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| October 08, 2007 | Monday | Ramazan 25, 1428 |
Investors’ rush for telecom licences
THE booming telecommunications sector in India is attracting both domestic and international majors (not necessarily telecom players), lured by the huge potential for growth and lucrative profits.
Last week, nearly 30 companies rushed in with 300 applications for licenses for the nearly two-dozen telecom circles across the country that is up for grabs. The applicants included the likes of AT&T, the world’s largest telecom operator, overseas Indian business group of Hindujas, and many top Indian property developers.
The red-hot telecoms market in India sees eight million new cell phone subscribers signing up for services every month. There are over 200 million mobile phone users in India, and the figure is expected to cross the 500 million-mark in less than five years.
Unfortunately, while India has seen a quantitative leap in the telecom sector, its performance on the qualitative front has been mediocre. Even the latest round of licensing is for 2G (second generation) services, and 3G services are still a long way off.
Existing cellular services are also deteriorating and many users – even in cities like Mumbai, Delhi and Bangalore – complain of poor reception and frequent breakdowns. Service providers blame the government for not providing them adequate spectrum, and the telecommunications ministry itself has failed in convincing the defence forces to release spectrum for civilian use.
Telecommunication service providers are also divided into two camps – the GSM (global system for mobile communications) lobby and the CDMA (code division multiple access) one. Other segments in the industry include the two state-owned giants, BSNL and MTNL, the Telecommunications Ministry, and the regulator, the Telecom Regulatory Authority of India (TRAI).
Even as the industry is witnessing record growth – and record valuations of existing players – there are frequent fights between the different groups and lobbies. The GSM and CDMA companies are bitter rivals; the GSM segment is also unhappy with the TRAI; the government-owned companies are unhappy with the ministry and fear that their interests are being sacrificed.
The world over there have been phenomenal changes in the telecom sector, as destructive technologies make redundant many of the existing networks. Mergers and acquisitions have restructured the industry. Governments around the world have been slow to adapt to these remarkable changes, and even once-dominant players are uncomfortable with the new technologies.
THE Indian government has been receptive to the sweeping technological changes and has been pressing ahead with reforms in the sector. It recently opened up the sector further to foreign direct investment (FDI), raising the ceiling from 49 per cent to 74 per cent.
Vodafone, one of the largest mobile phone operators in the world, acquired a controlling stake in Hutchison-Essar (now renamed Vodafone-Essar, following a multi-million-dollar advertising campaign earlier this month), this year after shelling out over $11 billion. Hong Kong billionaire Li Ka-Shing pocketed a neat $8.9 billion in profit after selling his stake to Vodafone.
This has prompted the ‘gold rush’ to the sector with international and domestic businesses eyeing the lucrative industry in India. AT&T, America’s (and the world’s) largest telecom operator – which had a minor presence in the Indian telecom market – plans an aggressive foray now.
Last week it applied for the Unified Access Service License for all the circles in India, through its local venture, which is a tie-up with Mahindra Telecommunications. But AT&T appears to be here for the long haul, and is eagerly awaiting the opening up of the 3G segment – where it has tremendous expertise.
AT&T was the first international telecom operator to acquire a nation long distance (NLD) and international long distance (ILD) license in India last year. But the entry of international giants has also resulted in existing players, including state-owned BSNL, to roll-out better services.
Despite the absence of a clear-cut policy on 3G spectrum, BSNL last week decided to go ahead with an ambitious plan to establish a network of 50,000 common service centres (CSCs), which would see the deployment of one of the largest WiMax (Worldwide Interoperability for Microwave Access) systems in the world.
WiMax connectivity, which will ensure broadband internet services on mobile phones, is to be covered under the 3G spectrum policy, though it is superior to even third generation services. The centres will be located in semi-urban and rural areas, enhancing coverage in villages and smaller towns.
While the phenomenal growth in mobile phone services has boosted India’s tele-density to 21.2, there is a huge urban-rural digital divide; in rural areas tele-density is still under seven. Communication Minister A. Raja wants to narrow down this gap, especially through the PPP (public private partnership) route.
BSNL is keen on opting for the 2.5 GHz frequency for its WiMax project. The telecom giant wants to roll out 3G services both in urban and rural areas, and wants to enjoy the first-mover advantage.
THE biggest challenge for the communication minister is to reconcile the interests of the GSM and the CDMA lobbies. Last week saw leading players from the two groups battling it out in front of the minister over the question of spectrum allocation.
Top GSM operators, including Sunil Bharti Mittal’s Airtel, and Vodafone-Essar – the two leading players – complained about the TRAI’s recommendations relating to spectrum allocation. The regulator wants operators to enhance their subscriber base several times before seeking additional spectrum, and also wants to auction spectrum.
The GSM lobby is opposed to auctioning of additional spectrum for 2G services, and claim that this is against the terms of their existing agreement with the government. The government has been promising additional spectrum to existing operators, but has failed to do so, they argue.
The Cellular Operators Association of India (COAI), which represents GSM operators, wants spectrum to be allocated on a first-come, first-served basis, and points out that many of its members have been seeking additional 2G spectrum for over two years. The COAI also wants a five-year lock-in period for the scarce commodity, and fears that if the TRAI’s recommendations are accepted, it would encourage non-serious players applying for licenses, merely to corner spectrum, which would then be hawked to the highest bidders.
The Association of Unified Service Providers of India (AUSPI), which represents the CDMA operators – basically Reliance Communications and Tata Telecom – backs the TRAI’s stance. According to the CDMA operators, GSM players inefficiently use their spectrum because of outdated technology.
The communications ministry itself has been seeking the vacation of spectrum by the defence forces. Raja now claims that the defence ministry has agreed to release 45 MHz of spectrum – for both 2G and 3G services – by the end of November. The defence ministry is believed to have 60 MHz of excess spectrum that it is not utilising, and the communication ministry is clamouring for this space.
The TRAI has recommended that the government should auction the additional spectrum to operators who will then be able to offer 3G services in India. The government expects to earn billions of rupees through these auctions.
Raja has promised both lobbies that the new telecom policy, likely to be unveiled later this month, will be “honest and transparent.” He says there will be three categories of operators under the policy: existing license holders, existing license holders without spectrum, and the new applicants.
The next few months will be crucial for India’s telecommunications sector, and both the government and the regulator have a major role to play in influencing the future. Taking the right decision could ensure that India emerges as one of the biggest telecom markets in the world.
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