900 MHz total refarming blow awaits telcos

The Telecom Commission (TC), the apex decision-making body of the Department of Telecommunications (DoT), has decided to go with the Telecom Regulatory Authority of India’s recommendation that incumbent operators convert their entire 900 MHz spectrum to1800 MHz when they renew their licences in 2014, telecom secretary R Chandrashekhar, who is also the TC chairman, said on Wednesday.

The move is expected to affect only GSM (global system for mobile communications) players. Some of them said the decision rubs salt into the financial wounds inflicted by the huge payouts made earlier to the government for licences.

An empowered group of ministers (EGoM) headed by finance minister P Chidambaram will take the  final decision on Thursday. The EGoM is scheduled to discuss one-time spectrum fee for incumbents at Thursday’s meeting, besides options like allowing operators to retain 2.5 MHz or 5 MHz of airwaves in the 900 MHz band, or asking them to pay the 1800 MHz auction-determined price for the spectrum.

Chandrashekhar said existing operators will be allowed to bid in the auction of the 900 MHz band, which is likely to take place in the first half of 2013.

If they are successful, they can retain the spectrum. Else, they will be given 18 months to move to 1800 MHz. Spectrum equivalent to what they owned earlier will be offered to them in the new band.
GSM players have threatened litigation if the EgoM ratifies the TC decision.

Speaking on their behalf, Rajan Matthews, director-general of the Cellular Operators’ Association of India (COAI), said, “We believe the Telecom Commission acted the way it did because it didn’t want to be accused of giving away spectrum for free. But the recommendations distort the level-playing field as CDMA (code division multiple access) operators will not be impacted at all.”

At the time of announcing the new spectrum auctions, the government had approved in principle the concept of spectrum refarming. Established operators such as Bharti Airtel and Vodafone would have to surrender spectrum allocated in the 900 MHz band when their licences expire in 2014.

Bharti and Vodafone are expected to be hit the most since they hold more spectrum in the 900 MHz band, that too in A circles. They may have to surrender 46 MHz of spectrum in the 900 MHz band. The maximum impact would be seen in 2015 when 149.8 MHz of spectrum would have to be surrendered.

In contrast, neither Idea nor Reliance Communications need to worry about surrendering any of the 900 MHz spectrum in 2014. But come 2015, even Reliance may have to give up 39.8 MHz and Idea 45 MHz.

According to the auction recommendations, the base price for the 900 MHz band is to be charged at double the price of the 1800 MHz spectrum, which operators had won in 2001 at a price of Rs1,658 crore for pan-India 2G services.

If the proposed refarming goes ahead, it could take several years to rebuild the necessary infrastructure in the 900 MHz band, experts said. The band already has around 500 million subscribers.

Besides, with no benchmarks to go by – globally, this is the first time such a move is being recommended – the entire process could prove to be ten times more complicated than mobile number portability.

Tariffs could also soar by as much as 64 paise, and the change could necessitate replacement of  about 2,86,590 base stations with 171,954 new ones to provide equivalent coverage on 1800 MHz.

Such a process could entail incremental capital expenditure of Rs54,739 crore and incremental annual operating expenditure of Rs11,762 crore, according to a study by Analysys Mason, a telecom research firm. Coverage will be affected during the transition.

Matthews believes any move toward refarming of the 900 MHz band would affect incumbents’ participation in 2G auctions scheduled for November. For, they may want to reconsider re-bidding for 1800 MHz and also wait for the 700 MHz auction in 2014 which coincides with their licence renewal date.