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Corporate Jan 25, 2013

Telco lobbying in high gear: fear of Reliance is the key

By Sindhu Bhattacharya

New Delhi: The telecom industry is truly a dog-eat-dog world. Not only is competition intense between telecom players who belong to rival lobbies of GSM and CDMA dual technology players, there are divisions also along the lines of foreign versus Indian telcos.

Currently, some big players are joining hands to oppose any move that may prove advantageous to Reliance Industries, known for fostering disruptive policies in the past. Each interested party, depending on the issue at hand, forms a lobby group or camp and then writes copious letters to the Department of Telecom (DoT) opposing any and every policy move, before anyway dragging most such decisions to court.

To illustrate how competitive and often small-minded telecom companies become, we will take two separate missives sent by two distinct lobby groups to the DoT in the last two days.

The Hindu Business Line reported yesterday that the GSM operators' industry association, representing firms such as Airtel, Vodafone and Idea Cellular, has told DoT that Reliance's gameplan to offer voice using broadband spectrum is an attempt to enter the voice market through the backdoor. Nearly 85 percent of GSM operators' revenues come from voice calls and Reliance's entry could take away some of that market share.

CHAIRMAN OF RELIANCE INDUSTRIES LIMITED AMBANI SPEAKS IN BOMBAY.

Spreading fear in the world of telecom? Reuters

The GSM players had raised similar concerns in 2001, when RIL had entered the mobility space through a fixed telephony licence using CDMA technology (called wireless in local loop at that time). The fresh battle is over Reliance-owned Reliance Infotel's plans to offer voice services using 4G spectrum. Infotel had acquired broadband spectrum in 2010 under an Internet Service Provider licence. According to the Cellular Operators Association of India (COAI), Reliance Infotel had the option of taking a unified access licence in 2010 by paying an additional Rs 1,650 crore, which would have allowed it to offer voice services. But the company chose to pick an ISP licence at no additional cost, with the knowledge that the licence did not permit telephony service.

On the face of it, what COAI is saying on behalf of GSM biggies sounds just right. But behind this hectic lobbying against Reliance offering voice on broadband is real fear. Numerous analysts and telecom industry watchers have been quietly trying to figure out how Reliance will enter the 4G (fourth generation) services space without offering voice and, if it does offer voice, how will it impact existing GSM players.

Though Reliance itself, a past-master at creating ambiguity around any big bang launch, has never said what its strategy is, the GSM players are convinced that whatever Reliance does will impact their voice business irrevocably. Hence the letter to DoT objecting to Reliance's plans. If news reports quoting sources are correct about Reliance being in the final stages of negotiations for a tower leasing deal with Reliance Communication's tower arm, GSM guys have a lot to worry about. Not only will Reliance's 4G entry disrupt first mover Bharti Airtel's advantage, it could well unleash a bloody price war.

But even as they are putting their own houses in order, established GSM players are busy taking the lobbying battle to Reliance's camp.

The second instance where fierce industry infighting becomes evident is the pricing of spectrum. All telcos have been seeking lower prices for spectrum but their changing positions on pricing are becoming quite amusing now.

Initially, when the first round of 1,800 Mhz auctions (2G band) was held in November at a reserve price of Rs 14000 crore for 5 Mhz, participation by telcos was far below expectations. No bids were received in the four expensive circles of Delhi, Mumbai, Rajasthan and Karnataka. The government then slashed the prices of spectrum in these four circles by 30 percent and now plans to reauction spectrum in these four circles in March.

Almost all telcos welcomed the government';s move to slash spectrum prices but expressed concern over how, by introducing new auction rules, the government is forcing them to participate in the auctions in March.

Thereafter, concerned with the total no-show at the CDMA auctions, the government slashed prices of CDMA airwaves by 50 percent, the single largest reduction in airwave prices ever. The halving of airvwave prices was done to ostensibly benefit only one player, Russian majority company Sistema Shyam, which has lost 21 of its 22 licences after the Supreme Court cancelled all 122 licences awarded by former Telecom Minister A Raja in 2008. Now, Norwegian major Telenor, which also lost licences and was unable to win back some of them in November, has cited the CDMA price cut to demand a steeper decrease in the price of GSM spectrum. Sistema has already said it expects even CDMA spectrum price to be lowered further.

The Economic Times today quoted a letter written by Telenor yesterday which seeks a slashing of GSM spectrum prices by 50 percent, on the lines of the CDMA price cut. The story goes on to say that Telenor is the first to officially demand this steep GSM airwave price reduction but other GSM telcos will also support this demand.

This kind of petulant letter writing to DoT - almost one a week, opposing almost every decision - is now becoming farcical. Besides, why should the government slash 2G spectrum prices further? It has already provided a staggered payment option and suffered on account of revenue generation targets it had set for itself in the beginning of the year. And from early January, GSM and dual-technology telcos have anyway begun implementing tariff increases to offset some of the costs due to spectrum payments.

Also, why should the pricing strategy adopted for CDMA be replicated for GSM? The two are vastly different technologies with an overwhelming number of subscribers using GSM telcos. By their own admission, telcos agree that CDMA is a dying technology. Besides, while the 1,800 Mhz spectrum now being bought is liberalised (meaning you can offer any service on it, 2G or 3G, voice or data), there is no clarity yet on whether the CDMA spectrum to be sold in March is liberalised or not.

(Disclosure: Firstpost is published by Network 18, in which the Reliance Group has an indirect stake).

by Sindhu Bhattacharya

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