India sought to restore a measure of stability and market-minded reform to its telecom policy by announcing, on Wednesday, rules governing the issue of licenses and spectrum, and mergers and acquisitions (M&As).At their core, the rules seek to remove ad holism in the allocation of spectrum, which is treated, perhaps for the first time in this country, as a precious commercial asset.
The rules, which come into effect immediately, according to telecom minister Kapil Sibal, follow barely a fortnight after the Supreme Court cancelled 122 mobile licenses issued in January 2008 at the culmination of the 2G scam. However, they stopped short of addressing some key issues such as the fee that telcos will have to pay for holding spectrum in excess of prescribed limits—either because the government doesn’t want to step on Telecom Regulator Authority of India (Trai) turf as that agency follows a court directive on undoing the mess created by the 2G scam, or because it was simply too contentious.
The new rules de-link spectrum from licenses (currently any telco granted a license is eligible for so-called start-up spectrum), allow those with licenses the right to launch any telecom or Internet service, institute a uniform license fee, set a cap on the spectrum that will be allotted to a telco, provide a detailed framework of how to deal with spectrum in case of a merger, and define a route for the renewal of licenses issued in 1994 that expire in 2014.
They also provide clarity on the sharing of spectrum.
“The move to a market-driven mechanism has been in the offing for a while now. They (the government) are essentially moving in a direction where everyone will be allowed to do everything and will allow the market to take care of everything in terms of regulating it,” said Mahesh Uppal, a regulatory expert and director with Com First (India) Pvt. Ltd.
“A final view on implementation of the unified license regime would be taken after receipt of detailed guidelines and terms and conditions from Trai for the unified license, including migration path for all existing licences to unified licences,” Sibal said.
The minister also announced that a uniform license fee (ULF) of 8% will be levied starting next fiscal. Tower companies, which have been lobbying to be excluded from ULF, got a breather with Sibal announcing that the decision on that had been deferred.
An analyst, who tracks the sector at a Mumbai brokerage firm, welcomed the deferring of decisions on dealing with spectrum in excess of prescribed limits and excluding tower companies from the purview of ULF because both, according to him, would have led to “confusion”.
One of the most keenly awaited policy moves has to do with the renewal of licences. India’s largest telcos, including Bharti Airtel Ltd and Vodafone India, will see many of their licences, which were granted in 1994, expire starting 2014. The new rules say a telco can get an extension of 10 years at a time for a fee based on the classification of the licensed area. The fee will be Rs 2 crore for metro and A circles (larger states with more evolved markets), Rs 1 crore for B circles and Rs 50 lakh for C circles.
Because the rules also delink spectrum from the licence, at the time it’s extended, telcos will have to surrender spectrum above the “prescribed limit”.
“The prescribed limit will be 8MHz (for telcos offering services on the GSM platform) and 5MHz (for CDMA platform) in all circles other than Delhi and Mumbai, where it will be 10MHz (GSM) and 6.25MHz (CDMA). “The licensee can acquire additional spectrum beyond prescribed limits, in the open market, should there be an auction of spectrum subject to the limits prescribed for merger of licences,” said a release from the department of telecommunications (DoT).
The rules also sought to liberalize the M&A regime governing the sector. Sibal said a merger that results in the creation of an entity with a market share of a maximum 35% would be immediately approved. Trai will need to approve anything in excess of this. The merged entity will also not be allowed to hold more than 25% of the spectrum available (10MHz for CDMA) in the specific circle. “If there is excess spectrum, it has to be surrendered within a year, based on guidelines that we will issue soon,” Sibal said.
The analyst mentioned in the first instance said M&A rules make it possible for large telco’s such as Bharti to participate in the impending 2G auction of free-up spectrum.
“More open and pragmatic merger policy with less restrictions would definitely result in creating interest among incumbents and foreign players,” said Hemant Joshi, partner at Deloitte Haskins and Sells. He added that this would also help the cause of consolidation.
Sibal also announced that telcos could share spectrum in certain conditions. For instance, the sharing can only be done if both operators have spectrum in the same circle and can’t exceed the prescribed limit. The sharing will also need to be approved by DOT and “it will only be allowed for five years with the option to extend by another five”, he said.
“Operators with 3G spectrum won’t be allowed to share spectrum,” Sibal added, clarifying a point that has become contentious with telco’s that have signed such deals to offer 3G services. Interestingly, the operators will have to pay spectrum usage charges for the full amount of spectrum that they hold together.
The rules do not allow the leasing or trading of spectrum, but empower Trai to audit the usage of spectrum by telco’s. Bharti welcomed the policy, but expressed hope that ULF would be brought down to 6%.
Vodafone India also welcomed the move. “We also support the decision of the government to de-link spectrum and license and allow licensees to acquire spectrum through auctions,” the company said in a release.
The policy points definitely towards a market-driven regulatory regime, said Kunal Bajaj, director at Analysis Mason (India). It meets the long-standing demands of the industry, he said. But the policy on sharing does not seem to be technology-neutral, Bajaj added.
