 PM IST
More Topics: Trai | Telecom policy | DoT | BSNL | Spectrum |