Telecom Update

Updates on recent developments in telecom sector

Indian telecom sector is one of the fastest growing sectors which is plagued with
uncertainties regarding policies which are tweaked every now and then by the Department
Sensex 14,499
of Telecommunications (DoT). This sector has also witnessed numerous tussles amongst
various Government and nodal agencies such as DoT, TRAI, Telecom Commission and
Ministry of Finance as well as telecom operators and their bodies etc. It is obvious when
huge interests are at the stake. Of late we witnessed many developments which we have
analysed in following paragraphs.

3G Spectrum Policy announced

GSM
In the first week of August, the DoT announced 3G policies enabling faster rollouts. It
reversed many of TRAI’s recommendations made in September 2006. The key feature
was allowing foreign players to participate in the auction, increased base price of Rs 20.2
Nifty 4,349 billion and hoarding cess of 2.5% in per quarter in case telecos fail to rollout.

CDMA
Though in the policy, CDMA players holding UASL were to be allotted spectrum in 800
MHz band on the basis of maximum subscriber base of the operator in case of a tie but
later on the DoT tweaked this to facilitate auction amongst CDMA players. The Telecom
Commission has also specified the base price for CDMA players.

WiMAX
Changing the track again DoT has now proposed to allow operators using wireless
broadband technologies such as WiMax to offer both data and voice services. The base
price for them too has been raised from 25% to 50% of the reserve price for 3G mobile
services.

TRAI’s green signal to MVNO, internet telephony and MNP

Of late TRAI recommended allowing MVNO with a minimum entry fee of Rs 75 crore for a
pan India license. It also has removed all restrictions on internet telephony which if
accepted by the DoT will have huge impact on the bottom lines of the telecos across as it
will lead to STD tariffs fall as low as 10-40 paise while local calls almost free.
Furthermore, it recommended MNP which the government has already accepted.

3G winners may get to buy 2G companies

Deepak Tiwari
Research Analyst
deepakt@arthamoney.com
T: + 91 22 4063 3032
It is reported that DoT is set to facilitate the entry of foreign telcos in the 3G space by
allowing winners of 3G licences to acquire or merge with existing or new 2G operators
without waiting for the mandatory three-year time period to lapse. This proposal is likely
to revive the interests of foreign players in Indian telecom sector.
Telcos may have to pay up to Rs 5000 for each unverified user
DoT is planning to impose fines ranging between Rs 1,000 and Rs 5,000 per subscriber
for unverified customers that telcos have. Such penalties may run into hundreds of crores.

Setback for GSM players in dual tech case

The Delhi High Court dismissed a petition filed by GSM players challenging the
government’s decision to allow telcos to offer mobile services under dual technology
(GSM and CDMA platforms).

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 3G Spectrum Policy announced

Finally DoT announced much awaited 3G Policy in August. Some salient

features of the policies are as follows:

1. Revenue Sharing: Telecos will have to share 1% of Adjusted Gross

Revenue (AGR) from the second year after the year of rollout.
2. MTNL and BSNL will be allotted one slot each without participating
in auction however they will have to pay the maximum bid price
once determined. Spectrum is limited and in highly lucrative and
sought after circles like Delhi and Mumbai, only one player can be
accommodated in addition to the PSU player which may lead to rise
in the bid price.
3. Foreign players will be allowed to bid for the 3G spectrum.
4. Base price is Rs 20.2 billion.
5. Telecos will be subject to hoarding cess at 2.5% of the bid price in
every quarter if they fail to meet five year rollout obligations. If the
rollout obligation is not met in the sixth year, the spectrum will be
taken back.

No automatic allocation of spectrum to CDMA players

Earlier the policy had stipulated that CDMA players would bid for spectrum
in 450MHz, 800 MHz and 1900 MHz when it became available adding that
CDMA players holding UASL might be allotted 2x1.25MHz in 800MHz band
(subject to availability) at a price equivalent to the highest winning bid in
2.1GHz auction prorated for 2x1.25MHz price. In case of a tie, the
subscriber market share would determine the final winner. Considering the
fact that RCom was the leading CDMA player and holds a UASL, it was
almost certain that the said slot was secured for the company on CDMA
platform.

But in a recent development, the Telecom Commission has modified its

policy on allocation of spectrum for 3G) mobile communications using the
CDMA technology platform. The Telecom Commission has decided to
auction 3G radio frequencies for CDMA players in the 800 MHz band. This
would deny RCom automatic entry into CDMA 3G on the strength of its
subscriber base, as envisaged in the policy earlier. Thus other CDMA
players like Tata Teleservices, Shyam, BSNL and MTNL as well as new
players who want to enter India on the CDMA platform now stand a chance
to get spectrum in the coveted 800 MHz band.

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 Increase in base price
The Telecom Commission, which is the apex decision-making body of
the Department of Telecom, has also said that the base price for 3G
frequencies in the 800 MHz will be Rs 40 crore for metros and category
A circles, Rs 20 crore for category B circles and Rs 7.5 crore for
category C circles. The base price has been fixed at a fourth of what
GSM operators will pay for 3G frequencies. This is because CDMA
players can bid only for 1.25 MHz of spectrum in the 800 MHz band
while GSM players will bid for 5 MHz of 3G spectrum in the 2.1 GHz
band.

WiMax players can offer mobile services

Changing its earlier decision the DoT has now proposed to allow
operators using wireless broadband technologies such as WiMax to
offer both data and voice services. Further the base price for such
operators has been increased to 50% of the reserve price for 3G mobile
services from 25%. Thus, they will have fork out minimum Rs 1,010
crore for a pan India license. It is likely that existing GSM players will
oppose this disparity.

TRAI recommends for MVNO

TRAI has asked the government to allow Mobile Virtual Network

Operators (MVNOs). This will enable firms like Virgin, BT Mobile and
KDDI to offer mobile services without owning cellular networks. At
present, there are 360 MVNOs operating globally. Trai has
recommended that entry fee for MVNOs be fixed at a maximum of Rs 5
crore for Metro/Category A, Rs 3 crore for Category B and Rs 1 crore for
Category C service areas. This implies that an MVNO will have to pay a
maximum of Rs 75 crore for launching nationwide MVNO services in
comparison to the Rs 1,651-crore entry fee paid by an operator who sets
up its own physical network.

TRAI frees Internet Telephony

TRAI has removed all restrictions on internet telephony in the country,

allowing internet service providers (ISPs) to terminate internet telephony
calls on phones, including mobile phones. Hitherto, a call from a
computer could legally be made only to another computer within the
country and not to a phone. Interestingly domestic users were allowed to
make international calls to a phone from their computer. Thus a
consumer can make calls from PC to fixed line and mobile phones in
India. Subscribers can also make a call to PCs from their handsets. It
will bolster the broadband growth further particularly in rural areas. It will
however, put immense pressure on the bottom lines of telecos as STD
tariffs are expected to fall to as low as 10-40 paise while local calls
almost free from PCs.

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 Mobile Number Portability (MNP) to be implemented by mid 2009

Mobile number portability empowers consumers to retain their number

but change their operator. As per MNP Policy the government would
select two centralized agencies, which would be given 11 circles each to
implement number portability. These agencies would be chosen through
a techno-economic evaluation (beauty parade). TRAI has however
warned the DoT that if MNP policy is implemented under the current
format, the consumers may be forced to pay higher tariffs and quality of
services too may fall. It has also advised that only one centralized
operator should be given the task of implementing MNP. It is reported
that Telcordia, NeuStar, Syniverse and IBC, and CDoT are in the fray to
become centralized operators.

TRAI has found MNP Policy faulty on following grounds:

 DoT has not specified porting fee (The amount a subscriber will
be charged for changing the operator).
 NLD and ILD carriers (operators who carry STD and ISD traffic)
will be required to route calls on the ported numbers, but the
policy remains silent on the modalities.
 All operators would become dependent on the two centralized
operators to provide MNP. This may impact the quality of
service.
 TRAI wants the centralized operator to be chosen via an auction
process. It believes a beauty contest will not be objective and
transparent process.

3G winners may get to buy 2G companies

Changing its track on M&A guidelines, DoT plans to facilitate the entry of
foreign telcos in the 3G space. It proposes to allow winners of 3G
licences to acquire or merge with existing or new 2G operators without
waiting for the mandatory three-year time period to lapse. It is pertinent
to mention that current guidelines debar a 3G license holder (who is a
new entrant) from merging with an existing 2G licensee for a period of
three years from the time it secures a license. Existing guidelines also
make it mandatory for successful 3G bidders to buy UASL licenses for
Rs 1,651 crore sans 2G spectrum.

Setback for GSM players in dual tech case

The Delhi High Court dismissed a petition by GSM players challenging

the government’s decision to allow telcos to offer mobile services under
dual technology. GSM operators had told the court that the DoT was
‘attempting to pass off a second and new license to CDMA operators in
the garb of dual technology’.

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 DoT to ink deal with BSNL to cover 50,000 villages

DoT is to sign an agreement with BSNL to provide telephones to the

newly-identified 50,000 villages according to census 2001. These
include villages with population below 100 and those that were left out
earlier due to various reasons. Additionally, the DoT will soon launch
another scheme to provide public telephone facility to the remaining
villages in an attempt to provide public telephones to all villages in India.
These telephones are subsidized from Universal Service Obligation Fund
(USOF) toward which all telcos pay a part of their revenues.

Telcos may have to pay up to Rs 5000 for each unverified user

DoT’s internal committee plans to impose fines ranging between Rs

1,000 and Rs 5,000 per subscriber for unverified customers that telcos
have. Such penalties may run into hundreds of crores.

Recent news and announcements

 Videocon Group picks up 14% stake in Broadband, IPTV Co

from open market.
 IKF Tech to roll out VoIP services for retail users
 RCom to float $500-million tender for 3G rollout
 BSNL to install WiMAX BTS in 1,000 blocks this fiscal
 27.5 m WiMAX users in India by ’12: WiMAX Forum Study
 Bharti Airtel crosses 75-m subscriber base
 DoT amends licence of telcos to curb misuse by terrorists
 Tatas to invest Rs 6,000 cr in GSM
 Quippo Telecom to raise $185 m
 Telecom dept asks Idea to surrender 1 licence
 Vodafone seeks hefty damages which could be upwards of Rs
1,100 crore from Ruias
 BSNL to get into managed services
 Ruias in talks with global telcos to dilute Loop stake
IPTV policy, down linking norms get Cabinet nod
 Telcos to mutually settle linking issues
 BSNL board skips IPO agenda; discussions with union on
 Record 9.2 m join mobile club in July

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