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.

Getting back in the groove

Yes, I have been away for quite sometime now. But, for the first time in years, I am finally feeling positive about the telecom sector. Over the next few months, the sector should be back in the reckoning. There are multiple reasons to be positive about the sector.

After almost 18 months of chaos post the cancellation of 122 licences by the Supreme Court in February 2012, the industry is in a position to grow once again. That is because many hard decisions were taken by operators. First operators, be it big or small; new or incumbents have gone about slashing costs to the bone. That has started showing results.

Second, following the directive of the Department of Telecommunications (DoT), operators have disconnected subscribers who did use their connections for 60 days at a stretch. As a result, the mobile subscriber base has fallen by 33 million in the last 16 months to 870 million. This has resulted in an upswing in average revenues per user for almost all operators.

Third, three operators pulled the plug on their Indian operations. Then three others who got spectrum decided to bid only for a select few circles during the 2011/2012 spectrum auctions. That allowed the remaining operators to first go ahead a reduce many of the free offers. Then some of the bigger operators boldly went ahead and hiked tariffs--something that was inconceivable till a few months ago. That improved the bottomline of operators.

Four, as operators reduced their presence across circles they went ahead and cut down on jobs, many of which are unlikely to be replaced.

Five, as operators started to see voice revenues stagnate, the rush is on to get a slice of the data market, through 3G and broadband wireless access services. While the incumbent operators are still trying to get their data act in place, Sistema Shyam TeleServices today gets 35% of its revenues from data.

While all this looks hunky dory there are yet many issues that need to be sorted out. I'll tackle that in the next post.