 "Spectrum sharing won't fix telcos' problems")
Sharing of spectrum was supposed to be the next big thing in telecom. It was expected to come as a breather to the country's debt-laden telecom service operators because they could hire spectrum from others rather than buy it in expensive auctions. It would open the gates for consolidation in the sector (and thus improve business viability), it was said, and lead to more efficient use of the scarce natural resource. Late entrants were hopeful shared airwaves would help them quickly gain a nationwide footprint. But the recommendations of the Telecom Regulatory Authority of India (Trai) on spectrum sharing, announced earlier in the week, based on which the government will issue the final guidelines, are unlikely to offer much relief to the telcos.
That's because the Trai recommendations come with some stringent guidelines. One, telcos can share spectrum in a circle only if both have spectrum in the same band (800, 1800, 2,100, 2,300 and 2,500 MHz). In other words, a telco that does not own spectrum in a circle (the country is divided into 22 telecom circles) cannot hope to enter it through spectrum sharing. And telcos with spectrum in different bands too cannot share it. Analysts say this could impact Mukesh Ambani-led Reliance Jio which wants to use Reliance Communications' infrastructure to get started. "The Trai norms do not permit RCom to share its (prized) 800 MHz spectrum with Reliance Jio without the latter also participating in future auctions and winning 800 MHz spectrum," says Naveen Kulkarni of Phillip Capital. Kunal Vora of BNP Paribas adds: "Reliance Jio cannot use RCom's 800 MHz or 2,100 MHz spectrum, as it does not hold any spectrum in that band."
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Limited sharing
Similarly, the country's top three telcos - Bharti Airtel, Vodafone and Idea Cellular - will find it hard to share their 3G spectrum. While Bharti Airtel has 3G spectrum in 13 circles, Vodafone has it in nine circles and Idea Cellular in 11. There are only a handful of circles where all three own spectrum. It is only in these circles that spectrum sharing will be allowed. The prospects have been made worse by the second restrictive clause in the Trai recommendations, which says that only two telcos can share the spectrum, not three. In other words, a telco can share its spectrum only with one other telco not two. This reduces the opportunity for telcos to monetize their unused spectrum. As it happens, the three telcos have only 5 MHz of spectrum for 3G services (in the 2100 MHz band); the new clause is unlikely to help them in any significant way. Moreover, it leaves the whole issue of 3G roaming pacts between these three telcos unaddressed.
The third restrictive clause in the recommendations is that spectrum acquired in an auction can only be shared with a telco which too has acquired spectrum in an auction. Similarly, spectrum that was allotted (at low prices in the pre-auction days; it is called administrative spectrum in bureaucratese) can only be shared with a telco that has administrative spectrum. This too will impact the Ambani telcos negatively. Both Reliance Jio and RCom own 1800 MHz spectrum in 14 and 22 circles respectively, but they cannot share it because Reliance Jio bought spectrum in an auction, while RCom sits on administrative spectrum in all circles except Mumbai. "This could restrict Reliance Jio from using RCom's 1,800 MHz spectrum to deploy long-term evolution services on that band," Vora adds.
The shares of Bharti Airtel, Vodafone and Idea Cellular shot up after the guidelines were announced on the hope that spectrum sharing would help them conserve cash. But here too there is a snag. Bharti Airtel, Vodafone and Idea Cellular together have about 56.4 per cent of the total 910 million mobile subscribers in the country, and about 90 per cent of them are active. They may, therefore, not have much room for sharing spectrum. According to an executive of a leading telco, these won't be able to share spectrum unless they compromise on the quality of services. However, spectrum sharing would be lucrative for operators with 50-60 per cent active users. Tata Teleservices and Aircel can make money by lending unused radio frequencies. (These two companies own large chunks of administrative spectrum.)
Some feel that it will help in the long run. "This allows operators with growing subscriber base and a long-term view of Indian market to meet their spectrum needs with enhanced efficiency being brought in through resource sharing," says Uninor CEO Morten Karlsen Sorby. Others feel Trai could have done better. "The regulator could have made it much simpler. It could have looked into permitting spectrum sharing among more than two operators. Also, keeping it band specific limits growth," says Rajan Mathews, director-general of the Cellular Operators Association of India. As these were not final guidelines, there would be some tweaks to support the industry, he hopes.
No relief from debt
Analysts don't expect spectrum sharing to help the telcos reduce debt. According to statistics available with the regulator, the cumulative debt of the industry is around Rs 2.5 lakh crore on revenues of around Rs 1.5 lakh crore. (The debt has piled up because of the crippling tariff war that started in 2009, and the huge money that companies forked out for 3G and broadband wireless access spectrum auction in 2010.)
"Spectrum sharing should not be expected to result in huge reductions in industry debt because it doesn't help avoid future spectrum purchase for renewals, or defray any of the cost of entering new service areas. Rather, it provides the potential to reduce in-circle capital expenditure to improve network coverage through building more base stations. There may be additional transition costs in the first few years as operators undertake network engineering to link theirs to others," says Mohammad Chowdhury, partner (telecom, media and technology industry leader), Pricewaterhouse Coopers India. "It might polarise smaller players further into exit or selling out."
So, could sharing of spectrum have a negative impact on the tower companies as sharing will improve efficiency and lower the requirement of towers? Umang Das, director general of Tower and Infrastructure Providers Association says: "This will help the industry to grow as a whole. Infrastructure providers will also benefit from this. For better network and quality services, there will be incremental spend in infrastructure as well." The final verdict is mixed.
CONSUMER WILL BE THE KING
While experts debate the benefits of spectrum sharing, and whether the government’s earnings would be impacted as a result, one segment that is sure to benefit from the move is the consumer.
With spectrum sharing, subscribers are likely to witness fewer call drops and better speed for data. Tariffs may also fall as sharing of airwaves would lower the incremental operating expenses of telcos.
The move would also give telcos the opportunity to fill the gaps in clusters and circles where the number of active subscribers is very high. By way of sharing, operators can get the required spectrum in these areas to ensure better network and quality of service to consumers.
CORRECTION
An earlier version of this article had mentioned wrong figures in case of Bharti Airtel's and Idea Cellular's 3G circles, which has since been corrected. We regret the error.