In a reprieve to incumbent telecom operators Bharti Airtel, Vodafone, Idea Cellular, Reliance Communications, BSNL and MTNL, the empowered group of ministers (EGoM) on telecom permitted them to retain up to 2.5 Mhz of spectrum in the 900-MHz band. The rest would have to be refarmed to the 1,800-MHz band.
While analysts differ, incumbent operators, as a result of the decision, might have to fork out anything between Rs 35,000 crore and Rs 50,000 crore on refarming. That is half of what the GSM operators had estimated they would have to spend if all spectrum in the 900-MHz band was refarmed.
Research agency Analysys Mason, mandated by the Cellular Operators Association of India (COAI) to study the impact of refarming, had estimated incumbent operators would have to pay Rs 1.15 lakh crore, including additional capital costs for putting in more towers in 1,800 MHz, additional operational costs as well as the write-off of 900-MHz assets if the entire spectrum was refarmed.
Speaking to reporters after the EGoM meeting, Communications Minister Kapil Sibal said, "If the operators want, they can retain up to 2.5 MHz but they have to pay the market-determined price, which would be decided when 900-MHz spectrum is auctioned next year." He added the decision was final and would not be referred to the Cabinet.
The decision is opposite to that taken by the Telecom Commission in its meeting a few weeks ago, when it had cleared a proposal for the refarming of all spectrum in the 900-MHz band.
The Telecom Regulatory Authority of India, asked by the EGoM to revisit the issue, had suggested the best option was to allow the incumbent operators to retain up to 2.5 MHz spectrum. It said that would ensure there was enough spectrum available in the band for a fair auction to non-incumbent operators, and in most circles there would be enough spectrum available in the 1,800-MHz band to accommodate them.
Bharat Bhargava, telecom partner, Ernst & Young, said, "Retention of 2.5 MHz will surely help telcos get their coverage, but they need more spectrum to build capacity which will now have to be driven by 1,800 MHz. Surely, there will be savings on capex as well as opex but that would depend on each specific operator and its 1,800-MHz network coverage."
The operators are not happy. COAI Director General Rajan Matthew said, "It's a non-event. What is the point of giving us a little bit of spectrum in 900 MHz and a bigger chunk in 1,800 MHz, and then asking us to pay a large premium? We'd rather have all spectrum in 1,800 MHz. We'll have to look at the option of going to court once we look at the final print."
AUSPI Secretary General Ashok Sud was no less critical. "This is a very bad decision that would benefit only the old operators while the new ones will suffer. The government should have put all 900-MHz spectrum up for auction once the existing licences expired," he said.
CHANGING THE GAME
The decision
EGoM allows incumbent operators to retain up to 2.5 MHz spectrum in 900-MHz band; have to pay market price based on the 900-MHz spectrum auction next year
Why the decision
Retaining 2.5 MHz seen as best option, as enough spectrum for refarming in 1,800-MHz band available; it would also address shrinking rural coverage
Who'll be relieved
Bharti Airtel, Vodafone, Idea Cellular, Reliance Communications, BSNL and MTNL
Why they'll be relieved
Operators must pay nearly Rs 50,000 crore, half of what they had expected earlier when Telecom Commission recommended full refarming
Subscriber impact
About 400 million customers might need to shift to a new band
Auction impact
Move might further depress 2G auction process, as incumbent operators might not bid aggressively at all
