Time to share

Spectrum sharing will help the incipient telecom sector rebound

The Telecom Disputes Settlement and Appellate Tribunal, or TDSAT, has approved intra-circle roaming pacts between telecommunications companies - a step that will aid a recovery in the sector that's already under way. The Department of Telecommunications had in 2011 imposed a ban on such pacts on the grounds that these were not part of the licence agreement. TDSAT on Tuesday overturned the ban. Telcos had acquired spectrum in the 2100 MHz band for 3G services at a hefty price. The Department of Telecommunications ban made subscribers cautious because they didn't know if the service would work seamlessly across all the 22 telecom circles into which the entire country was divided. Also, the ban made it impossible for a telco to pick up 3G subscribers where it didn't have 2100 MHz spectrum. As a result, the 3G operations of telcos were running at a loss. Now, after the TDSAT verdict, the business is expected to look up sharply. Significantly, TDSAT has also quashed the penalty of Rs 1,200 crore imposed by the Department of Telecommunications on Bharti Airtel, Vodafone and Idea Cellular, India's three top telcos that together host three-fourths of the country's 40 million 3G subscribers.

The ban made little sense in a liberalised spectrum regime, in which sharing of such resources should not be frowned upon. The Telecom Regulatory Authority of India has recommended that spectrum trading should be allowed. In other words, if a telco has unused spectrum in a circle, it can sell it to another operator. This will help in two ways. One, operators will use spectrum, a scarce natural resource, with greater efficiency. Two, it will help them monetise idle assets. This is likely to be part of the merger and acquisition guidelines being put together by the Department of Telecommunications. Also, when spectrum has become technology-neutral (a telcom service provider can use spectrum in any bandwidth to launch 3G services), the ban on intra-circle roaming pacts served no purpose. However, since 2100 MHz is the most efficient band for 3G services, removal of the ban will help the telcos immensely.

The TDSAT judgment comes when there are signs that the telecom sector is turning around. The extra dose of competition introduced in 2008 when A Raja was Union telecom minister had bled the industry. Tariffs had hit rock bottom. Telcos began to burn cash to acquire customers. After the Supreme Court in 2012 cancelled the licences handed out during Mr Raja's tenure, some sort of sanity began to return to the sector. In the last couple of quarters, discounts have been ended (base-level tariffs are yet to show improvement) and there has been a sharp rise in data traffic. Thus, both Bharti Airtel and Idea Cellular have reported a sharp jump in earnings for the quarter ended March 2014. The government's decision to auction spectrum and delink it from the subscriber base too has helped. Telcos are no longer in a blind race to acquire subscribers. Many have cleaned up their long tail of inactive subscribers who made no contribution to their revenues. With their 3G business now all set to pick up, the sector seems to be ready for better times ahead.