Who is the Telecom Commission batting for?

It took the babus in the Department of Telecommunications (DoT)30 days to pore through the recommendations of the Telecom Regulatory Authority of India (TRAI) on spectrum pricing. At the end of that, the Telecom Commission is doing everything it can to wipe the smiles off telecom operators. The nine-member panel of the Telecom Commission has endorsed the DoT suggestions. The suggestions go all out to favour just one company that has yet to formally launch services.

Despite the fact that there were no bidders in the March 2012 auctions, the Telecom Commission is not in favour of a sharp cut in the base price for spectrum. TRAI had recommended a 46.6 per cent cut in the base price for 5MHz of nationwide spectrum in the 1800MHz band. That makes eminent sense. What the TC should realise is that there is a world of a difference between the base price and the discovered price in the auction. What a lower price does is intensify competition. But then the babus are not known for their knowledge of economics, unless it relates to them personally.

Two, it has issues on a flat spectrum usage charge (SUC) of 3 per cent. DoT argues that since revenue from auctioned and non-auctioned spectrum cannot be segregated, it is impossible to do so. Currently operators pay anything between 1 to 8 per cent depending on the amount of spectrum they have. Considering that the country managed to clean up its import duty structure by reducing the levels, it can be done in telecom too. After all, one need not pander to the whims of one company.

Three, it has questioned the need to open the eGSM band for GSM services. That's surprising since the number of CDMA subscribers has been falling for years. What opening up eGSM will do is provide an additional 10MHz of spectrum in the coveted 900MHz band. It would ensure that people get better services. Choking the pipe will only raise the burden on operators. Not opening is a great idea if all that the government wants is one operator while all others shut shop.

What happens to consumers? And the amount of jobs lost in a slowing economy? It's time the TC thought about the needs of the country rather that of a couple of companies that have all along tried to bypass the system.

Isn't it time that the TC stood up for the needs of a billion people demanding better and faster connectivity?

Uninor on the rise

The green shoots are beginning to show in the Indian telecom sector.

Uninor has achieved financial breakeven in two more circles--UP West and Bihar. After achieving breakeven in five of its six circles. Uninor has now achieved EBITDA break-even in UP West, UP East, Bihar (and Jharkhand), Andhra Pradesh and Gujarat. That leaves out only Maharashtra, which is expected to achieve the milestone by the end of 2013.

“Uninor is well on its way to meet a commitment of pan-India breakeven that was made 3 years ago when we started. In the process, we have been able to bust prevalent myths that efficiency needs scale and profitability needs high-end services with expensive tariffs,” said Yogesh Malik, CEO of Uninor

As of end-August, Uninor had 32.5 million mobile subscribers. While UP East had 7.7 million subscribers, Maharashtra had 5.8 million and UP West 5.3 million. The advantage that Uninor has is that its lower costs per minute (upto 40% lower) and sabse sasta tariffs (upto 60% cheaper)helped it achieve its financial break-even.

TRAIng to get telecom on track

It was quite on the lines of what the doctor had prescribed for India's troubled telecom sector. In a landmark recommendation, the Telecom Regulatory Authority of India (TRAI) has cut through the red tape that has bogged the sector. It cut the base price for 5MHz of spectrum in the 1800MHz band by 46.6 per cent to Rs 7,480 crore. That will be a huge relief for bidders in the next auction. That was not all. It also recommended:

• There be no reservation of spectrum for the renewal of licences in the 900/1800MHz band 
• Asked DoT to come up with a clear roadmap before the auctions 
• Should look at the adoption of the E-GSM band in a time-bound manner 
• Spectrum usage charge would be a flat 3 per cent of AGR for mobile and BWA services 
• Permit spectrum trading 

Says Hemant Joshi, Partner, Deloitte Haskins & Sells: "The recommendation by TRAI in reduction of the spectrum price is a very welcome move considering the current market realities and recent failed auctions.We still believe that the DOT / Govt should consider starting with the floor price of zero and let the market forces decide the final price for the spectrum." However, companies that bid in the earlier auctions are not particularly happy about the reduction. Says Arvind Bali, Director & CEO, Videocon Telecommunications Ltd: "We hope the Government will recognize the importance of new players and support them. We strongly recommend that the excess money paid by us ie difference between the price paid by us and the successful bid price of the upcoming auction should be refunded back to us either in monetary terms or through additional spectrum”.

That's something that the Department of Telecommunications (DoT) has to sort out and that too quickly. However, the issue is not that complex as it seems to be made out. TRAI has not changed or marginally tweaked the base rates in 11 of the 22 circles. This includes all the six C circles and five of the eight B circles. It has gone ahead and lowered the base price in the four circles--Delhi, Mumbai, Karnataka and Rajasthan--which did not receive any bids whatsoever. That leaves just seven circles where rates have been lowered. That leaves seven circles--Kolkata, Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu, Haryana and UP West--where prices were lowered despite the bidding.

It remains to be seen how quickly the DoT can go ahead with the auctions. While the lower price for spectrum is great news for Bharti Airtel, Vodafone and Idea Cellular, they need to get cracking on the auction of spectrum in the 900MHz band if they need to retain the advantage. That's where the entry of Mukesh Ambani's Reliance Jio Infocomm could prove to be a area of concern.

Sunil Mittal back in the fray?

It may be tough times for the Indian economy, but, the Indian telecom industry seems to be finally getting back on the growth track.

Currently, the Department of Telecommunications (DoT) is finalizing the M&A norms and the Telecom Regulatory Authority of India (Trai)is to come up with the base price for spectrum auctions later this fiscal. All this should be in place by mid-October.

Already, the first stirrings of M&A in the sector have begun in earnest. It is believed that Sunil Bharti Mittal led Bharti Airtel has emerged as the frontrunner to acquire Mumbai's Loop Mobile, that is owned by Kiran Khaitan and her husband IP Khaitan. Kiran happens to be the sister of Essar Group's Shashi and Ravi Ruia. The advantage that Loop Mobile offers is that it has 8MHz of spectrum in the 900MHz band. Bharti currently offers services in Mumbai on the 1800MHz band.

However, for the deal to fructify, the government has to come clean on the M&A norms. Loop's licence expires in end-2014. This is not the first time that Loop Mobile has been seeking a suitor. The companies that had sought to acquire it include Norway's Telenor, Malaysia's Maxis and Idea Cellular.

It is still early days for M&A to begin in the sector. But, the signs are all there. It will depend on how quickly DoT and TRAI can come up with their recommendations. It could well be the booster shot that the economy needs at this juncture.

Swapping spectrum

The Communications ministry and the Department of Telecommunications (DoT) have been looking at various means to solve some of the most compelling problems facing the sector for sometime now. Recently, DoT has come up with a swap formula. Under this Defence has been asked to vacate 15 MHz of spectrum that it has in the 2100MHz band in exchange for the same amount of spectrum in another frequency band--most possibly the 1900MHz band. The 2100Mhz band is being used for 3G services.

What the swap does is provide three bands of 5MHz across the country to mobile operators. That will help operators offer 3G services across the country. Currently, no private operator has 3G spectrum across the country. Bharti Airtel, Reliance Communications and Aircel have 3G spectrum in 13 circles, Idea (11), Vodafone and Tata Teleservices (9 each). In the May 2010 auctions, DoT had offered 20MHz of spectrum in the 2100MHz band for bidding. Of that one band of 5MHz was reserved in 20 circles for state-owned Bharat Sanchar Nigam Ltd (BSNL). In Delhi and Mumbai, it was reserved for Mahanagar Telephone Nigam Ltd (MTNL).

That could well clear up the imbroglio in providing 3G services. What this initiative means is that every existing 3G operator would be in a position to offer services across the country. Currently, operators have gone in for intra circle roaming (IRC) agreements to offer services in circles where they do not have spectrum. This has been deemed inappropriate by DoT. More importantly, defence is currently not using the spectrum.

The other advantage as far as the government is concerned is that it can put these blocks up for bidding and expect reasonable interest from incumbent operators. That should help shore up government revenues too.

It looks that finally the government is looking to untangle the telecom mess.

Faria appointed CEO of Airtel Africa; Manoj Kohli returns to India

It has been in the air for some time now. Manoj Kohli, MD & CEO (International) of Bharti Airtels's African, Bangladesh and Sri Lanka operations will relocate to India starting January 1, 2014. He shall be replaced by Christian de Faria, who for the last seven years has held senior leadership positions in African mobile leader MTN including Executive Vice President, responsible for the operations for West and Central Africa Region and later as Group Commercial Officer for two years until January 2013.

As CEO of Airtel Africa, Christian will be responsible for providing overall leadership for the African operations and will be fully empowered to manage its P&L. He will lead the growth agenda across markets and build key skills and capabilities within the organization. He will also be co-opted on the Board of Bharti Airtel International Netherlands B.V. and on the boards of major operating companies in Africa. Christian has over 30 years of industry experience and has worked with MTN, Telekom Malaysia, Discvision, Deutsche Telecom and Grundig.

Manoj who has been in Africa now for over three years had the mandate to turn around the African operations. While Airtel Africa has seen annual revenues at $ 4.4 billion come close to the targeted $ 5 billion, the same cannot be said about EBITDA. During 2012-'13, EBITDA was $ 1.1 billion against the target of $ 2 billion.

It is still not clear what the new role for Kohli will be once returns to India. The Bharti Airtel media release states that Manoj would lead strategic issues such as in-market consolidation via M&A, key matters relating to towerco, global partnerships,global sourcing from key partners and strategic regulatory aspects. Additionally, Manoj will be responsible for the business development/M&A function for the telecom business and be involved with the group strategic matters. He will continue his position on the boards of Bharti Airtel International Netherlands B.V. and Airtel Networks Ltd, Nigeria.

The contentious issues

Things are finally beginning to look up in the Indian telecom industry. However, there are many issues that need to be sorted out, and that too quickly for the sector to truly take-off once again.

1. Pricing of spectrum The biggest problem relates on how to price spectrum. The last two auctions failed to take-off simply because the base price approved by the Department of Telecommunications (DoT) was way too high for an industry beset with problems. Despite two rounds of bidding, there were no bidders for GSM spectrum in Delhi, Mumbai, Karnataka and Rajasthan despite the fact that there were many new operators in the fray. After all, the four circles had a combined base price of Rs 6873 crore that accounts for 49 per cent of the total base price.

Possible solution The Telecom Regulatory Authority of India (Trai) has just concluded an Open House on this issue. The obvious way is to go in for cutting the base price of spectrum in these four circles between 25-30%. That would in turn effectively reduce the nationwide base price by almost Rs 2,122 crore. That could make the circles attractive.

Problem area While that would make life easier for the current GSM operators, the dual technology operators and are opposing it.

2. Refarming of 900Mhz band The other big debate is over the refarming of spectrum in the 900MHz band.

Possible solution: The government could come up with a mechanism to release spectrum in the 900MHz band when the licences are due for renewal and open it to all operators for bidding. There is currently a proposal to provide 2.5MHz to existing operators at the discovered price in the auction.

Problem area The incumbent GSM operators are strongly opposed to this model. However, there is a suggestion that the governmnet open up the E-GSM band for GSM operators. That would provide operators around 10Mhz of additional spectrum in the 900MHz band.

3. Spectrum trading The TRAI is considering the possibility of introducing spectrum trading.

Possible solution This could happen since all operators are in favour of it. It is important for consolidation to happen in the sector.

Problem area DoT is not particularly in favour of spectrum trading. That could well be the biggest problem area.

4. The M&A norms All operators are awaiting clarity on this. After all, the fewer the number of operators, the better it is for the industry. It remains to be seen what is finally agreed upon.