RCom wins licence, in line for spectrum

RCom wins licence, in line for spectrum

New Delhi: Reliance Communications Ltd, or RCom, India’s second ranked wireless operator by customers, has received a licence from the government to offer mobile phone services on the so-called GSM technology, and is a step away from consolidating its presence in a market segment that is growing the fastest in the world.

Networks that run on GSM, a wireless technology platform, count three among four wireless customers in a country of more than 206 million subscribers. The GSM subscriber base is expanding at nearly 4% every month, a growth driven by affordability and increasing spread of the phone network.

More than 87% of RCom customers are serviced on networks running on rival CDMA technology. CDMA stands for code division multiple access.

Reliance Telecom Ltd, a unit of RCom, runs a relatively-small GSM-based operation—with some 4.34 million customers—in eight of India’s poorest states. Leading GSM operator Bharti Airtel Ltd, in comparison, has 48.8 million GSM customers.

RCom, which paid Rs1,651 crore to the department of telecommunications (DoT) as entry fee for the licence on Friday morning, has also applied to the wireless planning and coordination unit of the government for spectrum. The application “puts us in the same league as few others who have the licence and are awaiting spectrum", an RCom spokesperson said.

It was not immediately clear when the firm, chaired by billionaire-businessman Anil Ambani, would receive such spectrum rights, but if the spokesperson’s interpretation is correct, RCom has only Idea Cellular Ltd, Maxis Aircel Ltd and Vodafone Essar Ltd ahead of it in 15 of India’s 22 licensed areas or telecom circles. This could not be independently verified by Mint; calls to DoT secretary D.S. Mathur and other senior department executives went unanswered. More than 30 firms are in the queue for licences and spectrum.

India currently follows a first-come-first-served practice of allocating spectrum among phone firms. In recommendations made in August, one of the options for spectrum allocation the telecom regulator had suggested was auctions, which would determine market prices for the resource. On Friday, DoT did not detail whether it would continue with its current practice or shift to an auction method.

Other CDMA-based phone firms such as Tata Teleservices Ltd, HFCL Ltd and Shyam Telelink Ltd can now also set up GSM networks, too. In theory, GSM firms can set up CDMA-based networks.

In what could be another setback to GSM operators, DoT accepted a recommendation of the Telecom Regulatory Authority of India, or Trai. The department “has set up a committee in Telecom Engineering Centre, or TEC, (a standards-setting body in DoT) to further study and give a report to the government", said DoT.

In August, Trai doubled the required number of subscribers for a GSM operator to be eligible for getting more than 10MHz of spectrum from one million in the metros to two million, and in rural areas, or C circles, from 900,000 to four million.

It is not clear yet what the TEC committee will finally recommend, but a senior DoT official said last week there was ample room for “tightening spectrum being used by cellular firms since there were plenty of areas where frequency was not utilized to the maximum". This official had requested anonymity.

If the subscriber-linked criteria is tightened, large GSM-based phone firms Bharti Airtel, Vodafone Essar and Idea Cellular could be deprived of frequency rights to expand. A consequence of having to make do with limited spectrum is that they will have to increase the number of towers to cover the same area, thereby driving up their capital costs.

Terming the DoT move illegal, Cellular Operators Association of India, a trade body representing GSM phone firms, said it would challenge it.

The DoT decision will impact existing operators severely, a telecom analyst said. “Private GSM companies will be hurt," said Arun Kejriwal, director at research firm KRIS, some of whose clients own telecom stocks. “Spectrum is already in short supply and its cost will now rise. Since the government has raised user-linked norms for spectrum allocations, it may give this spectrum to new entrants, which will fuel more competition."

Further, since the government has not ruled out whether or not it will use the method of auctions to allocate spectrum among different users, said Mahesh Uppal, an independent regulatory expert, such a prospect has “been left as a sword hanging over operators’ shoulders".

On Friday, DoT also set a spectrum enhancement charge, in addition to annual spectrum charges levied as a percentage of revenues on the operators. This new charge will be collected at the time of allocating additional spectrum beyond 10MHz for GSM and 5MHz for CDMA operators. Spectrum enhancement charge will be “fixed at Rs16 crore for the metro cities and Rs8 crore for category B cities", DoT said.

Shares of RCom rose 2.2% to Rs727.15 on the Bombay Stock Exchange. Its benchmark index, Sensex, fell 2.4%. Bharti Airtel’s shares dropped 4.99% to Rs968.45 and those of Idea Cellular fell 1.1% to Rs144.40.

Shailendra Bhatnagar of Bloomberg contributed to this story.