Politics of Spectrum

When the government issued new telecom licenses earlier this year, the move was expected to improve penetration of mobile communications services, especially in suburban and rural areas, thereby increasing the teledensity. With increased competition in each circle, tarrifs were also expected to come down. Among the new licensees were 5 new operators. The DoT decided that 4.4 MHz of starting spectrum will be provided to each licensee without any auction. The rationale given for this approach was that the same process had been applied until now and changing it would be unfair to the new players.

In Sept 2008, Etisalat of UAE bought 45% stake in one of the new operators, Swan Telecom, for nearly $900 million. Swan paid Rs Rs 1,537 to get license for operating in 13 of the 22 telecom circles in the country. In October 2008, the Norwegian operator Telenor paid Rs 6120 crore to acquire 60% stake in another new operator, Unitech. Note that the latter paid Rs 1,650 crore as fee for getting a pan-India licence. Neither Unitech nor Swan Telecom has actually started operating although they have obtained spectrum in some of the circles for which they have license. Now, a big political storm has now erupted in the wake of these deals with opposition politicans alleging that the the national exchequer lost a huge amount of money by not auctioning the 2G spectrum, instead of virtually giving it for free alongwith the license. The concerned Minister, Mr. A. Raja has defended his actions and even threatened to resign. The Minister has hit back at his detractors by hinting at a criminal investigation into allegations that existing operators formed a cartel to prevent the entry of new players.

These events, coming in the wake of postponement of the 3G spectrum auction and the controversy over determination of revenue split between 2G and 3G services (for computing the spectrum fee to be paid by potential 3G spectrum owners), once again illustrates pitfalls of the current ad hoc approach of DoT towards spectrum allotment. In order to avoid such controversies, the government needs to adopt a well-defined policy for all future spectrum allocations, following best practices adopted internationally.