Did you say déjà vu?

Remember what happened in 1995 when the Department of Telecom (DoT) invited
bids for basic fixed phone services in various circles across India? Almost all
the major industrial houses had bid then. The list read like a who’s who of
corporate India, with names like Reliance, Tata, Aditya Birla, RPG, Essar and BK
Modi. Delhi and Punjab had attracted nine bids each–the highest among all the
circles. Karnataka, Tamil Nadu, Gujarat and Maharashtra too, were considered
money-spinners. There were 81 bids in total by 20 private consortia. Reliance
was the highest one with 20 bids, followed by 9 of HFCL. And take a look at
this: one of the bidders, the HFCL-Bezeq consortium, offered to pay an
astronomical Rs 86,000 crore over 15 years as license fee to DoT.

In an ideal scenario, all this would have meant that today, in 2001, Indian
telephone users should, at least, be having a score of choices besides the
ubiquitous BSNL and MTNL, which operate in Delhi and Mumbai. Unfortunately, this
was not to be the case. Reliance, the then bidder in the highest number of
circles, is still to roll out a single operation. HFCL, which quoted the highest
license fee, has just begun operations in one circle. Among others, only Tata
Teleservices, Bharti Telenet, Hughes Tele.com and Shyam Telecom have begun
operations. No private operator has rolled out services in Delhi, while only one
rolled out service in Punjab, the two supposedly lucrative markets. Moreover,
none of the other states, which were then considered profitable, have private
basic operators–except for Maharashtra, which too has just one.

The high priests of telecom regulation in India would urge that the efforts
initiated by private players in 1995, died an unnatural death in a labyrinth of
governmental shenanigans. The government would appear the only guilty party (of
course, apart from the bidders who definitely had some unrealistic expectations
from the market) as the market cannot be blamed because they hadn’t started
operations. They may be right. But, has there been a drastic change in the
policy environment in the country since then or has the DoT withered away?

Did you say NTP 1999? What is the difference between it and its 1994
predecessor? Not much, except for the fact that the former came up with a new,
increased tele-density target of 15 percent by 2010.

Then why this renewed enthusiasm and that too among the same old flock that
had created a stir by quoting indecently high license fees in 1995 and then
faltering midway?

Simpletons would like us to believe that the tremendous response to the
recently concluded fixed services tenders show that the investors’ faith in
Indian telecom remains intact and that too at a time when everyone is talking of
a slowdown. But Indian telecom is anything but a simple, straight business
opportunity for anyone to take things at face value. Are all these players
serious? What is the guarantee that the 1995 saga will not be repeated?

Market sources, especially the vendors, say that the real act lies somewhere
else and a basic service license could just be a means to be part of that act.
They say that the name of the game now is limited mobility. And this is the
reason that, they believe, has motivated almost all the cellular operators to
look for basic service licenses. Limited mobility could mean good business for
basic service operators, given the relative unattractiveness of basic service in
India when compared to other parts of the world. Worldwide, telecom operators
are making money by carrying the call for more distance or providing more and
guaranteed bandwidth to business users or providing the subscriber a choice of
services by offering fixed, mobile and other value-adds. But, unfortunately for
the basic service operators, carriers in India tap all these areas with ease,
without going for fixed service licenses.

There is also a perception in the market that all this is a game for
acquiring frequency spectrum — it’s a precious limited resource. The DoT has
said that for Wireless Access Systems in local areas, spectrum–not more than 5
MHz +5 MHz in 824 - 844 MHz paired with 869 - 889 MHz band or 5 MHz in 1880 -
1900 MHz band for micro cellular architecture base system will be allocated to
any basic service operator, including the existing ones. The spectrum earmarked
is 824 to 844 MHz. The cellular operators are provided GSM band spectrum in the
range of 890-915 MHz paired with 935-960 MHz — the latter for downlinking —
and 1710-1785 MHz paired with 1805-1880 MHz. The DoT has clearly stated that
none of these bands will be used for basic services.

Moreover, the DoT has said that there will be no separate fee payable for
allocation and usage of the spectrum available for deploying "wireless
access systems". This is why many believe that prospective basic service
operators could be more interested in just getting control of the scarce
spectrum capacity than anything else. While the government has reserved spectrum
in 800 MHz for basic service operators, existing players have already taken much
of this.

According to investment bankers, the valuation of basic telecom licenses has
undergone a sea change with the advent of WLL limited mobility services. The
valuation of the spectrum has become more important than the license, as there
is no limit on the licenses but the spectrum is limited. Also, there is a clear
possibility of spectrum trading arising in the near future — spectrum can be
resold to the highest bidder.

However, if the DoT strictly adheres to what it recently said with regard to
spectrum allocation, operators would find it difficult to own spectrum in the
first place. The DoT has clearly stated that those licensees, who fail to meet
their roll out obligations for any of the first three phases as stipulated in
the guidelines for grant of licenses for basic service, will forfeit their right
to use the spectrum. This is irrespective of any other action that may be taken
by the licensor. Besides, any spectrum, already allocated or to be allocated as
per this procedure and not effectively used, will also stand withdrawn after the
expiry of one year after the date of allocation, without further reference to
the allottee and will be allocated to other users.

Whether new basic operators trade spectrum or not is a different question.
What is clear is that most of them would be looking at the basic service license
as a filler in their bigger game plan. Reliance, Tata or Bharti have all big
broadband and long distance plans. Maybe they can use their basic services to
attract customers who can be later encouraged to use their long distance and
broadband services. Serious players could be expected to benefit from the
expansion of services and the market as competition intensifies.

Ravi Shekhar Pandey