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The Department of Telecom has released a verbatim transcript of the
roundtable conference India’s telecom minister, Kabil Sibal, had with the
representatives of the telecom service providers and others on March 8. The
deep divide in opinions among the different telecom operators becomes very
clear while reading through the transcript. However, what is encouraging is
the minister’s stance on sticking with his 100-day target (April 2011) for
details on the New National Telecom Policy (NTP 2011) and that while he’d
like the different stakeholders to find common ground, in case the situation
does not materialize he will make a decision so the sector can move forward.
The minister’s tone appeared to be supportive of growth and reform in the
sector while also balancing the government’s interest and ensuring the
consumer is taken care of.
• The divide: Differences in opinions among the telecom operators were deep
with regards to renewal of licenses, spectrum limits and allocation, and
license fees. RCOM, AUSPI largely support higher spectrum charges,
spectrum re-farming, and importantly a prescribed spectrum limit of 6.2Mhz
while the old GSM telcos maintain that 6.2Mhz is arbitrary and that
spectrum usage charges need to be reviewed.
• Clarity on the horizon? We do not expect the outcome of the NTP 2011 to
be unilaterally positive for telcos like Bharti but we do expect it to be a
move away from the several recent changes in regulations and we believe it
would likely drive much-needed clarity and stability on the regulatory front.
Our initial expectations are that an “excess” spectrum charge may be applied
but some concessions maybe via license fees could be made. There was
some agreement among the telcos with regards to the roll-out obligations,
M&A policy and inclusion of IP-1/ISP players into the licensing regime,
encouraging in our view.
• Other interesting comments made by Kapil Sibal were that most of 3G
spectrum is being used for 2G services and that MNP (mobile number
portability) will make stakeholders compete with each other and bring
benefit to the consumer. Some participants suggested lack of sufficient
consultation of some issues which could delay decisions.
• . For the full transcript, please visit http://www.dot.gov.in/
Spectrum limits and allocation
TRAI has suggested 6.2Mhz as the committed spectrum for GSM telcos beyond which
an excess charge would apply. RCOM agrees with TRAI. Most old GSM telcos
maintain that allocation up to 15Mhz was allowed for according to the subscriber
linked criteria. Also, while the old GSM telcos like Bharti believe that there should
be no priority placed in allocation of spectrum, others like RCOM, Aircel, Shyam
and Uninor state that additional spectrum should be allocated immediately and at no
extra cost where criteria have been met.
• Vodafone (covered by JPM Analyst: Paul Howard) disagrees with a 6.2Mhz
limit and believes that this is artificial.
• Bharti believes all spectrum allocated is in line with the policy, rules and
regulations and the policy is for 15Mhz, so a 6.2Mhz cap should not apply. They
do not believe that those with 4.4Mhz waiting for 6.2 should be given priority as
allocation criteria (subscriber linked) applies to all.
• Idea Cellular's views were similar to those of Vodafone and Bharti. They do
not agree with the concepts of “contracted” and “prescribed” spectrum.
• RCOM believes that 6.2Mhz is the contracted limit and supports the view that
this amount should be provided for as it is bundled with the INR 16.6bn payment
for license. Furthermore, anything in excess of 6.2Mhz should carry an
additional charge. RCOM also supports priority of different categories of
spectrum seekers.
• Aircel stated that 6.2Mhz should be awarded immediately or as and when the
telcos reach the subscriber linked criteria. Telcos who have received start-up
spectrum and have met the subscriber linked criteria should be awarded
spectrum immediately.
• Sistema Shyam: contracted spectrum (5MHz for CDMA, 6.2 Mhz for GSM)
should be given without any extra charge.
• Uninor believes that it is the government’s contractual obligation to award up to
6.2Mhz of spectrum based on subscriber linked criteria. They invested in the
country based on the expectation that they’d get 6.2 MHz and the business
crucially needs it. They are already eligible for 6.2Mhz in 3 circles and 4 more
are coming due shortly.
• COAI suggests that up to 25% of spectrum should be available to any operator.
Mergers and acquisitions – industry consolidation
Most participants were of the view that the sector needs norms that support M&A.
We believe that a supportive policy here would be well received.
• Vodafone suggested the lifting of all barriers here and allowing a free market to
ensue.
• Bharti - M&A should be supported.
• Idea Cellular highlights that while there are no big entry barriers, modes for
exit from the industry are rather limited. Idea’s representative Mr. Mukherjee
highlighted that the current regulation on M&A is outdated and that spectrum
should be allowed to move with the entity in question. Idea suggests capping
market share at 40% based on subscriber or VLR data depending on the number
of players.
• RCOM supports TRAI’s recommendations (which are largely not very
supportive of M&A in the industry in our view).
• Aircel is supportive of allowing more M&A activity and free entry and exit into
the industry.
• Sistema Shyam wants more liberal policies here.
Renewal and re-farming
TRAI’s recommendations on "renewal” of spectrum/license has negative
implications for the old GSM telcos who have license periods expiring as early as
2014. While RCOM supports TRAI’s recommendations, others are of a different
opinion.
• Idea Cellular stated that renewal or extension of the terms and conditions
should not have an adverse impact on the investment made in the sector. Also
since a good amount of spectrum was allocated just 2.5-3 years ago, the cost of
spectrum on renewal "cannot be different dramatically from the same” but a
certain escalation for inflation could be provided for.
• RCOM agrees with TRAI's recommendations that only spectrum up to the
prescribed limit (GSM/CDMA: 10MHz/6.25MHz in Delhi, Mumbai,
8MHz/5Mhz everywhere else) should be allotted on renewal and excess
spectrum should be withdrawn at that time. Spectrum refarming (900Mhz for
1800Mhz) is also supported by RCOM.
• Aircel does not believe the 900Mhz spectrum needs to be re-distributed.
• AUSPI supports TRAI recommendations of spectrum re-farming
Spectrum usage charge
Divergent views here
• Bharti wants a level playing field for spectrum usage charges. Bharti’s
representative Mr. Narendra Kumar highlighted that the operator holds 10% of
the allocated spectrum but pays 31.84% of the total spectrum charge. Bharti
stressed that all spectrum should be charged – GSM and CDMA – highlighting
that most of the focus is on GSM spectrum.
On the definition of AGR (on which license and spectrum charges are levied)
Bharti stated that with the contribution from data expected to increase, the use of
leased line capacities and bandwidths should be allowed as a pass-through and
therefore subtracted from gross revenue.
• Idea does not support an escalation spectrum usage charge regime.
• RCOM supports TRAI's recommendation (May 2010) of the implied increase
here and, in fact, proposes steeper increases at 2% beyond the limit of 8/10Mhz.
• AUSPI is ok with increases here, so those with more spectrum should pay more
annual spectrum charges.
De-linking of spectrum from licenses
There was not much opposition to this proposal but GSM operators appear to
suggest market-driven pricing for spectrum via auctions or spectrum
sharing/trading. Sibal’s comments suggest that more work needs to be done here.
• Vodafone supports this but believes the recommendation is incomplete at this
time. It should not only be applicable in the future according to Vodafone’s
representative Mr. T V Ramachandran but also retrospectively for all existing
telecom operators. De-linking will allow telcos to trade spectrum.
• Bharti highlighted that spectrum sharing/trading should be supported – other
than auctions, this can help determine market value of spectrum.
• Idea Cellular supports de-linking of license from spectrum but suggests that
licenses should be perpetual as long as a license fee is paid and that spectrum
should be given to those who assign it the highest economic value.
• RCOM agrees with the authority’s proposals here.
• Aircel suggests that there should not be a limit on spectrum for entities sharing
spectrum
• Infotel Broadband stated that they welcome the delinking of spectrum and
licenses
License fee
Old GSM telcos call for a reduction here and some calling for immediate
implementation but RCOM suggesting linking it to income
• Vodafone supports the reduction of license fee to 6% but suggests this be
implemented immediately rather than over 3 years as this was first proposed 5
years ago
• Bharti supports the introduction of a uniform license fee across services (NLD,
voice) to avoid misrepresentation of revenue to avoid paying the fees. Bharti did
not suggest a level for the fee amount saying that the government should remain
revenue neutral but they did suggest that the fee % should be reduced as industry
revenue increases.
• Idea highlighted that the license fee of 1% plus the USO fund fee of 5% needs
attention. The 5% USO levy is meaningless according to the telco as the fund
has not been utilized.
• RCOM believe that the fee charged should be on a “slab” basis i.e. based on
income earned by operator rather than a flat fee. RCOM’s representative, Mr.
Rao highlighted that the USO fund appears well funded so its requirements
should be reassessed.
• Aircel agrees that there should be a uniform license fee to reduce arbitrage.
• AUSPI is of the view that the maximum fee should be 6%.
Rollout obligations
• Vodafone disagrees that rollout of coverage should be based on habitation. Mr.
Ramachandran highlighted that this was not discussed sufficiently.
• Bharti disagrees with spectrum allocation being linked with rollout obligations.
• RCOM does not support replacing the rollout obligation with habitation as the
basis.
• Uninor is OK with the 10-15% of district headquarters to be covered but
believes that full coverage of villages with 5.000 people should be a collective
industry effort.
• Sistema Shyam does not support new rollout obligations based on habitation.
• AUSPI stated that rollout obligations should be dismissed and rollouts be left to
market forces i.e., competition can determine where networks should be rolled
out.
Bringing IP-1 providers under the licensing framework
Largely disagreed with by all stakeholders
• Vodafone disagrees with this.
• Bharti largely disagrees with this.
• RCOM disagrees with this.
Including ISP providers into the licensing framework
• Vodafone is OK with this but suggests more consultation on the issue.
• Infotel Broadband stated that license fee should not be charged on data services
as when spectrum was bid for, there was no license fee for ISPs.
General/other views
• Vodafone has found fault with TRAI’s recommendations both from May 2010
and June 2011 calling them “arbitrary, flawed, opaque and illogical”. They have
raised questions about the valuation methodology used for spectrum pricing and
called for these to be rejected / replaced.
• Bharti Airtel wants more consultation on de-linking of spectrum and license,
unified license regime, IP-1 licensing and ISP.
• Idea Celluar wants spectral efficiency to be balanced with full competition.
• Reliance Communications broadly agrees with TRAI’s recommendations.
• Uninor will continue to support increasing penetration, good service, affordable
pricing.
• COAI suggested that already ~30% of telcos revenue at times is paid for the
several industry fees. He urged the telecom minister to work with the Finance
minister if the Goods and Service Tax increases to 16%, for the telcos it remains
at 10-11%. COAI also wants the telecom ministry to consider a tax holiday with
respect to 3G licensees and to clarify on the deductibility of 3G license fee paid
as an intangible asset.
• Videocon stated that the termination charge of 20 paisa/minute was too high
when considering call rates of 10 paisa (local) and 25 paisa (NLD) and that the
rate should either be done away with or reduced to 5-10 paisa.
• Etisalat does not agree with the TRAI recommendations but believes that they
have been transparent
• While Vodafone suggested that the 700Mhz band be made available as early as
possible, Aircel disagreed stating that with more spectrum available in the 2.1,
2.3, 2,5Ghz bands, introducing the 700Mhz band would not allow for economies
of scale to be achieved.
Quick re-cap of TRAI’s recommendations
Below we quickly re-cap TRAI’s recommendations from May 2010 and their recent
February 2011 recommendations on pricing.
Table 3: TRAI recommendations via its May 2010 paper—Spectrum management and licensing framework
Recommendati
on
Details Impact
One-time
charge for 2G
spectrum
Telcos with spectrum in excess of 6.2/5 MHz (GSM/CDMA) would
have to pay an additional one-time charge for the spectrum
beyond these levels based on the price of 3G auctions
• Negative for GSM incumbents
• Bharti has 13 circles with spectrum of more than 6.2 MHz, while
Idea has 7 such circles. Impact on Bharti is estimated as Rs40B
(~US$850MM), and for Idea at Rs14B (~US$300MM) based on
3G pricing
Spectrum
usage charge
Spectrum usage charge to be 0.5% per MHz up to 6.2Mhz and
1% beyond that (limit of 10%) for GSM. CDMA players with
spectrum up to 5.0 Mhz will now have to pay 3% of their AGR as
spectrum charge instead of 2% earlier
• Negative for the sector. Spectrum fee increased from 2%-6% to
2.2%-10%.
• Bharti has 13 circles with spectrum of more than 6.2 MHz, while
Idea has 7 such circles. We estimate the impact on Bharti as
2% and on Idea as 1%
License fee License fee should be uniform across all licenses and service
areas. To be brought down from 10% (Metro, A circles), 8% (B
circles), and 6% (C circles) to a uniform rate of 6% by FY14.
Internet service providers (ISP) and infrastructure providers-1 (IP-
1, tower companies) to be brought into the fold of licensing
regime starting at 4% in FY11, increasing to 6% in FY13
• Positive for telecom service providers: The lower license fee is a
4pp saving for metros and A circles and 2pp for B circles by
FY14. We estimate a 2.8% positive impact on Bharti and 2.9%
for Idea.
• Negative for IS-I and ISPs.
Spectrum
unbundling
Licenses to be unbundled from spectrum. This allows MVNOs
entry. No rollout obligations but license fee will need to be paid
• Negative for the sector. This would provide the way for MVNO
operators to buy licenses and share spectrum with existing
operators. MVNOs could increase competitive intensity
Rollout
obligations
Roll-out obligations in semi-rural and rural areas to be tightened
further. But if 50% coverage in areas with pop of 200-5,000,
telcos can get a 0.2% reduction in fee, if 100% (or 90%+), then a
2% reduction
• Mixed for the sector
• Failure to fulfill the proposed roll-out obligations would attract
additional spectrum usage charges - negative for new entrants.
• Additional spectrum allocations (beyond 4.4MHz) for operators
will be subject to meeting roll-out requirements.
Spectrum
sharing
Spectrum sharing to be allowed but only if each telco does not
hold more than 4.4/2.5 MHz of spectrum (GSM/CDMA)
• Helpful for new entrants, small players, MVNOs
Spectrum
assignment
Priority in assignment of spectrum: [1] telcos given initial start-up
spectrum and are waiting for committed spectrum; [2] assigned
committed and waiting for spectrum up to prescribed limit; [3]
waiting to receive initial start-up
• Negative for new entrants which have not received committed
spectrum (6.2 Mhz). Allocation of most new entrants is 4.4 MHz
Spectrum
refarming
At the time of renewal of spectrum, 900 MHz spectrum will be
replaced with 1800 MHz, while 800 MHz will get 450/1,900 MHz
• Bharti has 900MHz spectrum in 14 circles, Idea has in 9 circles,
Vodafone 11 circles, RCOM in 7 circles.
• Higher MHz spectrum required more capex for the same
coverage. We believe that every 1GHz increase in spectrum
implies a need for 2.5x more base stations
Initial spectrum Spectrum allocation increasing from 4.4Mhz to 6.2Mhz • Positive for new entrants.
License
renewal
Licenses to be renewed for 10 years (current license period is 20
years) and at the time of renewal, telcos will need to pay a
renewal fee. Spectrum will be unbundled from license and must
be applied for separately. Spectrum will be assigned up to the
prescribed limit (10MHz/6.25MHz in Delhi, Mumbai, 8MHz/5Mhz
everywhere else) of spectrum holding pre-renewal whichever is
less at the current price
• Negative for the sector.
• For Bharti: in 8 circles, 4-6 years remaining. In the rest, 11-14
years
• For Idea, in 6 circles it has 5.5 years remaining, while in 15
circles 11-18 years
Source: TRAI, J.P. Morgan estimates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Department of Telecom has released a verbatim transcript of the
roundtable conference India’s telecom minister, Kabil Sibal, had with the
representatives of the telecom service providers and others on March 8. The
deep divide in opinions among the different telecom operators becomes very
clear while reading through the transcript. However, what is encouraging is
the minister’s stance on sticking with his 100-day target (April 2011) for
details on the New National Telecom Policy (NTP 2011) and that while he’d
like the different stakeholders to find common ground, in case the situation
does not materialize he will make a decision so the sector can move forward.
The minister’s tone appeared to be supportive of growth and reform in the
sector while also balancing the government’s interest and ensuring the
consumer is taken care of.
• The divide: Differences in opinions among the telecom operators were deep
with regards to renewal of licenses, spectrum limits and allocation, and
license fees. RCOM, AUSPI largely support higher spectrum charges,
spectrum re-farming, and importantly a prescribed spectrum limit of 6.2Mhz
while the old GSM telcos maintain that 6.2Mhz is arbitrary and that
spectrum usage charges need to be reviewed.
• Clarity on the horizon? We do not expect the outcome of the NTP 2011 to
be unilaterally positive for telcos like Bharti but we do expect it to be a
move away from the several recent changes in regulations and we believe it
would likely drive much-needed clarity and stability on the regulatory front.
Our initial expectations are that an “excess” spectrum charge may be applied
but some concessions maybe via license fees could be made. There was
some agreement among the telcos with regards to the roll-out obligations,
M&A policy and inclusion of IP-1/ISP players into the licensing regime,
encouraging in our view.
• Other interesting comments made by Kapil Sibal were that most of 3G
spectrum is being used for 2G services and that MNP (mobile number
portability) will make stakeholders compete with each other and bring
benefit to the consumer. Some participants suggested lack of sufficient
consultation of some issues which could delay decisions.
• . For the full transcript, please visit http://www.dot.gov.in/
Spectrum limits and allocation
TRAI has suggested 6.2Mhz as the committed spectrum for GSM telcos beyond which
an excess charge would apply. RCOM agrees with TRAI. Most old GSM telcos
maintain that allocation up to 15Mhz was allowed for according to the subscriber
linked criteria. Also, while the old GSM telcos like Bharti believe that there should
be no priority placed in allocation of spectrum, others like RCOM, Aircel, Shyam
and Uninor state that additional spectrum should be allocated immediately and at no
extra cost where criteria have been met.
• Vodafone (covered by JPM Analyst: Paul Howard) disagrees with a 6.2Mhz
limit and believes that this is artificial.
• Bharti believes all spectrum allocated is in line with the policy, rules and
regulations and the policy is for 15Mhz, so a 6.2Mhz cap should not apply. They
do not believe that those with 4.4Mhz waiting for 6.2 should be given priority as
allocation criteria (subscriber linked) applies to all.
• Idea Cellular's views were similar to those of Vodafone and Bharti. They do
not agree with the concepts of “contracted” and “prescribed” spectrum.
• RCOM believes that 6.2Mhz is the contracted limit and supports the view that
this amount should be provided for as it is bundled with the INR 16.6bn payment
for license. Furthermore, anything in excess of 6.2Mhz should carry an
additional charge. RCOM also supports priority of different categories of
spectrum seekers.
• Aircel stated that 6.2Mhz should be awarded immediately or as and when the
telcos reach the subscriber linked criteria. Telcos who have received start-up
spectrum and have met the subscriber linked criteria should be awarded
spectrum immediately.
• Sistema Shyam: contracted spectrum (5MHz for CDMA, 6.2 Mhz for GSM)
should be given without any extra charge.
• Uninor believes that it is the government’s contractual obligation to award up to
6.2Mhz of spectrum based on subscriber linked criteria. They invested in the
country based on the expectation that they’d get 6.2 MHz and the business
crucially needs it. They are already eligible for 6.2Mhz in 3 circles and 4 more
are coming due shortly.
• COAI suggests that up to 25% of spectrum should be available to any operator.
Mergers and acquisitions – industry consolidation
Most participants were of the view that the sector needs norms that support M&A.
We believe that a supportive policy here would be well received.
• Vodafone suggested the lifting of all barriers here and allowing a free market to
ensue.
• Bharti - M&A should be supported.
• Idea Cellular highlights that while there are no big entry barriers, modes for
exit from the industry are rather limited. Idea’s representative Mr. Mukherjee
highlighted that the current regulation on M&A is outdated and that spectrum
should be allowed to move with the entity in question. Idea suggests capping
market share at 40% based on subscriber or VLR data depending on the number
of players.
• RCOM supports TRAI’s recommendations (which are largely not very
supportive of M&A in the industry in our view).
• Aircel is supportive of allowing more M&A activity and free entry and exit into
the industry.
• Sistema Shyam wants more liberal policies here.
Renewal and re-farming
TRAI’s recommendations on "renewal” of spectrum/license has negative
implications for the old GSM telcos who have license periods expiring as early as
2014. While RCOM supports TRAI’s recommendations, others are of a different
opinion.
• Idea Cellular stated that renewal or extension of the terms and conditions
should not have an adverse impact on the investment made in the sector. Also
since a good amount of spectrum was allocated just 2.5-3 years ago, the cost of
spectrum on renewal "cannot be different dramatically from the same” but a
certain escalation for inflation could be provided for.
• RCOM agrees with TRAI's recommendations that only spectrum up to the
prescribed limit (GSM/CDMA: 10MHz/6.25MHz in Delhi, Mumbai,
8MHz/5Mhz everywhere else) should be allotted on renewal and excess
spectrum should be withdrawn at that time. Spectrum refarming (900Mhz for
1800Mhz) is also supported by RCOM.
• Aircel does not believe the 900Mhz spectrum needs to be re-distributed.
• AUSPI supports TRAI recommendations of spectrum re-farming
Spectrum usage charge
Divergent views here
• Bharti wants a level playing field for spectrum usage charges. Bharti’s
representative Mr. Narendra Kumar highlighted that the operator holds 10% of
the allocated spectrum but pays 31.84% of the total spectrum charge. Bharti
stressed that all spectrum should be charged – GSM and CDMA – highlighting
that most of the focus is on GSM spectrum.
On the definition of AGR (on which license and spectrum charges are levied)
Bharti stated that with the contribution from data expected to increase, the use of
leased line capacities and bandwidths should be allowed as a pass-through and
therefore subtracted from gross revenue.
• Idea does not support an escalation spectrum usage charge regime.
• RCOM supports TRAI's recommendation (May 2010) of the implied increase
here and, in fact, proposes steeper increases at 2% beyond the limit of 8/10Mhz.
• AUSPI is ok with increases here, so those with more spectrum should pay more
annual spectrum charges.
De-linking of spectrum from licenses
There was not much opposition to this proposal but GSM operators appear to
suggest market-driven pricing for spectrum via auctions or spectrum
sharing/trading. Sibal’s comments suggest that more work needs to be done here.
• Vodafone supports this but believes the recommendation is incomplete at this
time. It should not only be applicable in the future according to Vodafone’s
representative Mr. T V Ramachandran but also retrospectively for all existing
telecom operators. De-linking will allow telcos to trade spectrum.
• Bharti highlighted that spectrum sharing/trading should be supported – other
than auctions, this can help determine market value of spectrum.
• Idea Cellular supports de-linking of license from spectrum but suggests that
licenses should be perpetual as long as a license fee is paid and that spectrum
should be given to those who assign it the highest economic value.
• RCOM agrees with the authority’s proposals here.
• Aircel suggests that there should not be a limit on spectrum for entities sharing
spectrum
• Infotel Broadband stated that they welcome the delinking of spectrum and
licenses
License fee
Old GSM telcos call for a reduction here and some calling for immediate
implementation but RCOM suggesting linking it to income
• Vodafone supports the reduction of license fee to 6% but suggests this be
implemented immediately rather than over 3 years as this was first proposed 5
years ago
• Bharti supports the introduction of a uniform license fee across services (NLD,
voice) to avoid misrepresentation of revenue to avoid paying the fees. Bharti did
not suggest a level for the fee amount saying that the government should remain
revenue neutral but they did suggest that the fee % should be reduced as industry
revenue increases.
• Idea highlighted that the license fee of 1% plus the USO fund fee of 5% needs
attention. The 5% USO levy is meaningless according to the telco as the fund
has not been utilized.
• RCOM believe that the fee charged should be on a “slab” basis i.e. based on
income earned by operator rather than a flat fee. RCOM’s representative, Mr.
Rao highlighted that the USO fund appears well funded so its requirements
should be reassessed.
• Aircel agrees that there should be a uniform license fee to reduce arbitrage.
• AUSPI is of the view that the maximum fee should be 6%.
Rollout obligations
• Vodafone disagrees that rollout of coverage should be based on habitation. Mr.
Ramachandran highlighted that this was not discussed sufficiently.
• Bharti disagrees with spectrum allocation being linked with rollout obligations.
• RCOM does not support replacing the rollout obligation with habitation as the
basis.
• Uninor is OK with the 10-15% of district headquarters to be covered but
believes that full coverage of villages with 5.000 people should be a collective
industry effort.
• Sistema Shyam does not support new rollout obligations based on habitation.
• AUSPI stated that rollout obligations should be dismissed and rollouts be left to
market forces i.e., competition can determine where networks should be rolled
out.
Bringing IP-1 providers under the licensing framework
Largely disagreed with by all stakeholders
• Vodafone disagrees with this.
• Bharti largely disagrees with this.
• RCOM disagrees with this.
Including ISP providers into the licensing framework
• Vodafone is OK with this but suggests more consultation on the issue.
• Infotel Broadband stated that license fee should not be charged on data services
as when spectrum was bid for, there was no license fee for ISPs.
General/other views
• Vodafone has found fault with TRAI’s recommendations both from May 2010
and June 2011 calling them “arbitrary, flawed, opaque and illogical”. They have
raised questions about the valuation methodology used for spectrum pricing and
called for these to be rejected / replaced.
• Bharti Airtel wants more consultation on de-linking of spectrum and license,
unified license regime, IP-1 licensing and ISP.
• Idea Celluar wants spectral efficiency to be balanced with full competition.
• Reliance Communications broadly agrees with TRAI’s recommendations.
• Uninor will continue to support increasing penetration, good service, affordable
pricing.
• COAI suggested that already ~30% of telcos revenue at times is paid for the
several industry fees. He urged the telecom minister to work with the Finance
minister if the Goods and Service Tax increases to 16%, for the telcos it remains
at 10-11%. COAI also wants the telecom ministry to consider a tax holiday with
respect to 3G licensees and to clarify on the deductibility of 3G license fee paid
as an intangible asset.
• Videocon stated that the termination charge of 20 paisa/minute was too high
when considering call rates of 10 paisa (local) and 25 paisa (NLD) and that the
rate should either be done away with or reduced to 5-10 paisa.
• Etisalat does not agree with the TRAI recommendations but believes that they
have been transparent
• While Vodafone suggested that the 700Mhz band be made available as early as
possible, Aircel disagreed stating that with more spectrum available in the 2.1,
2.3, 2,5Ghz bands, introducing the 700Mhz band would not allow for economies
of scale to be achieved.
Quick re-cap of TRAI’s recommendations
Below we quickly re-cap TRAI’s recommendations from May 2010 and their recent
February 2011 recommendations on pricing.
Table 3: TRAI recommendations via its May 2010 paper—Spectrum management and licensing framework
Recommendati
on
Details Impact
One-time
charge for 2G
spectrum
Telcos with spectrum in excess of 6.2/5 MHz (GSM/CDMA) would
have to pay an additional one-time charge for the spectrum
beyond these levels based on the price of 3G auctions
• Negative for GSM incumbents
• Bharti has 13 circles with spectrum of more than 6.2 MHz, while
Idea has 7 such circles. Impact on Bharti is estimated as Rs40B
(~US$850MM), and for Idea at Rs14B (~US$300MM) based on
3G pricing
Spectrum
usage charge
Spectrum usage charge to be 0.5% per MHz up to 6.2Mhz and
1% beyond that (limit of 10%) for GSM. CDMA players with
spectrum up to 5.0 Mhz will now have to pay 3% of their AGR as
spectrum charge instead of 2% earlier
• Negative for the sector. Spectrum fee increased from 2%-6% to
2.2%-10%.
• Bharti has 13 circles with spectrum of more than 6.2 MHz, while
Idea has 7 such circles. We estimate the impact on Bharti as
2% and on Idea as 1%
License fee License fee should be uniform across all licenses and service
areas. To be brought down from 10% (Metro, A circles), 8% (B
circles), and 6% (C circles) to a uniform rate of 6% by FY14.
Internet service providers (ISP) and infrastructure providers-1 (IP-
1, tower companies) to be brought into the fold of licensing
regime starting at 4% in FY11, increasing to 6% in FY13
• Positive for telecom service providers: The lower license fee is a
4pp saving for metros and A circles and 2pp for B circles by
FY14. We estimate a 2.8% positive impact on Bharti and 2.9%
for Idea.
• Negative for IS-I and ISPs.
Spectrum
unbundling
Licenses to be unbundled from spectrum. This allows MVNOs
entry. No rollout obligations but license fee will need to be paid
• Negative for the sector. This would provide the way for MVNO
operators to buy licenses and share spectrum with existing
operators. MVNOs could increase competitive intensity
Rollout
obligations
Roll-out obligations in semi-rural and rural areas to be tightened
further. But if 50% coverage in areas with pop of 200-5,000,
telcos can get a 0.2% reduction in fee, if 100% (or 90%+), then a
2% reduction
• Mixed for the sector
• Failure to fulfill the proposed roll-out obligations would attract
additional spectrum usage charges - negative for new entrants.
• Additional spectrum allocations (beyond 4.4MHz) for operators
will be subject to meeting roll-out requirements.
Spectrum
sharing
Spectrum sharing to be allowed but only if each telco does not
hold more than 4.4/2.5 MHz of spectrum (GSM/CDMA)
• Helpful for new entrants, small players, MVNOs
Spectrum
assignment
Priority in assignment of spectrum: [1] telcos given initial start-up
spectrum and are waiting for committed spectrum; [2] assigned
committed and waiting for spectrum up to prescribed limit; [3]
waiting to receive initial start-up
• Negative for new entrants which have not received committed
spectrum (6.2 Mhz). Allocation of most new entrants is 4.4 MHz
Spectrum
refarming
At the time of renewal of spectrum, 900 MHz spectrum will be
replaced with 1800 MHz, while 800 MHz will get 450/1,900 MHz
• Bharti has 900MHz spectrum in 14 circles, Idea has in 9 circles,
Vodafone 11 circles, RCOM in 7 circles.
• Higher MHz spectrum required more capex for the same
coverage. We believe that every 1GHz increase in spectrum
implies a need for 2.5x more base stations
Initial spectrum Spectrum allocation increasing from 4.4Mhz to 6.2Mhz • Positive for new entrants.
License
renewal
Licenses to be renewed for 10 years (current license period is 20
years) and at the time of renewal, telcos will need to pay a
renewal fee. Spectrum will be unbundled from license and must
be applied for separately. Spectrum will be assigned up to the
prescribed limit (10MHz/6.25MHz in Delhi, Mumbai, 8MHz/5Mhz
everywhere else) of spectrum holding pre-renewal whichever is
less at the current price
• Negative for the sector.
• For Bharti: in 8 circles, 4-6 years remaining. In the rest, 11-14
years
• For Idea, in 6 circles it has 5.5 years remaining, while in 15
circles 11-18 years
Source: TRAI, J.P. Morgan estimates
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