Spectrum caps should go

Govt needs to ease telecom regulations

Vodafone and Idea Cellular, which are in merger talks, are reportedly planning to ask the Department of Telecommunications to relax the ceilings on spectrum ownership because consolidation in the sector has rendered them irrelevant. There is serious merit in the argument. Under the current rules, a single telecom network cannot own more than 50 per cent of the wavelengths in a single band and 25 per cent of all the wavelengths in a circle. If their talks fructify, the Vodafone-Idea combine would have to surrender to the government spectrum in a handful of sectors as these ceilings will be breached. These restrictions were put in place when there were eight to 10 networks in each circle — this was one way to protect the smaller networks from the bigger ones. But, those hyper-competitive days are long over. It is likely that there will soon be four large networks in each circle, in which case the spectrum caps do not make sense. Yes, cartelisation amongst the networks is a genuine fear, but it is for the Competition Commission of India to ensure that it doesn’t happen.

In fact, it can be argued that the caps are restrictive in nature and are, therefore, counter-productive. Think of a network that has hit the caps — it cannot buy spectrum from other networks. As the base of its subscribers rises, its inability to buy spectrum is bound to impact the quality of its service. Bharti Airtel, the country’s largest network, is close to the caps in several circles. The caps come in the way of consolidation. This is the reason why either Vodafone or Idea could not have considered Bharti Airtel as a possible alliance partner. Besides, for a smaller network, which wants to sell its spectrum, the caps restrict the choice — it can negotiate only with those networks which have spectrum way below the ceiling. This makes exits and consolidation difficult. At a time when the government talks of improving the ease of doing business, the caps strike a discordant note.

The telecom sector has seen some dramatic changes in the last few years. There is a steep rise in data consumption, for which networks need more and more wavelengths but their efforts are stymied by the caps. As the trend is only expected to intensify in the future, the caps will bring the networks under immense pressure. Take the example of Vodafone and Idea. Initially, the merged entity will have to surrender spectrum, though subsequently, it may have to buy the same in an auction. Moreover, the government is very keen to leverage mobile networks for better governance. All this requires more and more spectrum. But, with caps in place, the networks will simply collapse.

It is clear that the caps have outlived their utility. There is another cap of 50 per cent on any network’s revenue market share. In the foreseeable future, with four large networks, it is unlikely that this cap will be breached any time soon. However, if there has to be further consolidation in the sector, this cap will prove a hindrance. Therefore, at some time, this needs to be revisited as well. Every country has two or three networks. There is no reason why India should be different.