Relaxing caps is good but best to drop them
Though the Telecom Regulatory Authority of India (Trai) is determined to push through its ill-advised penalty on call drops, communications minister Ravi Shankar Prasad is trying his best to resolve the issue by addressing spectrum crunch, at the heart of call drops—in Delhi, for instance, a top telecom operator carries 49 hours of voice traffic every day per MHz per telecom tower as compared to 6.5 in Shanghai and 8.9 in Singapore; for data traffic, the comparable numbers are 3.4 GB, 0.2 GB and 2 GB, respectively. The committee set up by Prasad has not taken a call on whether the caps of 25% and 50%—of the total spectrum in all bands and of that in a particular band, respectively—should be relaxed, but it has recommended some relaxation. When Trai, under a different chairman, had recommended the 25% and 50% caps, it had said this should apply to all spectrum; what the telecom department did, however, was to apply this to only that spectrum held by telcos—so, if a telco returns spectrum, as both MTNL and BSNL have done, the divisible pool also reduces.
The difference this makes is quite large. In Delhi, a Bharti Airtel has 28 MHz of spectrum while that given out to all operators is 115.95 MHz according to the telecom ministry’s definition. This means a Bharti Airtel cannot enter into any spectrum sharing/trading with any other telco, never mind that as the market leader it needs the spectrum the most. Indeed, the three market-leaders—Bharti Airtel, Vodafone and Idea—account for 60-70% of the country’s subscriber base but just around a third of the total spectrum holdings. If, however, Trai’s definition of spectrum is used, the total holdings in Delhi go up to 133.45 MHz—which means that a Bharti Airtel can enter into sharing/trading arrangements with anyone that has spectrum to spare. Indeed, it is this cap introduced by the telecom ministry which ensured that, in the last auction, Bharti Airtel could not bid for a 5 MHz chunk in the 2100 MHz band—had the more sensible Trai definition been used, the firm would have had more spectrum and less call drops.
There are other important issues that need to be addressed. If telco A pays telco B R1,000 crore for trading its spectrum, this will be added to telco B’s revenues and a 14% license/spectrum/microwave charge will have to be paid on this—this is quite unfair since, in any case, the spectrum being traded has been bought at market prices. While the issue of caps will probably be referred to Trai again—it has already taken a call on it in the past, so it can simply reiterate its earlier position—what is not clear is why the caps are there at all. Regulators including Trai use indices like the HHI one to judge concentration, and there is enough competition in the market place. Indeed, even the competition law was revised many years ago to make abuse of dominance the area of concern, not the size of the firm itself—perhaps Trai needs to be reminded of that.