Tata vs the rest

It is unfortunate that the battle for radio spectrum frequencies, on which mobile phone signals travel, has boiled down to a fight between Ratan Tata and the rest of the industry, with the government weighing in on the side of the industry. While the industry and ministry of telecom are of the view that the spectrum should be allotted for free to companies on the basis of the number of subscribers they have, Mr Tata has argued that this is an incorrect way to do things. It might be (and has been) argued that, since the Tata telecom company does not qualify for more spectrum under the current allocation norms, while its competitors do, Mr Tata’s objections are self-serving. Even if that is the case, there can be no doubt that his arguments are valid. Apart from the loss of money to the exchequer (Mr Tata suggested a minimum fee of Rs 1,500 crore from each company that gets additional spectrum), there is the strong possibility that the subscriber numbers themselves may have been puffed up in order to qualify for more spectrum, since the government is linking the two. The US-based Yankee Group, for instance, has correlated the sale of new and second-hand handsets in the country with the reported addition to the subscriber base, and concluded that 10-15 per cent of the reported subscriber base may be fake.

Apart from linking spectrum allocation to the subscriber base, the important issue that is being debated concerns the two technologies used by mobile phone companies (GSM and CDMA), and claims about which technology is spectrally more efficient. Airtel, Hutch, Idea and others are GSM-based, while Tata and Reliance are CDMA-based. Initially, when CDMA-mobile phones were allowed to offer full-blown mobility, it was argued that CDMA phones were five times as spectrally efficient as their GSM counterparts, and their entry into mobile telephony would help make better use of a scarce resource—that is, they would use only a fifth of the spectrum to service the same customer base. Later, the telecom regulator argued that, on grounds of technological neutrality, both the GSM- and CDMA-based firms should get the same amount of spectrum. In between, the spectrum allocation committee fixed a norm which gave the CDMA firms half the spectrum given to the GSM lot. Since the two sets of operators bring in experts to certify to completely different spectral efficiencies, it is obvious that any new norms that are adopted will lead to a host of allegations as to how and why they were arrived at.

As this newspaper has suggested earlier, the rational thing to do is to auction the spectrum. Presumably, the GSM- and the CDMA-firms will factor in real (and not claimed) spectral efficiencies. As for the fears expressed that auctioning spectrum will lead to over-bidding and therefore higher subscriber charges, not to speak of spectrum hoarding, a lot depends on how the auction is conducted. The fourth cellular licence did not lead to exorbitant bids since the companies had to pay the money upfront, and in any case, subscriber tariffs depend upon what the market can bear and not on costs per se. Besides, the bidding process itself could stipulate a tariff ceiling. As for cornering of spectrum by those with greater financial muscle, the bid documents could stipulate a time frame for the spectrum to be used, failing which the spectrum will be forfeited.