Mahesh Uppal: Not charging for 2G spectrum is illogical

Not charging an entry fee, and specific user charges for 2G spectrum is what is leading to wastage and hoarding of spectrum.

Last week, it was reported that Tata TeleServices Ltd (TTSL) has requested the government to start levying entry fee-cum-user charges for 2G spectrum, that is required for conventional mobile telephony. The Cellular Operators' Association of India (COAI), the industry body representing GSM cellular operators, have strongly opposed this in their letter to the Minister of Communications Dayanidhi Maran and suggested that the Tata proposal is a self serving ploy of an "underperformer" seeking advantage over players more successful than itself.

But a closer look is revealing.

It is indeed true that of the five players with near national mobile networks in the country, TTSL has the lowest market share. But, a look at the most recent indicators of the Telecom Regulatory Authority of India (see table) will tell whether TTSL is an "underperformer" or an imminent threat.

It is also true that the current rules for spectrum hurt TTSL the most since the amount of spectrum allocated to an operator depends directly on the number of its subscribers, the allocation is done on a first-come-first-served basis and the charges do not depend on the amount allocated. So, when TTSL reaches the subscriber targets necessary to qualify for the additional spectrum, it may already have been claimed by other players. Clearly, they have the "motive" to advocate the change in the rules.

But by the same token, it is no secret that GSM mobile players are the beneficiaries of the current 2G spectrum regime. They started over five years earlier and have higher subscriber numbers. Further, against best practices in spectrum regulation, they are allocated twice the spectrum resources available to their competitors, that is, CDMA players. So the GSM players have their own reasons to oppose any proposal to fix the current anomalies in spectrum allocation.

The main point in the TTSL proposal "" that spectrum usage be paid for by all commercial players "" is sound and on the lines of almost all current regulatory or policy wisdom. Any finite resource whether it is spectrum, land or water, if given away free ends up being abused by those who acquire it first.

We have seen two important fall-outs of the anomaly in the 2G spectrum rules: Firstly, there is a race to add subscriber numbers at all costs. So much so that the government has said that close to 40 per cent of the subscribers are yet to be verified. Maran has himself linked this to mobile companies' attempts to grab the finite spectrum available. Secondly, this rule leaves little incentive to develop networks in rural areas since acquiring subscribers there, at the same speed, is much harder work.

The truth is that the rules for spectrum defy most regulatory logic and are legacies of the dispute ridden history of India's mobile telecommunications where rules have frequently been made on the fly and often been based on the pressures facing the authorities at a given time.

The fact that GSM players (for example Airtel, Hutch, Idea, and so on) are allocated twice the spectrum as CDMA players (for example Tata and Reliance) is a result, not of any sound regulatory analysis, but of the messy compromise that was worked out when the GSM monopoly of the mobile market was prematurely ended and the two technologies were allowed to compete. The possibly unintended effect of higher allocation to GSM "" widely acknowledged to be less efficient than CDMA "" is that India is today one of the poorer users of the much sought after spectrum. Indeed, it was reported some time ago that China is able to support as many as four times more subscribers in the same amount of spectrum.

So it is difficult to agree with COAI when they argue that the current system needs no fixing since it has provided optimal and efficient use of the spectrum and made it widely available. That the current rules reflect, as COAI says, "no work, no pay" is even more difficult to digest.

GSM players have failed to persuade the Telecom Regulatory Authority of India (TRAI) to retain the existing anomalies in the 3G spectrum proposals. The TRAI, after elaborate process and consultation, has seen little merit in retaining the rules that use subscriber numbers as a criterion for 3G spectrum. Nor has TRAI retained the provision that gives to CDMA half the spectrum allocated to GSM players. Importantly, it has insisted that spectrum be auctioned at a price.

A similar review of 2G spectrum rules is clearly necessary to remove the current anomalies and iniquities as well as the many perverse incentives that currently exist to waste or hoard spectrum. More importantly, there is little merit in applying qualitatively different rules for 2G and 3G when there is no clear line between the services based on these technologies.

Such a separation hinders operators from making the most creative use of spectrum depending on the situation. For instance, an operator may wish to redistribute its subscribers based on the bandwidth/services that they request.

The purpose of this article is not to argue that TTSL's proposal is a document ready for action. TTSL's suggestion that 2G spectrum be charged at half the price of 3G would seem hasty. There may well be other practical problems before the contiguous blocks of spectrum it advocates can be defined and allocated. Only the TRAI and the Wireless Planning and Co-ordination Wing (WPCW) have the resources and mandate to explore the other options for the transition and they would need to be entrusted this task.

Current operator licences stipulated a fixed amount of spectrum at the time of licence issue. Guidelines for additional spectrum are issued and revised by the government. There seems to be no guarantee that the operator demand for spectrum, beyond what they have received, will be met.

The licences also clearly stipulate that the charges for the spectrum will be subject to review from time to time. So, there is little real impediment to move to a more rational spectrum regime, with built-in mechanisms to ensure optimal use by current and future contenders, that will encourage users and technologies that make the most efficient use of the resource. A fair price for the spectrum allocated to operators is an integral part of such a regime.