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Bullying tactics in the telecom sector

November 20, 2007 10:07 IST
What's happening in the telecom sector are classic bullying tactics - do the wrong thing, threaten to do worse, get the threatened party to sue for peace, and walk away smelling of roses after a "compromise".

So, when the country's telecom firms meet government officials on November 21, you can be pretty sure this will be the beginning of a compromise that will let Reliance Communications get its GSM spectrum and allow existing GSM players like Bharti and Vodafone-Essar to get more free spectrum - the only loser here will be the exchequer, which stands to lose a few tens of thousand crore as entry fee from new players (Anil Ambani's letter to the PM rightly puts the loss of giving around just 3MHz extra each to existing GSM players at Rs 20,000 crore). But then, that's only public money, how does it really matter?

The credit for all this, of course, must go to Telecom Minister A Raja, ably aided by Telecom Regulatory Authority of India (Trai) chairman Nripendra Misra. So, when Trai was asked whether CDMA/GSM mobile phone firms should be given GSM/CDMA spectrum, Misra said yes but left the entry fee open - "such a licensee must pay the same amount of fee which has been paid by existing licensees using the alternative technology or which would be paid by a new licensee going to use that technology".

Not surprisingly, Mr Raja chose the lower fee of Rs 1,651 crore (Rs 16.50 billion) paid by existing users in 2001 instead of using the price that could have been got by auctioning the spectrum to new users.

As for whether these dual-technology firms should get precedence over those already in the queue (this is the crux of the Reliance controversy), Mr Misra was even more wishy-washy: "the inter se priority of allocation should be based on the criteria that may be determined by the Department of Telecommunications for the existing licensee". So Mr Raja decided the criterion.

Yet, notwithstanding all this, the government's case was weak and could have been overturned at the TDSAT on a variety of grounds - so Mr Raja used other arrows in his quiver. If it wasn't bad enough that Trai/TEC hiked the subscriber criterion (without consultation) for more spectrum to levels that ensured existing GSM firms wouldn't get more spectrum for a long time, Mr Raja agreed to usher in number portability - this allows existing users to move to other mobile phone firms while retaining their existing phone number.

While the cellular operators have always opposed this since they've feared their service was poor enough for customers to want to move, Mr Raja made this one-sided - while a Bharti GSM customer can move to Vodafone-Essar's GSM network with the same number post-portability, a Tata-CDMA customer cannot move to Reliance CDMA (and vice versa) since each company locks its subscribers to the handset.

Naturally then, GSM operators saw this as a conspiracy. (Another conspiracy: while the TEC was quick to further hike Trai's hike in subscriber requirements for GSM mobiles, it didn't even come out with recommendations on CDMA phones!)

All this was designed to ensure the GSM-mobile players came to the negotiating table since no one can really win against the government - when these operators did win at the TDSAT in 2003, the government refused to implement the TDSAT's order and managed to split the GSM operators through a combination of inducements and threats, which is one of the reasons why few in the industry trust each other even today. So, most felt that if the existing cellular operators were given more free spectrum (by watering down the TEC report), they would be quick to withdraw their case from the TDSAT.

Apart from the spectrum issue, there are a few other issues that need sorting such as the annual spectrum charge Reliance will pay for its GSM operations - the government has lowered it considerably from the Trai recommendations, but this is hardly a deal-stopper as it can easily be raised without causing too much of a problem.

There was, however, another problem that still needed to be dealt with. Okay, so let's say Bharti/Vodafone-Essar withdrew their case, but what if other firms become party to the case at the TDSAT. After all, there are around 40 new entrants who want spectrum, over whom Reliance Communications jumped.

This is where Mr Raja played another trump card. He realised most of these entrants were really just looking for trading profits - the licences were available for a song and they would have sold them to other telecom players if they'd got them, but it wasn't a matter of life and death for them.

But for genuine telecom players like AT&T, STel and Systema, it was probably the last chance to get into the Indian market -  3G spectrum was another way in, but Trai had recommended only existing players be allowed to provide 3G services. So, Raja announced that everyone would be allowed to participate in the 3G bid.

This had two effects. One, it ensured genuine telecom players retained some hope and so kept their lawyers on a tight leash. Second, it made the GSM players all the more keen to negotiate since they want to retain the 3G mobile licences all for themselves. Raja was canny enough not to put any of the 3G commitments in writing, leaving enough scope for negotiation. With so much in the melting pot, it's easy to see why it's in everyone's interests to kiss and make up after November 21.

Sunil Jain