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Is there room for a fifth cellular operator?

The telecom industry is exploring a host of new possible scenarios: a unified licence regime, increased foreign investment, intra-circle mergers, etc. One of the issues currently being debated is the reported demand by WLL operators to convert their limited mobility licence to full mobility on payment of a fee. Is there need – and scope – for a fifth cellular operator in the current market scenario? And if so, what should be the procedure for the allocation of new licences? Here are some experts’ comments on the subject….
 

Manjul Bajpai
In my opinion, it is not possible for any operator to pay any amount to the Department of Telecommunications (DoT) and get a fifth cellular licence without following the due process of law. Them law mandates that DoT should first seek the recommendations of the Telecom Regulatory Authority of India (TRAI) on the need, timing, etc. for introduction of a fifth cellular operator. Thereupon, the authority has to issue a consultation paper, invite participation and comments from all stakeholders and others and only then make reasoned recommendations. It is only after receipt of these recommendations from TRAI that DoT can take any decision.
 

S.C. Khanna
The basic service operators (BSOs) had, while signing their licence, already paid an entry fee. Since WLL (M) has been permitted as a value-added service and it very much a part of the basic service licence as held by both TRAI and Telecom Disputes Settlement Appellate Tribunal (TDSAT), there is no justification whatsoever for any additional entry fee to be levied at this juncture. BSOs have paid more and have more onerous licensing terms. The playing field is already in favour of cellular mobile service providers and imposition of any additional entry fee would only tilt the playing field more against BSOs and render WLL (M) services unaffordable and unviable.
 

This also happens to be exactly in line with TRAI’s recommendations of January 8, 2001, which were accepted by the government. Later, the rollout obligations of post-NTP, 1999 BSOs were made more stringent and additional performance bank guarantees of Rs.500 million were imposed on six pre-NTP, 1999 BSOs. The retention of access charges (revenue share) for WLL(M) revenues of all BSOs were reduced from 60 per cent to 5 per cent.
 

Keeping this in mind, any additional entry fee would adversely affect the affordability of WLL(M) and the current growth of 2 million phones per month.
 

Sanjay Mehta
If we look at the overall telecom market scenario, particularly in the wireless space, there are over 20 million subscribers between GSM and CDMA operators. At the current growth rate, the market would be well over 100 million subscribers in five years’ time. So, effectively, less than 20 per cent of the market potential has been captured. Therefore, at one level, we can say that there is space for everyone to participate in the growth. But on the flip side, there should not be so much capacity created that it leads to a continuous decline in tariffs and makes the sector unviable.
 

In any dynamic market with unlimited competition, it is generally market forces that determine the number of players, provided the regulatory environment is effective that is, it is non-discriminatory, transparent and independent. As the regulatory environment and competition laws in India are still evolving, it is possible that the market will go through a painful and chaotic phase of restructuring and consolidation in reaching the optimum number of players.
 

Mohit Saraf
A “need” for a fifth cellular licence must be examined from the perspective of all the stakeholders. Who needs more cellular licences and whose interest would this serve – the consumer, the government, basic operators, new players? Perhaps not the existing cellular operators.
 

It is significant that a proposal (for a cellular licence) from the basic operators comes at a time when the telecom sector in India is embroiled in controversy and is seemingly overwhelmed by utter chaos. The cellular operators have been crying foul in public and private forums that limited mobility is a “wolf in sheep’s clothing”. They have been alleging that the huge differential in the entry fees charged to cellular and basic operators is inimical to the creation of a level playing field. The next step, it is suggested, is either payment of higher fees by the basic operators or a partial refund of the fees paid by the cellular operators to the government.
 

The teledensity in India is still abysmally low by any standards. The potential for market penetration is correspondingly very high. The rapid expansion in the customer base of basic operators providing limited mobility services establishes that there is a huge potential for expanding the market, provided the tariff is attractive. The case for increasing competition by allowing more players is therefore strong. Both basic as well as cellular telecom players are today vying for a greater share of an increasing pie. The danger of bankruptcy-inducing pricing by telecom service providers appears remote.
 

A way out of the bewildering labyrinth of the telecom disputes that threaten to overwhelm all stakeholders seems subtly embedded in two recent developments recounted below.
 

The group of Ministers (GoM) recently recommended that intra-circle mergers and acquisitions be allowed. This is an implicit-acknowledgement of the need for more players and increasing competition in the market.
 

Equally noteworthy is a recent 2:1 majority judgement delivered by the TDSAT, which has asked the government to maintain the distinction between cellular services and WLL(M) services provided by basic operators. The judgement also upholds the right of basic operators to provide value-added facilities like SMS, caller line identification, call forwarding and high speed data access. Allowing value-added services by basic operators (including call forwarding) further narrows the gap between mobility and limited mobility.
 

The said TDSAT decision has actually further blurred the thinning line between cellular services and limited mobility services even as it calls on the government to maintain the distinction. It is generally accepted that allowing mobile switching systems makes policing of SDCAs a technical nightmare. The TDSAT appears torn between emphasizing legal niceties and acknowledging a reality far removed.
 

There is now a stronger case for doing away with the concept of limited mobility altogether and acknowledging only full mobility. This is not an asymmetrical argument advanced for the benefit of limited mobility players. Its advantages are a manifest and its need natural. Granting the fifth or perhaps more cellular licences is one way in which “systemic correction” in the telecom sector can be sought. The objective of such an exercise is laudable, through its long-term impact is somewhat suspect.
 

There is an urgent need to diagnose the “disease” rather than treat the symptoms alone. For this, it is imperative to understand the basics of the “telecom tangle” – two sets of operators with significantly different cost bases are providing substantially similar services. The lower cost base (due to lower entry fee) paid by the basic service providers translates into lower tariffs and therefore more customers. As long as there is a differential between the basic cost of operations (due to the entry fee) between different operators there is a continuing unfair price advantage. Awarding more cellular licences but allowing some basic service operators to continue to provide limited mobility services does not solve this fundamental problem.
 

The proposed unified licence regime that has been mooted by the telecom regulator actually has the potential to meaningfully address this issue. A unified licence would enable the basic service operators to offer cellular services and vice versa. In effect, a “cellular” licence would be given to the basic service providers and limited mobility would vanish. Thus, there is a case for a fifth – and more – licence under the umbrella of a unified licence scheme only.
 

Any further licences granted for cellular services should be within an enlightened unified licence framework only. If this is not done, the ghost of limited mobility is like to rear its ugly head once again – spelling definite disaster for the telecom sector.
 

Mahesh Uppal
If the limited mobility licence is converted into a full cellular licence, a place like Delhi would have seven mobile players. Even London, New York and virtually all the other large cities in the world do not have that many. Hong Kong’s six licensees would seem to be the significant exception. Consequently, prima facie, there does not seem to be a need for a fifth cellular player in India.
 

If yes, what procedure (bidding or otherwise) should be adopted for allocating the licence?
 

Manjul Bajpai
In the case of introduction of the fourth cellular licence, DoT had recommended a three-stage open bidding process. Some similar fair and transparent process would have to be implemented for introduction of a fifth cellular operator as well. Any other method would fall foul of laid-down law and procedure.
 

S.C. Khanna
No comments.
 

Sanjay Mehta
If we are talking about unlimited competition in the cellular space, I do not think we need to follow a different model than what was followed for basic services, and for domestic and international long distance services, that is, free entry for service providers based on a predetermined licence fee. This would lead to issues on allocation of spectrum, which should be auctioned based on each operator’s requirement.
 

In the backdrop of current litigation between WLL and GSM players, fixing a predetermined fee would indeed be a big challenge for the union government. Let us hope that the group of ministers will be able to find some sensible answers to put the current litigation to bed and that all telecom players can thereafter move forward in implementing their business strategies without any ambiguity on this important variable.
 

Mohit Saraf
Since the primary objective of the grant of fresh cellular licences would be to correct the present technology-restrictive policy, licences would need to be offered to only interested basic operators who meet certain minimum criteria.
 

The price paid by the fourth cellular operator may (after suitable adjustments) be determined as the reserve price. A limited financial bid between qualifying parties should lead to the award of an additional cellular licence.
 

The projected revenues of the new entrants and the higher “cost of competition” would have to be accounted for before a logical and lasting solution to the vexing issue of a “fair price” is arrived at. In the final analysis, it is well worth reminding ourselves that the price to be paid for not fixing a fair price is way too high
 

Mahesh Uppal
The only way would be to ensure that the entry of a fifth cellular operator is transparent and on a competitive basis. If the fixed line or limited mobility service licence has to be converted into a cellular licence, a valuation of these and existing mobile licenses before and after such entry needs to be carried out by a mutually acceptable agency.