Cross-connections still

The telecom regulator has sought to address many contentious issues, in its latest set of recommendations to the government. Most of the new rules proposed are an improvement on the present state of affairs. Indeed, with both the rival factions of mobile phone operators (those using the GSM and CDMA technologies) upset with the latest recommendations, you would be tempted to say the regulator must have got something right. Indeed it has, on many counts. But the larger point is that, by not finding a way to break out of the existing framework for allotting companies the airwaves (or spectrum) on which to carry their signals, the Telecom Regulatory Authority of India has not really solved the key problem which has been agitating the industry.

Till now, spectrum allocations were made on the basis of subscriber data, which led predictably to the inflation of subscriber numbers (and exaggerated notions about the growth of telephone density). Also, since the norms for spectrum allocation were liberal, they encouraged firms to install equipment that did not use spectrum optimally. To limit this problem to the current lot of 2G mobile services, Trai said last year that 3G services involved a brand new technology, and therefore 3G spectrum would be auctioned "" a suggestion on which the department of telecommunications has so far not acted. The current recommendations say that, other than 2G spectrum, all others are to be auctioned "in future so as to ensure efficient utilisation of this scarce resource". But since the existing operators argue that they have the first right to additional 2G spectrum, and threaten to go to court on the issue, Trai has sought greater efficiency within the existing allocation parameters. This it has done by increasing dramatically by between 200 per cent and 500 per cent the number of subscribers required for various tranches of spectrum. This will ensure that the existing service providers deploy technical solutions to use spectrum more efficiently "" one estimate is that they will have to invest another Rs 2,500 crore ($600 million) to do this.

So far so good. But the problem of allocation remains. There are the 138 existing operators, who will require fresh spectrum at some point as they add on subscribers. Add to this, 22 new companies who have got licences but no spectrum, and another 96 firms (with names like Swan Telecom and Cheetah Corporate Services) who have applied. The government is now going to give additional spectrum on a first-come-first-served basis "" so, if Swan stood in the line at Sanchar Bhawan before Cheetah did, it will get spectrum, even though Swan may be nothing more than a nameplate company with neither an asset base nor a business plan to speak of! For all one knows, some of the companies in the queue are fronts for existing telecom operators "" typical behaviour in a licence-driven situation of scarcity. Surely auctioning would be a better option.

The changed norms on mergers are sensible "" removing the cap on spectrum will allow mergers to take place, and lowering the combined market share ceiling from 67 per cent to 40 per cent will ensure that there is enough competition. But a seemingly forward-looking recommendation, to allow a CDMA firm to offer GSM services after paying a licence fee (Rs 1,600 crore for an all-India licence) is a non-starter. Take the case of Reliance Communications, the CDMA firm that wants to provide a GSM service as well. Under the present rules, it gives 2 per cent of its revenue as licence fees for 5MHz of spectrum. If it pays Rs 1,600 crore and gets 4.4MHz for GSM, under the new rules it will have to shell out 5 per cent of its combined GSM and CDMA revenues as licence fees; as the amount of spectrum rises, so does the revenue-share licence fee. It would be cheaper to apply for a new GSM licence first, and then perhaps do a merger later. The problem here is the kind of slab system proposed for additional spectrum allocation.