Third generation solutions

Apart from providing much-needed spectrum for the industry, the best thing about the Telecom Regulatory Authority of India's (TRAI's) recommendations on 3G spectrum is that it makes a clean break with the controversial practice of the past. It snaps the link between subscriber base and spectrum allocation, recognising that under the existing policy companies have been dressing up subscriber numbers to be able to get additional spectrum. Under the new policy, this no longer matters as companies will have to bid for the spectrum they use. The decision to auction the spectrum also takes care of the other problem that saw TRAI, under an earlier chairman, do a somersault on the initial claim that CDMA technology uses spectrum more efficiently than GSM-based mobile phone operations, arguing subsequently that this was not the case (in both instances, the intention was to benefit the CDMA players). This debate, for which both technologies offer all manner of technical data to prove their point, is now irrelevant. And though several private sector telecom players have been quoted as saying the reserve prices for 3G spectrum are high, this may not be the case since it is estimated that the number of mobile subscribers will increase more than three-fold over the next four years. The increase in the market capitalisation of mobile players which will result from this will be many times the cost of 3G spectrum that will make this growth possible. To put this in perspective, while the cost of a pan-Indian 3G spectrum allocation could be Rs 1,500-2,000 crore, Bharti Airtel's market capitalisation is already around Rs 80,000 crore.

The problem with the TRAI recommendations, however, is that they restrict the number who can play in the arena, since only the existing telecom firms can bid for the 3G spectrum. If, to use a name, Vodafone wants to enter the market for mobile telephony in India, it will first have to buy a Universal Access Service Licence (UASL) for Rs 1,633 crore, and only then bid for the 3G spectrum. So the prospect of new players coming in has been restricted from the very beginning""and this is assuming that Vodafone will be given a UASL licence. This is where the department of telecommunications (DoT) comes in. What the DoT needs to do is to separate the UASL licence from the spectrum bids. Anyone who wants a UASL licence should get it automatically, with no obligation on the government's part to provide spectrum. This is what TRAI had recommended over a year ago, but there has been no follow-up action. Only when this recommendation is accepted and implemented, and more players bid for spectrum, will there be bidding that uncovers true value. There is no reason why the country's telecom future has to be confined to the existing oligopoly; if nothing else, the threat of new entrants will change the conduct of today's players, and perhaps also drive up 3G auction prices.

It is also not clear why TRAI has brought in rollout obligations for 3G services. While the avowed aim is to increase the penetration of telecom services in the country, such conditions were tried in the mid-1990s for fixed lines and failed, and finally the government had to waive the conditions. It must be hoped that the DoT will not repeat the mistake.