‘There’s room for three new telcos’

With the unified licence concept – ‘one-nation, one licence’ –  stoking the imagination, hopes and fears of telecom players, air is rife with talk about possibilities of mergers and acquisitions (M&As), market consolidation and rise in tariffs. R Chandrashekhar, secretary of the department of telecoms (DoT), tells Beryl Menezes in this interview that he is upbeat that the upcoming 2G auctions will be fair and successful.

What is the current status on the NIAs (notices inviting applications) for the unified licences?
The NIAs will come out by September 28 and will be conducted in two stages. In the first stage, unified licences for access services alone will be given and working out the full details for the unified licences will take about three months’ time, after the completion of auctions.

As per the current bidding norms, do you envisage a scenario wherein spectrum for certain circles is overbid by incumbents, such that new players are unable to acquire the minimum requirement of  four blocks to win back their licences?
This depends on several factors – ideally we would like to allow for two new operators to come in, but as per the EGoM (empowered group of ministers), we have to ensure we have spectrum for refarming for licences coming up for renewal in 2014-15. Keeping this in mind, we have kept eight blocks of spectrum in all circles for auction and an additional three blocks for topping up, so that if there are two exiting players who take three blocks, then a new player can still get four blocks, as 11 blocks are available in all. But this all depends on the actual auction result. So we are trying to make this provision available for three extra blocks for topping up in all circles, except Delhi and Mumbai, where we have a problem of lack of sufficient spectrum. As far as Mumbai is concerned, there are already eight players, so there is a fair amount of competition, plus lack of spectrum availability – so only eight blocks will be available for auction in Mumbai. Similarly in Delhi, we do not have spectrum available for topping up at the moment.

In case of overbidding in these two circles, what would happen?
Only those who can be accommodated within those eight blocks will get it – others will not.

Does this mean a failed auction or severe consolidation in the sector?
You cannot argue in one breath that there may be a failed auction and in the same breath that there is not enough spectrum being made available. If you are saying that those players with money will get it and others will not – well that is the meaning of an auction, to determine the highest price. This is the explicit direction of the Supreme Court — we are not conducting an auction to get the lowest price, we are conducting one to get the market-determined optimal price. And, therefore, spectrum will go to the highest bidder.

But wasn’t this auction meant primarily to help the cancelled licence players win back their lost licences and spectrum?
Not necessarily. I think it was meant to give an opportunity to those who lost their licences to return. But if you look at those who lost their licences, in no circles, barring one, were there more than two players who had a significant number of customers. Out of all who lost their licences, there was only one circle in which there were more than two players who had more than 1 lakh customers. So they had the licences for four years and they had not paid much for the spectrum. So I do not think that it would be correct or necessary to ensure or guarantee that they will be allowed to come back. All those who did build their business in the four years have a decent opportunity of coming back.

What about the provision for foreign telcos to bid alone? Do you think it’s fair to the other players?
Like we did in the case of 3G and BWA, we are expecting to introduce a provision where we allow a foreign company to bid with 100% foreign equity and then designate a 74% or less foreign equity holding company to receive the spectrum and licence.

How much time will be given to them to join hands with an Indian partner? What if they can’t get a partner within that time?
They have a maximum of three months to find a partner. In the case of 3G and BWA, one of the companies was a 100% foreign equity company, it did not designate an eligible company for at least 18 months – so the period of allotment was reduced to that extent. So any delay beyond three months, could result in a reduction of period for when the spectrum is made available, if the delay is on account of the company. If it is not done within some reasonable period, then the option of withdrawing the spectrum may also be there. But we don’t envisage a situation where a company would bid in the auction, pay Rs14,000 crore and then not designate a company or not take the spectrum.

When are M&A norms on the price of licences for incumbents expected to be out?
These questions are pending before the Cabinet and the EGoM, and will be decided after the response to the Presidential Reference is out. We are hoping that this will be completed by October.

What are your views on consolidation in the sector?
There already exists a situation where the number of players is 5-8 in the different circles, 6-7 being the most common number. In this auction, there is room for two more players to come in – in fact there is room for three more players – two GSM and one CDMA, but whether we will get new players, or whether the existing players will take over the spectrum, remains to be seen. So I don’t think there is a problem in terms of number of players and adequate competition being there. As far as consolidation is concerned, that is something the market will decide and certainly we don’t rule out M&As and that those guidelines, including limits and caps of spectrum holding, are known to everyone and also have been released. So there is no way that the number of players in a circle can fall below five, also theoretically it can be four, but that is a very extraordinary situation.

Do you think there is a market case for new entrants? After Etisalat’s decision not to participate in the auction, will others follow suit?
There are people who lost their licences and want to come back; there are existing players who want more spectrum; and new entrants could be there who want to come in. Some have signalled their intent to leave the sector. Serious players remain committed and interested in the market. Right now, no other player has approached us asking to exit. Given the quantum of spectrum and serious players, we believe a fair and active auction will take place.

Will tariffs rise with consolidation?
Tariffs may rise – but no cartelisation or anti-competitive practices will be present. The regulator and the Competition Commission will do whatever is necessary to ensure no anti-competitive practices creep into the industry. Also, once there is sufficient competition, tariffs will come down again. However, we don’t expect any significant change in tariff levels.

Is refarming still on schedule to take place by 2014?
Refarming will happen as and when licences get renewed. Right after the 2G auction, 900 MHz auction will take place in the first half of 2013, mostly between January and March.