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Telecom newbies face turf squeeze

New Delhi, Oct. 14: Communications minister A. Raja is due to announce new telecom licensing and merger and acquisition rules this week after examining a detailed report submitted by the Telecom Commission last Friday.

Officials say they have recommended that only two to three players should be granted pan-India licences because of the acute shortage of spectrum that can be farmed out for civilian purposes.

“The commission has decided to delink the issue of licence from spectrum allocation,” DoT officials said.

They said they would accept telecom regulator Trai’s recommendation that there shouldn’t be a cap on the number of players who can offer services in the country’s 23 telecom circles.

However, the spectrum shortage has forced them to come up with a suggestion that not everyone should qualify for a pan-India licence.

DoT officials added that the commission had also decided not to auction 2G spectrum and to allow operators to provide cellular services using dual technology — GSM and CDMA.

Revenue share

The commission has also accepted Trai’s proposal to increase the revenue share that is linked to spectrum allocation.

Under the new policy, operators who are given up to 10 MHz of 2G spectrum will now have to pay 5 per cent of their total revenues as spectrum licence fee. It is 6 per cent of revenues for spectrum allocation of up to 12.5 MHz, 7 per cent for up to 15 MHz, and 8 per cent for above 15 MHz.

Officials said the commission has fixed an entry fee of Rs 1,680 crore for the pan-India licence.

“By delinking the issue of telecom licence from spectrum allocation, the commission has signalled that it intends to discourage companies that are looking to make a fast buck by acquiring spectrum now and selling it later,” said officials.

Under the current policy, telecom licences come bundled with 2G spectrum — GSM operators get a minimum of 4.4 MHz of 2G spectrum in either the 900 MHz or 1800 MHz frequency bands, while CDMA players get 2.5 MHz in the 800 MHz band.

If the new spectrum allocation policy is accepted, the 35 companies that recently applied for telecom licences will not be assured of spectrum even after paying the licence fee of about Rs 1,500 crore.

Subscriber base

However, the commission has accepted Trai’s proposal that the allocation of radio frequencies or spectrum should be linked to the telecom subscriber base of the applicant.

But this is fraught with problems. “The calculation of the subscriber base for the allocation of spectrum is one of the most contentious issues in the licensing policy,” officials said.

Trai had recently recommended increasing the subscriber base criteria for 2G spectrum allocation.

The commission’s decision also implies that the pending applications of existing operators — Aircel, Vodafone, Idea and Reliance Communications (for its GSM foray) — will take precedence over the other applications.

Aircel holds licences for 14 circles, Idea for one and Vodafone for six. However, they have been unable to launch these services in the relevant circles as they are yet to be allocated 2G spectrum. These players will now be able to complete their national footprint.

Under the current policy, telecom licences are awarded on a first-come, first-served basis where 2G spectrum comes with the licence.

Crossover limit

The commission is also learnt to have gone ahead with the existing crossover limit of 10 per cent. This means that when a company has a stake in two service providers operating in the same circle, it must limit its equity in one of them to less than 10 per cent.

Trai had suggested that the cross-holding limit should be raised to 20 per cent — a proposal that the Telecom Commission has refused to accept.

Under the current rules, a merger of two telecom entities operating in the same circle is allowed only if their combined market share is less than 67 per cent. This is to discourage the creation of telecom monopolies.

The market share is calculated on the basis of a subscriber base and not revenues.

Trai had suggested that this threshold should be brought down to 40 per cent — a recommendation that has been accepted by the Telecom Commission. However, some telecom operators — especially GSM players — are arguing that the 40 per cent limit is too low.

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