Sunil Jain: Eenee, meenee, mainee, mo!

RATIONAL EXPECTATIONS

Thanks to the government making a hash of its spectrum allocation policy, it can once again decide (think favours!) which telecom firm is to get how much spectrum. Indeed, now that the defence forces are going to vacate 20-25 MHz of spectrum, the industry is in a tizzy over the telecom ministry's reported plans to auction the spectrum. While the GSM-cellular firms are united that CDMA-mobile firms like Reliance and the Tatas should not be allowed to start GSM-mobile services, there is a division among them on intra-GSM allocation. (We're not even talking of 3G spectrum here, that's a longer story ... see "No Entry," May 28, 2007.)

Market leader Bharti, which has operations in each of the country's 23 circles, is of the view that existing operators should be given the fresh spectrum first; number two GSM firm Hutch, which has only 16 circles but has applied for more, is of the view that existing firms and those in waiting should be on the same footing; The AV Birla group's Idea's idea is that it get priority since it was not allowed to start GSM services in various circles in the past as its partners, the Tatas, were doing CDMA""now that the Tatas are out, it should be given GSM spectrum. To compound the confusion, there are firms like Aircel which have been given licences but do not have any spectrum, and want it first now.

Through all this runs the argument that the government promised it would provide spectrum as and when required""why else would mobile phone firms have invested billions of dollars in setting up networks? Various government letters and orders, and TRAI recommendations are cited to this end.

Though evocative, much of this is misleading. For one, when the government gives a licence for an airport (as it has in Delhi and Mumbai recently), a certain amount of land is given up front, but the government makes no commitment to endlessly keep providing more land so that the airport can service all flying traffic for all time to come. New airports come up while the existing ones make money from their existing clients""if they want, the owners are free to bid for the new airports as well, just as existing mobile phone firms are free to bid for the new spectrum.

As for the government's promises, these have been made in two places. First, in the legally-binding licence agreement. The licence agreements are very specific, and say "initially a cumulative maximum of up to 4.4 MHz+4.4 MHz (one for the uplink and the other for the downlink) will be allocated" for the GSM lot and 2.5+2.5 MHz for the CDMA lot. In some cases, a subsequent clause talks of additional spectrum bundled with the licence, but the maximum is 6.2 MHz for GSM and 5 MHz for CDMA.

The second place where this is mentioned is in various Orders. Whether these are legally binding is open to question, particularly since they keep changing from time to time. The cellular operators wrote to the telecom minister saying two Orders (of September 22, 2001, and February 1, 2002) made it clear the government was committed to giving them up to 10 MHz of spectrum. Actually, all that the letters do is to lay down the revenue share if the government gives more spectrum.

If all such references are taken to mean a commitment for more spectrum, an April 15, 2004, Order says CDMA firms will have to pay 6 per cent of their revenue share if they get 15 MHz of spectrum (that's three times what they've got so far)! Six days later, another Order talked of revenue shares for a lower 10 MHz. In December 2004, another Order linked CDMA-spectrum to the subscriber base, and restricted this to 5 MHz; in March 2006, this subscriber-linked spectrum was raised to 7.5 MHz for CDMA and 15 MHz for the GSM lot.

The other issue is of how relevant such spectrum norms are. In metros like Delhi, CDMA firms are to get 6.25 MHz once they have 1.6 million subscribers; GSM ones are to get 10 MHz for 1 million subscribers, 12.4 MHz for 1.6 million subscribers and 15 MHz for 2.1 million. In Delhi, Bharti has just 10 MHz of spectrum and 3.28 million subscribers; Reliance has 5 MHz and 1.87 million subscribers!

It is argued that servicing more customers with less spectrum reduces service quality dramatically and, once again, various papers of the regulator are cited. Problem is, the regulator's Quality of Service (QoS) reports don't indicate things are as bad. The latest report says the call success rate (the ability to get through) is 98.52 per cent, the call drop rate (number of times your call gets disconnected) is 1.48 per cent and 97.04 per cent of the calls have good voice quality. That's at the all-India level. For the so-called congested metros like Delhi, the call drop rate is 1.24 per cent for Bharti and 0.51 per cent for Reliance in Delhi against the TRAI benchmark of under 3 per cent; 98.37 per cent of Bharti's calls and 99.1 per cent of Reliance's calls are of good quality against the benchmark of greater than 95 per cent! The long and short of it is that technological solutions exist to use spectrum more efficiently, and operators are making use of this.

Given this, it's difficult to see how any solution other than auctioning can be used to distribute scarce spectrum among competing players. More so, since there seem few binding obligations to automatically provide this to existing players.

sunil.jain@business-standard.com