Before the Telecom Regulatory Authority of India could finalize its plans for reallocation of spectrum, India’s Department of Telecom has issued a set of norms regarding telecom licenses in India. The timing of these decisions is critical, given the uncertainty regarding the future of Indian telecom, and will undoubtedly have a bearing on companies’ decision to participate in the reallocation of 2G spectrum later this year. India’s Supreme Court had cancelled 122 telecom licenses and asked the TRAI to fix a process for reallocation of spectrum. The DoT’s new policy:

License & Spectrum

– Delinking license from spectrum: In the 2008 allocation from the DoT, spectrum had been bundled with the license. This means that even if a company has a license to offer telecom services, it may not have the wherewithal in the absence of bundled spectrum. Spectrum will have to be licensed separately, but the DoT doesn’t say how, adding that the decision will be taken “after receipt of detailed Guidelines and Terms & Conditions from TRAI for Unified Licence including migration path for all existing licence(s) to Unified Licence.”

– Eventual migration to Unified Licensing Regime: “In the event of any auction of spectrum pending finalisation of the Unified Licensing Regime, UAS licence without spectrum may be issued which could be subject to a requirement to migrate to Unified licence as and when the regime is put in place. Detailed guidelines for such UAS licence without spectrum would be finalised after receipt of recommendations of TRAI in this regard.” Our Take: This is broadly in agreement with the objectives of the New Telecom Policy 2011, which is still in draft stage. Note that it appears that the Unified License will be different from the UAS License. Why? Why not convert the UAS license into the standard Unified License?

– Minimum License Fee: there will be a uniform license fee across all telecom licenses and service areas which will progressively be made equal to 8% of the Adjusted Gross Revenue (AGR) in two yearly steps starting from 2012-13, and will be on the basis on a “minimum presumptive AGR”, defined by the TRAI every ear. Our Take: In a sense, this is like a minimum rent being charged, irrespective of whether the company is in business or not. This means the company will have to pay a minimum fee even it doesn’t have spectrum to launch services, thus guaranteeing the government some revenue.

– License Extension: The validity of existing UAS (& CMTS and Basic services) licences may be extended for another 10 years at one time, but as per  the as per the provisions of the existing licensing regime, and not the terms under which the license was originally issued. On extension, the UAS licensee will be required to pay a fee which will be Rs. 2 crore for Metro and ‘A’ Circles, Rs. 1 crore for ‘B’ circles and Rs. 0.5 crore for ‘C’ circles. The cost of spectrum shall be separate

– Prescribed & Excess Spectrum: “While extending the licence, the licensee shall be assigned spectrum only up to the prescribed limit or the amount of spectrum assigned to it before the extension, whichever is less. Spectrum assigned by the Government to the licensee in excess of the Prescribed Limit shall be withdrawn.” Also “The prescribed limit on spectrum assigned to a service provider will be 2X8MHz/ 2X5MHz for GSM/ CDMA technologies respectively for all service areas other than in Delhi and Mumbai where it will be 2X10MHz/ 2X6.25 MHz. However, the licensee can acquire additional spectrum beyond prescribed limits, in the open market, should there be an auction of spectrum subject to the limits prescribed for merger of licences.” Our Take: It is not clear whether the excess spectrum will be withdrawn only when a telco seeks an extension, or with immediate effect.

– Spectrum Audit: TRAI “may” undertake regular spectrum audit, and carry out a review of present usage of spectrum available and make recommendations to the Government.

M&A Rules

– Decisions on all matters relating to One Time Spectrum Charge including pricing of spectrum in cases of M&A and Spectrum Sharing will be taken separately.
– Access Market Share: market share of both subscriber base and Adjusted Gross Revenue of licensee in the relevant market shall be considered for determining market power, taking access into consideration, not wireline and wireless separately. Merger up to 35% market share of the resultant entity will be allowed through a simple, quick procedure. Beyond 35% market share, without breaching the 25% cap on GSM spectrum and 10 MHz for CDMA spectrum holding in any service area, may be considered, with a transparent criteria following TRAI’s recommendations.
– Lock In: The substantial equity and cross holding of the Resultant entity shall be in conformity with the provisions of the UAS licence, and existing provisions in the UAS licence relating to Lock-in period for sale of equity/merger shall continue.
– Spectrum Limits & Return: Total spectrum held by the Resultant entity shall not exceed 25% of the spectrum assigned in case of 900 and 1800 MHz bands, and 10MHz in case of 800 MHz band. Excess spectrum must be returned within one year of permission being granted. The government may prescribe the band to be returned.
– The duration of licence of the resultant entity in the respective service area will be equal to the higher of the two periods on the date of merger. This does not however entitle the resultant entity to retain the entire spectrum till the expiry of licence period. “Issues related to spectrum price, to be paid by the resultant entity, would be decided separately.”
– “In case of renewed validity beyond the original validity of any of the merged entity, holding of spectrum in 800/900 MHz band shall be subject to the applicable spectrum refarming guidelines to be announced in future w.e.f the deemed date of extension of merging entity having lesser validity of licence at the time of merger or the date of spectrum refarming guidelines whichever is later.” Our Take: We dont know what this means, except that this explains why policies are open to interpretation. Any guesses?

– License Fees: On the merger of the two licenses, the AGR of the two entities will also be merged and the license fee will be therefore levied at the specified rate for that service area on the resultant total AGR. Similarly, for the purpose of payment of the spectrum charge, the spectrum held by the two licensees will be added /merged and the annual spectrum charge will be at the prescribed rate applicable on this total spectrum. However, in case of holding of spectrum for various technologies by the entity subsequent to Merger, spectrum charges & license fee etc. or any other criterion being followed by the licensor shall be applicable as in case of any other UAS/CMTS licensee.

3G Spectrum Sharing & Trading

– Spectrum trading will not be allowed in India, at this stage. This will be re-examined at a later date.
– Spectrum sharing will not be permitted among licensees having 3G spectrum. Our Take: why differentiate between 2G and 3G spectrum? If telcos can share 2G spectrum, why not 3G? The Governments decision is anti-consumer, and decision on spectrum sharing should be independent of technology.

2G Spectrum Sharing:

– Spectrum sharing would involve both the service providers utilising the spectrum. Leasing of spectrum is not permitted.
– Permitted, but in the same in the same licence service area and will be with the prior permission of the licensor. “A simple automatic approval process will be put in place for this purpose.”
– Permission for Spectrum sharing will be given initially for a period of 5 years. Government may renew the permission for a further one term of five years, on terms to be prescribed.
– Spectrum can be shared only between two spectrum holders both of which are holding spectrum either in 900/1800 MHz band or in 800 MHz band.
– Total quantum of spectrum, as a result of the spectrum sharing, shall not exceed the limit prescribed in case of mergers of licences.
– “In respect of spectrum obtained through auction, spectrum sharing will be permitted only if the auction conditions provide for the same.” Ed: the government is giving itself an option to bypass a single policy with this auction clause.
– Parties sharing the spectrum will be deemed to be sharing their entire spectrum for the purpose of charging. Our Take: Why does the government need to define the terms of what should be a private arrangement between two private entities?
– Both the parties shall fulfil individually the roll out obligations as well as the QoS obligations prescribed under the licence. Our Take: this is important since it effectively prevents hoarding of spectrum for trading/sharing.
– Spectrum usage charges will be levied on both the operators individually but on the total spectrum held by both the operators together. In other words, if an operator ‘X’ having 4.4MHz of spectrum shares 4.4 MHz of spectrum of another operator ‘Y’, then both ‘X’ and ‘Y’ will be liable to pay spectrum usage charges applicable to 8.8 MHz of spectrum. Our Take: Why should both have to pay? The government, this way, ends up making double the money. Why not just ban spectrum sharing instead of putting such a high charge which would make it unviable?

In Limbo, Awaiting TRAI Recommendations, Court decision

– Refarming of spectrum: the government has accepted that spectrum needs to be refarmed, but will wait for TRAI’s recommendations
– Migration from UAS license to Unified License.
– Decision on matters related to pricing of spectrum, post sharing, would be taken separately.
– Spectrum usage charges were revised in 2010 by the Government and the matter is sub-judice. Further action will be taken by DoT after the matter is decided by the court.
– Decision on what to do in case of M&A beyond 35% marketshare, but less than 25% cap on GSM spectrum and 10MHz in case of CDMA
– “A decision on the recommendation to bring IP-I Service Providers under licencing regime, who are currently unlicenced passive infrastructure providers, has been deferred for further examination.”

– “A rapid comprehensive techno-economic study will be carried out by DoT to examine issues relating to increase in coverage & tele-density in rural areas while at the same time ensuring sustained quality of service and also to examine the adequacy of USOF mechanism alone to achieve these objectives and the need for augmenting USOF schemes with appropriate direct incentivisation of TSPs for rural rollout.”