Spectrum bomb hits Bharti, Vodafone, Idea

In a decision that can potentially devastate Bharti Airtel, Vodafone and Idea Cellular financially, the Telecom Regulatory Authority of India (Trai) has recommended that 2G operators hoarding excess spectrum will have to pay market rates for it.

Excess means above 6.2 MHz, with charges being one time 3G auction price for excess spectrum up to 8 MHz, and 1.3 times for that above 8 MHz.

Bharti and Vodafone hold more than 10 MHz in many circles, including Mumbai and New Delhi; Idea far less so.

And market rates would mean the price for 3G spectrum as discovered at the ongoing auction, J S Sarma, chairman of Trai, said on Tuesday.

Bharti, Vodafone, Idea and others which hold excess spectrum issued to them earlier will face a hit of about Rs 10,000 crore if the recommendations are accepted, exulted Syed Safawi, CEO of wireless business, Reliance Communications, in a quickly called conference call late on Tuesday evening. “The recommendations are pro-spectrum efficiency, pro-consumer and forward-looking,” he said.

Tata Teleservices said the recommendations will adversely affect it.

Bharti, which is spending $10.7 billion to buy South African operater Zain, and is expected to spend thousands of crores for 3G spectrum, hadn’t commented by late evening, nor had Vodafone and Idea.

The Department of Telecom has to accept the recommendations of Trai for it to become policy.

The Anil Ambani firm is unhurt by the recommendation since it holds a little excess only in Bihar.

“It’ll cost us just Rs 20 crore at today’s 3G auction price,” Safawi said.

CDMA, the technology that’s mostly used by RCom, is considered to be very spectrum efficient, though the company also has a GSM service.

How does Trai plan to avoid potential lawsuits over this?
Sarma said spectrum allotment of only up to 6.2 MHz and 5 MHz was “contractual” and any thing beyond will have to be paid for.
Since spectrum is a scarce natural resource, there has been a long-standing demand from one section of the telecom operators that those hoarding excess be made to pay market prices for it.

Interestingly, and controversially, the Trai recommendations have ruled out 2G spectrum auction, despite communications minister
A Raja being under fire for offering start-up 2G spectrum linked to pan-India 2G licence to telcos at a throwaway price of Rs 1,651 crore.

According to estimates, the UPA government lost around Rs 60,000 crore for choosing the archaic first come first serve format for giving 2G spectrum, rather than opting for the auction route.
While turning down the idea of 2G spectrum auction, Trai has said “it is not feasible to subject the spectrum in 800/900/1800 MHz bands to the  auction process”.

The regulator has added that when spectrum in 800/900 MHz band is refarmed, the same should be put to auction for 3G services or other future technologies.

The regulator has also done away with the existing subscriber-linked spectrum allocation criteria. While admitting that auction would have been an ideal route, Trai has said that the amount of spectrum is very limited.

Trai has  linked assignment of additional spectrum with the fulfillment of rollout obligations.

Also, if DoT had earlier stopped entertaining fresh 2G applications from telcos after Raja came under fire for allocating spectrum to a string of operators at a very cheap price, Trai has now put an official seal on restricting players.

Trai has said that the only access services licence that can be given is the UAS (unified access service) licence that is bundled with spectrum.

“The authority recommends That spectrum should be delinked from the licences to be issued in future”. According to the regulator, there need not be any cap on the number of operators if spectrum is delinked from the licence.

As for priority for spectrum allocation, the authority is of the view that adequate spectrum should be given to existing operators to enable them to perform their operations efficiently.

Last in the queue would be those telcos (Uninor and some of the other relatively new players) who are waiting to receive the initial startup spectrum.

Trai has changed its stand on mergers & acquisitions and consolidation, too. It has  recommended that M&As be allowed subject to there being six players post-merger in any service area.
Also, the market share of the resultant entity should not be more than 30% of the total subscriber base and/or the AGR in a licensed service area.

The regulator has also proposed to remove the distinction between the wireline and the wireless service and the total should be treated as the relevant market.

While disallowing spectrum trading, Trai has favoured spectrum sharing.

Spectrum audit of telcos, by Trai itself, is another reform that the regulator has proposed.

According to Sarma, the central message in the recommendation is “proper valuation of spectrum and its efficient utilisation”.

The focus is also on refarming spectrum. This could yield up to 300 MHz of spectrum and Rs 3 lakh crore of revenue.

Sandeep Ladda, executive director at PricewaterhouseCoopers said the recommendation was a welcome move and a win-win proposition not only for the operators but also for the government.

“This move will effectuate efficient utilisation of the spectrum. The sky-rocketing biddings for 3G spectrum, increasing number of operators and the about 20-million customers being added every month, has put immense pressure on the operators to remain profitable,” he said.

But this recommendation may not be the ultimate Bible for spectrum allocation and related licensing issues. Trai is planning to initiate another study to assess whether the 3G-benchmarked pricing is the right way forward.