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2G Divide - Controversy over excess spectrum continues

July 15, 2010
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Minister of communications A. Raja's last-ditch attempt to find a compromise solution to the 2G impasse has come to naught with leading mobile operators maintaining their aggressive stance against the Telecom Regulatory Authority of India's (TRAI) recommendations on 2G spectrum and licensing issues. Bharti Airtel, Vodafone Essar and Idea Cellular continue to oppose the recommendations, especially the controversial ones linking the price of 2G wireless spectrum to 3G and the plans to take back 900 MHz band spectrum and substitute it with 1,800 MHz when the licences are renewed.

Earlier, the Prime Minister's Office had stepped into the muddle and asked the Ministry of Communications to transfer all the decision-making on TRAI's recommendations to the empowered group of ministers (EGoM) headed by finance minister Pranab Mukherjee. Raja said he would first discuss the issues with the operators and then place their views before the EGoM.

Twenty unresolved industry-related issues were mentioned in the agenda note for the meeting that took place recently.The discussion points included TRAI's plan to link the price of 2G spectrum with 3G, the methodology for allocation of additional 2G spectrum and the order in which these airwaves ought to be awarded to telecom companies, waiver of the threeyear lock-in period for promoters of new entrants and rollout obligations for all mobile phone firms, among others.However, there was no consensus among the operators on any of the issues.

A nine-member internal panel set up by the Department of Telecommunications (DoT) will study the operators' demands and suggest policy changes.
Thereafter, the panel's recommendations will be sent to the EGoM and the finance minister will take the final call.

The controversy arose in May 2010, when TRAI recommended that operators holding spectrum in excess of 6.2 MHz and within 8 MHz should pay a one-time fee that would match the 3G spectrum price. For spectrum held beyond 8 MHz, service providers would have to pay 1.3 times the price of 3G spectrum.

Fearing a heavy financial outgo and with their balance sheets already stretched on account of the recent 3G licences, GSM operators Bharti Airtel, Vodafone Essar and Idea Cellular, which hold more than 10 MHz spectrum in many circles, cried foul.As per calculations, these operators would have to pay about Rs 105 billion as a onetime fee if TRAI's proposal to link 2G prices with 3G was to go through.

According to them, if they were made to pay a market-determined price for additional 2G spectrum allotted years ago, it would harm their business case and eventually the Indian telecom sector, which is currently in the throes of a bruising tariff war. They strongly criticised TRAI for linking the price of excess 2G wireless spectrum to 3G pricing, claiming that there is no "excess" 2G spectrum, and all airwaves awarded to them are legal and in compliance with the licence conditions. They also stated that any move to charge them retrospectively for spectrum allotted in the past would be a violation of the contractual agreements signed with the government.

Meanwhile, Vodafone Plc announced that it was writing down the value of its Indian business (Vodafone Essar) by over 25 per cent or -£2.3 billion because of latest regulatory developments and the ongoing price war.

While TRAI chairman J.S. Sarma pointed out that these were "interim" measures suggested after due consultation with stakeholders, the telecom players were not appeased. With the pressure mounting, in early June, TRAI called for fresh consultations on the issue. Bharti Airtel, Vodafone Essar and Idea Cellular boycotted the consultations, stating that there was no transparency in the system.

In light of this and the fact that the telecom industry is clearly divided on the recommendations, it does not look like the issue will be resolved any time soon.
CDMA-based service providers with dual licences like Reliance Communications and Tata Teleservices, which are not really impacted by the TRAI recommendations, have been demanding that the government be more stringent in imposing the one-time fee for all excess spectrum beyond the 6.2 MHz per circle held by GSM operators for years.

In a note to Raja, the secretary general of the Association of Unified Telecom Service Providers of India, S.C. Khanna, has urged the government to ensure that the one-time fee for "excess" 2G spectrum be four times the cost of 3G airwaves. This is because India is a market where voice and text messaging services, which use 2G, predominate, thus making 2G spectrum more valuable.

Meanwhile, the Wireless Planning and Coordination (WPC) wing of DoT, the agency responsible for awarding spectrum, has given another spin to the issue.
Apart from the one-time charge for excess spectrum, the WPC wants the government to impose a higher annual fee for the use of spectrum. Where TRAI has recommended that GSM operators share 2.2-10 per cent of their annual revenues as spectrum usage fee, the WPC wants this to be raised to 3-10 per cent with higher revenue share ratios for each slab.

With all these different angles to the developing 2G controversy, the EGoM clearly has its task cut out to reach a viable, consensual solution.

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