Megahurtz...Scammingthe Waves

Why is the government giving up Rs 25,000 crore of potential revenues? And giving it up when there are enough people willing to pay? That's what Indian cellular telephony operators want to know.

The facts, briefly. For all wireless telephony, such as cellular services, the fundamental resource is radio spectrum, frequencies that carry your voice from your cellphone to the phone you are calling. Spectrum is not an endless resource and as such, even more valuable. Indian cellular operators have paid a massive Rs 7,300 crore to the government to buy 8.8 megahertz (MHz) of spectrum. At that time, the government had made it clear that spectrum is a "naturally scarce resource". Rs 7,300 crore translates roughly to about Rs 830 crore per meg of spectrum. But now the same government is offering 30 MHz of spectrum free to new operators which, at the same rate, could fetch it a cool Rs 25,000 crore. This, when cellular operators have been asking the government for months to allot more spectrum to them for a price!

This is the same government which said it had no option but to impose a 2 per cent surcharge on income-tax to collect Rs 1,300 crore for quake relief in Gujarat. And, astonishingly, this free spectrum is being offered on a first-come-first-served basis.

The whole fracas started a few weeks ago, when the government decided to let private fixed telephone service providers (fsps) into the business of "limited mobility" services for a nominal entry fee on the plea that this would increase competition in wireless telephony which, in turn, would improve services. Its take was that this will make these services extremely affordable for the common man, enable new technology to come in and help it achieve the target of increasing India's teledensity from a dismal 2.5 per 1,000 people to a more respectable world average of 15.

Nothing wrong with that. Except for the fact that this is being done at the cost of the existing cellular telephone operators. "Limited mobility" services offer everything that a normal cellular service provides, except for roaming, that is, the facility that allows you, as a Chennai cellular subscriber, to receive calls at the same number anywhere in India or abroad. Yet, this very minor "limitation of mobility" has got the government to accept fees from fsps that are a fraction of the money that existing mobile service providers have paid. Says B.K. Zutshi, former vice-chairman, Telecom Regulatory Authority of India (trai): "Is one set of players being given more favourable conditions than the rest? Prima facie, it seems that this move will not promote healthy competition and will threaten the viability of the existing players."

It's not only the absence of a price tag on the spectrum but also the amount being doled out that is cause for concern. The cellular companies operate on 8.8 MHz in the gsm 900 band while the new fsps will get 30 MHz in the cdma (Code-Division Multiple-Access) spectrum. This will obviously give the new players an edge over the existing ones as the cdma spectrum is more efficient and can take on more subscribers per megahertz.

Even the tariff rules have been engineered to make sure that the fsps can offer services at far lower prices than cellular operators and "benefit the customer". When one makes an std call from a mobile phone, one pays the cellular operator an average of Rs 3 per minute and another Rs 25 per minute as std charge.Under the rules, the cell operator gives the entire Rs 25 std charge to the government-owned Bharat Sanchar Nigam Ltd, the domestic long-distance monopoly. All that the cell operator gets is the local charge. On the other hand though, if the same call is made through a "limited mobility" phone, the fsp can keep both the local call charge and 60 per cent of the std bill! In effect, on a three-minute std call, a cellular operator makes Rs 9, while the fsp makes Rs 45 plus his own local charges! And, of course, his own charges are far lower than the cellular operator's Rs 3, since he gets his radio spectrum free! Indeed, this fee structure gives the fsp enough leeway to simply undercut the cellular operator out of business very easily.

Of course, the customer is being benefited but the lower charges are because the government is subsidising the fsp services. Surely, the first rule of fair competition is that if there is a subsidy, it should be evenly distributed to all the players?

And what about the government's resolve to give spectrum on a first-come-first-served basis? Says the ceo of a cellular service provider: "This is unprecedented anywhere in the world. And it's ridden with ambiguity and pitfalls. Who would be the first to be served—the one first to submit the application, or the one who signs the Letter of Intent, or the one to be awarded the licence, or who applies for spectrum first?" In the absence of clarity in this, say operators, the stage is being set for prolonged litigation from rejected applicants.

This has already started. The Cellular Operators' Association of India (coai) has moved court against the government decision. It has also written for help to communications minister Ram Vilas Paswan and the trai, and even sought pmo intervention. In its representation, the coai has sought a level playing field where the cellular operators are governed by the same terms and conditions as the fsps, including identical terms of entry, spectrum availability and price, revenue share and terms of interconnectivity.

The association says that allowing fsps to offer mobile services is anyway a violation of the New Telecom Policy (ntp), 1999, which makes a clear distinction between fixed and mobile service providers. Says T.V. Ramachandran, director general, coai: "The mandate in ntp 99 is quite clear. There is a clear distinction between fixed, mobile and cable services and one cannot offer services that is in the other's domain." Says Zutshi: "The problem is there is no modern legislation. All we have is an act of the medieval times and it depends on the government's discretion to get things done and when the government changes definitions retrospectively, there's not much one can do about it."

Obviously, the cellular operators smell a rat and say that some powerful companies are behind all this. They believe this is an attempt by these companies to corner precious spectrum without paying anything for it. They would then both get a smooth and cheap entry into cellular services and be in a position to sell their spectrum to others at a neat profit. The loser will of course be the government. Zutshi agrees: "Obviously, there is a huge loss of revenue here. If there is a way to raise revenue and that is not understood, what would you have otherwise?"

Domestic cellular operators were already under pressure with mtnl entering as a third operator in their circles and the announcement of a fourth one. The last two months have seen rentals and tariffs plunge. And if the government's fsp policy becomes reality, many operators could be looking at closure. In the meantime, they have all made a beeline to obtain as many of the new fsp licences as they can, for that seems to be the only means to survival. Which turns the whole thing into high farce. These are companies which have invested enormous amounts of money over the last five years, building up a business, and just when cellular telephony seemed to be taking off in India, the government changes the rules, so that there's no point any more in being what you spent thousands of crores to become.