Bad call

Coming as it does on the heels of the department of telecommunications (DoT) playing favourites with Reliance Communications, the Telecom Engineering Centre's (TEC's) recommendations on sharply hiking subscriber norms for spectrum allocation do not look as kosher as the DoT would like people to believe. While the GSM cellular firms were already protesting the Telecom Regulatory Authority of India (Trai) hiking subscriber norms (on August 28) on the grounds that their inputs were not sought, the TEC has gone and hiked even those recommended norms quite substantially. So, on average, telecom firms will need to have three to four times the number of subscribers they were supposed to have earlier for each block of spectrum they get "" in some cases, the number has gone up eight-fold! The TEC has also recommended that the annual revenue share licence fees be hiked two- to three-fold. In one shot, the existing business and future prospects of existing players have been put at serious risk. It is time for analysts to pull out their spreadsheets and rework their outlook on all the major telecom players.

Whether the methods used by the TEC pass muster will be the subject of intense debate, and perhaps even of a court inquiry "" the last time it set subscriber norms, in March 2006, the committee co-opted members of the GSM and CDMA mobile firms, but that procedure was done away with this time round. One of the major assumptions the TEC has used while arriving at its conclusions for significantly higher subscriber norms is that 60 per cent of mobile phone calls are made/received while users are in their homes/offices and so, instead of using up scarce spectrum, the mobile phone firms should wire up individual buildings. These firms argue that this assumption is incorrect and that in-building solutions of this order are not used anywhere in the world. That may or may not be true but, if the TEC is right, it casts doubt on the manner in which spectrum was handed out earlier, and suggests that the TEC itself was very liberal in March 2006 when it came up with subscriber linkages. It could be argued that those norms were set at a time when technology did not allow more efficient use of spectrum; but then how does one explain Trai's recommendations just two months ago, which the TEC has now hiked?

What the TEC has done also changes the basis of the licence fee that the DoT wants to charge new entrants. The DoT wants to charge a licence fee of Rs 1,651 crore per entrant and has allowed Reliance Communications to pay this after it allowed the company to jump the queue of those waiting for spectrum. But the TEC's position is that telecom firms should be using this spectrum for at least three to four times the number of subscribers that they do at the moment. If that is the case, even if you use the Rs 1,651 crore figure as a base (though it was arrived at in 2001, when the country's telecom business did not look anywhere as lucrative as it does now), the correct value of the spectrum should be three to four times higher. So, while the TEC recommendations have hit telecom firms, both the DoT and the ministry of communications have some explaining to do.