The Indian telecom sector, hailed as one of the main pivots of India’s economic growth over the last 20 years, is at the threshold of a crucial phase in its trajectory. Needless to say, policies framed now will have profound impact on the sector as well as the long-term future of our country. Rational decisions that encourage competition are needed to enable equitable growth and not just that of a few operators. The impending decision by the Empowered Group of Ministers on the issue of excess spectrum held by operators and also the 2G auctions scheduled for early next year are rare opportunities presenting themselves to the government to correct market discrepancies that have arisen because of past policies. The nation can ill afford to miss them.
In order to provide a fair and level-playing field to all players, the government must at once refarm the 900 MHz spectrum while also imposing retrospective charges on excess spectrum held by operators to ensure fair cost allocation.
Constantly shifting benchmarks was the hallmark of the past policy of allocating additional spectrum to operators based on their subscriber base. It immensely benefited incumbent operators and acted as a major barrier to newer players. The norms for getting additional spectrum were made rigorous only gradually over the years. For instance, operators had to show only half a million subscribers in 2002 to get 8.0 MHz of GSM spectrum. By 2008, it had changed to between 2.1 and 5.3 million subscribers for getting the same quantum of spectrum.
Incumbent players have thus, in several cases, acquired far more spectrum than required for providing efficient services. Technology has made it possible for a limited measure of spectrum to service a larger subscriber base than earlier. The existent policy yet suffers from a lack of provision to review actual requirements of operators. What is worse is that this allocation of excess spectrum to incumbent service providers violates licence provisions and, strangely enough, has gone to them for free. This has resulted in discrimination against newer players since they have been deprived of their share of contracted and, in some cases, even startup spectrum for several years. The allocation is not only based on legally unsound justifications but it also displays the government’s failure in facilitating fair competition in the market.
Incumbent cellular operators enjoyed excess spectrum allocations without paying for it till April 2008. Since May 2008, the Department of Telecommunications (DoT) began allotting GSM spectrum beyond 6.2 MHz on the basis of an undertaking that the allocation was subject to payment of an additional one-time charge. However, despite this generosity, the government is yet to make the cellular operators pay the one-time charge for excess spectrum from the date of allocation.
CDMA players have been at the worst receiving end with operators being denied of even the mandated requirement of spectrum. The duplicity becomes explicit when one compares the respective benchmarks for GSM and CDMA players to acquire additional spectrum. In March 2006, for half a million subscribers a GSM operator could have 8 MHz of spectrum, but a CDMA operator had be content with 5 MHz, although the fees paid were the same. It implies that CDMA operators have been punished for being more efficient. No prizes for guessing who got hurt the most by all these dichotomies — the consumer.
Several official committees, judicial bodies and even the CAG have opined that the government should charge operators for the excess spectrum they hold. The Telecom Commission validated Trai’s recommendation in this regard on December 26, 2011, deciding that a one-time charge for spectrum already allotted beyond 6.2 MHz in GSM band will be charged from the date of allocation. Further, the Trai, in its recommendations on ‘Spectrum Management and Licensing Framework’, dated May 11, 2010, has mentioned that service providers having spectrum beyond the contracted amount of 6.2 MHz should pay spectrum charges for the remaining period of validity of their licence subject to a minimum of seven years. The comptroller and auditor general has also noted in the November 2010 report that service providers were allotted excess spectrum without any payment. The CAG has estimated the value of allocated excess spectrum to be
Rs 36,993 crore. It is also important to note that the TDSAT, in its ruling dated March 31, 2009, and the Delhi high court, in its judgment dated August 22, 2008, have already held that cellular operators do not have any vested right to spectrum beyond 6.2 MHz. Even the DoT, in its affidavits before TDSAT and the Delhi high court, has specifically affirmed that the entitlement for spectrum of GSM operators is only up to 6.2 MHz. The phenomenal loss to the national exchequer on account of free allocation of spectrum should be recovered. This can only be done by imposing one-time spectrum charges for spectrum beyond 6.2 MHz.
It is therefore imperative that the government should charge incumbent operators for the spectrum held retrospectively from the date of allocation. Further, the efficient 900 MHz spectrum hoarded by them should be refarmed and reallocated immediately. The fruits of the telecom revolution that have accrued with so much difficulty may well be lost if right policy decisions are not taken now. There is much that the government can do. By fostering competition and by providing a level-playing field to new players, it can ensure that consumers enjoy the benefit of market driven low tariffs.
Ganesh Prasad is partner with the law firm, Khaitan and Co