Auctioning spectrum will not give us growth'

Telecom Regulatory Authority of India (TRAI) chairman Pradip Baijal is in the eye of a storm. TRAI’s draft spectrum allocation paper has been seen as tilting towards code division multiple access (CDMA) mobile phone companies Reliance Infocomm and Tata Teleservices.
Some telecom companies have also argued that spectrum for 3G services should be free, a viewpoint Baijal shares. In an interview to Business Standard, the TRAI chairman defends his position.
Why shouldn’t spectrum be auctioned, as Ratan Tata seems to suggest?
I expected Ratan Tata to make this kind of a comment. Even Reliance in some of the meetings suggested that spectrum should be auctioned.
3G services were auctioned in Europe, the governments made huge money but the growth of 3G got stunted. In India there was a huge entry fee when auctions took place in 1994, the telecom companies were unable to pay and so we shifted to revenue share which saved the telecom sector.
But the sums of money that can be obtained by way of spectrum fees are attractive
The amount the government received through revenue share was higher than what it would have received in the earlier system. Consumers and growth are my priority.
Ratan Tata will pay Rs 1,500 crore, maybe three or four others also will. We will get Rs 6,000 crore but the telelcom industry will not grow. Sunil Mittal introduced Blackberry services and each phone cost Rs 30,000 – at this price, he was not able to sell them.
So he gifted 1,000 sets to his friends. In India we don’t have the kind of market that can sustain such services. There can be big players who will pay this money and use this spectrum, for 4 to 10 years down the line.
I would have cornered Rs 6,000 crore but that amount would have been paid by the consumer. Similarly, we can easily have 400 radio stations in the country, but just have 12 or 13, thanks to the huge entry fees.
You’re assuming that bidding will lead to higher tariffs. Reliance paid Rs 2,000 crore for its licence, the cellular firms paid Rs 1,633 crore for the fourth licence, but tariffs fell despite this. Your basic assumption is that 3G is a natural extension of 2G and so should be free. By that logic, there will never be any new players.
You can’t answer micro questions in isolation, you have to look at the macro picture – and that is the need for the telecom industry to grow.
Today even the 2G companies have too little spectrum (our recommendations bring that out). So do we charge for that or not? Interestingly, some of the services being offered by the global system for mobile (GSM) companies today are considered 3G.
The International Telecommunications Union (ITU) says the 1800 MHz band which the GSM firms have is 3G compatible. All over the world operators start with an initial allocation of 10MHz. Here they start with 1.5 or 4.4 MHz. They got less spectrum, so they did improper network planning.
Wasn’t it your view earlier that each player had too much spectrum?
I’ll come to that later. I read everything that has been said on the matter by critics. When I said that, we had 15 million subscribers, today we have 55 million. And two years ago, it didn’t look as if the growth would be so huge.
Isn’t the TRAI to blame for the current spectrum problem? You said there was enough spectrum earlier and implicitly that was used to justify getting more companies into the mobile market. Now you say there’s too little spectrum.
Of course we have too many players. Which is why we came up with our mergers and acquisitions (M&A) paper. In any case, the CDMA companies got 800 MHz spectrum which the cellular players couldn’t use anyway.
So your argument about TRAI having created the problem is incorrect. Also, when we had three companies, tariffs didn’t come down. They came down only after there were more companies. So we need more companies.
Are you saying that M&As will take care of the spectrum problem as there will be fewer survivors?
No.
Didn’t prices come down because of the calling party pays system which was delayed for a long time?
CPP was a factor, but the existence of more companies really drove down prices and increased growth.
But haven’t you been unfair to GSM companies? You’re giving CDMA companies 3G spectrum while GSM companies will get it after 18 months.
I’ve recommended more spectrum for both. But we have spare CDMA spectrum today and won’t have extra spectrum for GSM companies till the armed forces vacate it. So should we starve the CDMA companies of spectrum meanwhile?
The CDMA companies already have excess spectrum. They themselves said they were five times as efficient as the GSM companies.
When CDMA came in, they said that they are five time more efficient than GSM. So we looked at the international literature – we understood that when spectrum is used very sparsely, CDMA is much more efficient.
But when you load the spectrum properly, CDMA and GSM are equal.
The TRAI is not the authority to decide on spectrum anyway. The Wireless and Planning Coordination (WPC) wing of the DoT does this and it says that CDMA firms have enough spectrum.
I don’t want to get into WPC versus TRAI, but we have enough evidence to show the spectrum allocation is inadequate. The WPC was operating in the knowledge that there was very limited spectrum. So it just tried to optimise the allocation of this.
Why do other countries have no shortage of spectrum while we have a shortage?
We had extensive discussions with users – the army, the police and the space authorities. I told them that the world over mobile operators have no problem of spectrum.
So why are you people becoming a spoilsport and not giving me spectrum? Having heard their arguments, I think they have a genuine point.
What did you ask them for and how much spectrum were they ready to vacate?
We told the army etc that it needs to vacate part of the 1800 and 2000 MHz. It said that it would be able to vacate 2000 MHz faster than 1800MHz. So we said, give this 2000 MHz spectrum to the existing 2G companies, otherwise they will choke.
I said, give them 2000MHz free –they will transfer some of their subscribers who are on 1800 MHz to 2000 MHz, especially consumers who can afford 3G telephony.
Not auctioning spectrum will mean that even 10G services will be offered only by the existing companies
I’m not saying that there’ll never be an auction. I’m saying, give the existing companies enough to match global benchmarks, and if there’s extra, auction that.
In any case, 4G, 5G spectrum is quite different. I’m a bureaucrat and the easiest thing for me to do is to play safe and follow a transparent policy of auction.
But that would not give us growth, and that is supreme. I also do not believe that the spread of 3G services will be very fast. So for the time being we can use 3G spectrum for the expansion of 2G services.
But does that mean that new companies will have no chance to enter the arena? You are merely ensuring that existing companies get the spectrum for new services, whether it is 3G or others, free.
Let’s assume that Vodafone says it wants to come to India. So then we should auction spectrum. But that process will not help India’s teledensity.
So I would like the spectrum to be used by existing companies. But whenever the number of companies is reduced through consolidation and spectrum is available, I will allow more companies to come in.
I am not eliminating the new companies but in areas where you have seven companies it does not make any sense to allow an eighth so that every one goes hungry.
But GSM companies say that by offering spectrum earlier to CDMA companies that will use it for starting 3G services and by assuring the GSM companies that they will get their spectrum only at the end of 2006, you are ensuring that the CDMA companies have an edge over the GSM ones.
We have said, the remaining 7.5 MHz available should be given to CDMA companies now. For GSM companies, get more spectrum vacated and give it to them.
Even today you can have 3G services – there is no ban on them. Both GSM companies with Edge and CDMA companies with 2000ix are giving 3G-like services.
It is an illogical argument – if both GSM and CDMA companies are offering similar services, why should I differentiate between them on spectrum allocation? And they have more spectrum than the CDMA companies. But Qualcomm said in its presentation that CDMA is five times more efficient. So how do you justify giving CDMA companies spectrum that’s equal to what GSM companies get?
That argument was made in a particular environment which I explained to you. So what do I do? I tell them you said you were more efficient, so now you are doomed? Many would argue that you could have used the Rs 9,000 crore obtained from auctioning spectrum to fund the Universal Service Obligation (USO) or rural telephony and it would have actually helped in increasing teledensity. Instead you are giving spectrum free for an expensive service.
We have had USO for the last 50 years but where are we today? The penetration of telephones is 27 per cent in urban areas and 1.7 per cent in rural areas.
All the USO efforts lead to a flat curve. So until you create a market in rural India, there cannot be growth. You created a market in urban areas but haven’t created a market in rural India.
Also, the way we have taxed our telecom sector has not been wise. Don’t go on milking the cow till it goes dry.
I know very well that I won’t be able to give adequate spectrum to GSM and CDMA companies. My only policy option is to take 3G spectrum and develop 2G kind of services till you come to 3G services and equipment.
There is no shortage of spectrum in rural India. We are recommending changing the policy for greater rural coverage. We have to make it an attractive market rather than subsidise sponsored programmes.
What about the allegations made in the email from Manoj Modi to Mukesh Ambani that you were aware of Reliance Infocomm’s illegal call routing?
Suppose I am mixed up with Reliance. Do you seriously believe that I can help it? If Bharat Sanchar Nigam Ltd is losing money, it will not keep quiet. It will say that the regulator is mixed up.
Two, who took up these cases for early investigations? I took up these cases and they got punished. I am giving a notice to the newspaper. Its report is yellow journalism.