The government's Wireless Planning & Co-Ordination wing, the agency responsible for allocating radio frequencies (spectrum) to telecom operators and other users, has proposed capping the number of GSM-technology based operators at seven per circle as part of a three-tier spectrum allocation policy.

The objective is to curb inefficient use of this key scarce resource by operators but could hamper the plans of global several global telecom companies that have reportedly evinced interest in India and are hampered by spectrum scarcity. These include Orange (France), T-Mobile (Germany), AFK Systema (Russia), Vodafone Plc (UK), AT&T-Cingular (US).

The proposal reverses a 2003 decision to remove restrictions on the number of operators per circle and introduce "unfettered" competition in telecom services.

The WPC proposal, which deals with initial spectrum allocation for new operators and additional allocations to existing ones, has been put up to the Telecom Commission, which is chaired by Department of Telecom Secretary DS Mathur.

The proposal recommends top priority to companies that already provide services and are entitled to additional spectrum - but only for the same technology. In effect, GSM companies will not be entitled to additional spectrum of CDMA standards even if they have a unified access service licence.

Second priority will be given to those companies that have a presence in at least one-third of the country's 21 telecom service areas and possess a unified access service licence.

Finally, third priority will be given companies that do not fall in the first two categories. This implies all prospective entrants.

Most Indian states have around seven mobile service operators. Reliance and Tata are the leading CDMA operators and Airtel, Hutch, Idea, BSNL are GSM operators with a nationwide footprint.

Smaller operators include Aircel (Maxis), Spice, MTNL, HFCL and Shyam Telelink, the latter two being pure-play CDMA operators. The maximum number of mobile operators is in Delhi (seven), followed by Mumbai (six).

India is one of the world's fastest growing telecom markets with over 140 million mobile phone users and a targeted 500 million users by 2010.

Current growth rates have already caused a spectrum scarcity on the 1800, 1900 Mhz bands. Some more spectrum, currently used by various agencies including the defence forces, is to be re-allotted this year. Spectrum for the awaited third generation (3G) services is available in the 2100 Mhz band.

Calling the WPC proposal "protectionist in nature," industry analysts said it may impair competition in the long run.