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Telecom Regulatory Conundrum
Key takeaways from interactions with COAI, TRAI and DOT
We hosted a conference call with COAI and met TRAI, DoT, and wireless operators to
assess the current regulatory scenario and get an update on major issues like (1) 2G spectrum
pricing/allocation, (2) proposed spectrum re-farming, (3) mobile number portability (MNP)
implementation, (4) M&A policy, and (5) other issues related to equipment import, radiation
levels, subscriber verification, "Do Not Call" registry, etc. Divergence of views between
incumbent operators and regulator/government remains substantial on key issues of 2G
spectrum pricing and re-farming. We expect TRAI to issue revised recommendations on 2G
spectrum within the current calendar, post which DoT is likely to take a view on these.
However, wireless operators believe that the 2G spectrum pricing/allocation issue is being
directly dealt by the Prime Minister's Office (PMO) and TRAI/DoT views would have a limited
impact on final policy.
2G spectrum pricing and spectrum re-farming: TRAI continues to believe that 2G
spectrum allocated beyond the contractual obligation of 6.2MHz should be priced at par
with 3G spectrum. The operators believe that such pricing would be inappropriate given
higher efficiency of 3G technology and relatively low quantum of 2G spectrum allocated in
India. On spectrum re-farming, both TRAI and DoT are of the view that re-farming is required
to keep pace with technological changes and 900MHz spectrum was allocated for 20 years,
which is a long timeframe for operators to recover their investments. Operators believe
that there could be significant disruption in services if 900MHz spectrum is required to be
replaced by 1800MHz and there is no international precedence of such an exercise.
Mobile number portability (MNP) implementation: MNP testing has commenced on 25
September 2010; deadline of 31st Oct-10 has been missed yet again. As per media reports,
MNP implementation is likely to commence in a phased manner starting with Haryana from
25th Nov-10. MNP will largely impact post-paid subscriber base (~4% of subscribers, ~15%
of revenue) but operators do not expect major market disruption.
M&A policy: The regulator does not believe there is a need for proactive policy formulation
to facilitate industry consolidation. We do not expect any major initiative from TRAI on
M&A.
Government focus on tightened implementation of regulations, as penetration
and affordability are favorable: As the sector has gone past the hyper-growth phase,
the government is looking to tighten implementation of regulations so as to ensure longtem
sustainability. The recent issues with tightening subscriber verification criteria, equipment
imports, radiation, and tower erection, "Do Not Call" registry are all aimed at ensuring that
the industry focus increases on these aspects.
Our view: While there is enhanced clarity on several issues, there is limited visibility on 2G
spectrum pricing and refarming. Post our interactions we would be surprised if TRAI
reconsiders its opinion in the revised recommendations in a significant way. However,
implementation of these recommendations would be challenging. Given that re-farming, if
implemented, would only be applicable from 2014, we would not be unduly worried on this
subject - there is sufficient time for legal action as well as reconciliation on this issue. We
retain our positive stance on the sector as (1) revenue growth is bouncing back, (2) industry
fragmentation has had limited impact on revenue market shares of incumbents, and (3)
valuations remain attractive.
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