India mobile is all about spectrum politics
Telenor has faced the mother of all regulatory uncertainty in India as it stroke a deal with Unitech, which is a real estate development company, which acquired a GSM license with 4.4 MHz in 22 of the circles that the Indian continent is divided into. Unitech together with seven other operators were able to obtain their licenses in early 2008 at rock-bottom prices through a manipulated process on a first-come-first-serve-basis. Unitech flipped its license when Telenor paid 5 times more for the spectrum compared to the initial price. On back of intense criticism and active processing from consumer interests the Indian supreme court ruled a couple of weeks ago that the allocation was in violation with the Indian constitution. The licenses have been declared illegal and are quashed within 4 months (June 2012). The regulator has been instructed to make a fresh recommendation for grant of licenses and allocation of spectrum in the 2G band in 22 Service Areas by holding an auction. Concurrently, the previous communication minister is in jail waiting for a trail on irregularities while allocating spectrum.
The Indian government, the Department of Telecommunications and the Telecommunication Regulatory Authority of Indian (TRAI) are currently working to determine the ultimate auction design in order to re-auction the GSM spectrum that the Supreme Court has cancelled.
A regulatory uncertainty
The regulatory uncertainty has thrown the Indian telecom market into a stand still. Although, India is a voice centric market 3G is currently being deployed, but has not yet gain momentum with approximately 15-20 m subscribers, making up 2% of the total mobile subscriber base. This implies that the 3G networks are underutilized, but as soon as smart phones will be available at attractive prices Indian consumers will certainly jump on the mobile data bandwagon. This is set to put the 3G networks under pressure as India has so far only allocated 2 x 5 MHz to four 3G operators, which implies that at least 2 x 60 MHz, that is part of the IMT-2000 band for 3G is not used. The reason is that it is locked in with the military which does not make any socio-economic sense.
As India has up to 12 operators providing 2G in some circles each with 4.4 MHz – 10 MHz of spectrum makes the holding very fragmented reducing the trunking efficiency. The Supreme court’s decision has so far lead to that a couple of operators have decided to exit the Indian market, but a major consolidation is still to come. The regulator is signaling a more positive stance towards consolidation and the proposal is that a combined entity should not have more than 25% of the available spectrum in any circle.
The Indian operators pay a license fee on 6-10% of average gross revenues, and the regulator has proposed that it should migrate towards a uniform license fee of 6%. But there will also be a license fee imposed on tower companies set to go from 3 to 6%. Moreover, the Indian regulator is set to charge a one-time fee for excess spectrum above 6.2 MHz, adding to the spectrum bill.
A New National Telecom Policy
The government has set out the future agenda for telecom policy in NTP 2012 (New Telecom Policy) with ambitious goals and a more pragmatic stance towards the market dynamics. But, although it is taking a positive approach towards spectrum sharing the license fee mechanism is proposed to kick-in charging for not only the spectrum held by the operator but also the shared spectrum, implying that the regulator will be able to charge twice making it to a disincentive. However, the communication minister has stated that 4G spectrum will be auctioned before the end of 2012 and allocation of spectrum in the 700 MHz is also on the agenda. Altogether, the scarcity of spectrum in India is partly self imposed as the allocation and license structure is still not updated, but it is a work in progress where an important signal for international investors will be the handling of the re-auction of GSM spectrum.