Impact of mobile number portability

We have been hearing for the past few months regarding the introduction of Mobile Number Portability (MNP) in India. DoT has now opened the tender for providing MNP services. Names of the winners will be announced in February 2009. So it's unlikely for the service to be active anytime soon. Nevertheless, MNP will be a big boon to Indian mobile users, as it will free them from the tyranny of mobile operators. At the moment, someone who wishes to change his/her mobile operator has to surrender the existing mobile number and get a new one. This has been a big deterrent to those who want to switch operators. Despite initial opposition, the incumbent operators have now agreed to support MNP. If, as expected, MNP is launched in the second half of 2009, the new 2G operators and prospective 3G operators will benefit the most as they seek to create churn from the incumbents. End users will also finally have real choice. However, it must be noted that they will be expected to pay a fee to get the number ported.

3G Watch

According to Mr. A. Raja, India's Minister for Communications and IT, auction of spectrum for 3G services will finish by mid-Jan 2009. He also mentioned that BSNL and MTNL have already been given 3G and WiMAX spectrum and rollout of services is expected within the next couple of months.

In a related development, the CDMA Development Group (CDG) announced that it's holding discussions with the Indian Govt. for releasing spectrum for EVDO services in the 450 MHz band. As per the current plan, CDMA operators are expected to get 3G spectrum in the 800 MHz band only.

Finally, there is speculation that the roll-out norms for new operators might be relaxed.

Another Twist

While the wait for auction of 3G spectrum goes on, the DoT has yet again made changes to the 3G guidelines issued in August. This time it's to do with spectrum fee to be paid by potential 3G operators. The Telecom Commission has approved DoT's proposal to charge greenfield 3G operators 3% of their Annual Gross Revenue (AGR) as annual spectrum fee. This will affect those entities that do not currently operate a 2G network in the country. An incumbent 2G operator will have to pay an additional 1% of the AGR on top of the current spectrum fee that it pays to the DoT, if it is alloted 3G spectrum after the auction. Note that the current spectrum fee ranges from 2-6% of the AGR, depending on the amount of spectrum held by the operator. The rationale behind the new policy is to maintain a level playing field between new and incumbent operators. Earlier, DoT had proposed that operators split the revenues accrued from 2G and 3G services, and pay separate spectrum fees for each.

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.