After trying to defend the indefensible, the Telecom Minister, Mr Kapil Sibal, has finally allowed sense to return to policy-making on the issue of frequency spectrum. “We believe that the stage has been reached where there is enough of competition to warrant a market-driven process for allocation of 2G spectrum,” he said last week, lurching back from the unacceptable ways of his predecessor, Mr A. Raja, on dispensing spectrum on a first-come, first-served basis and at an absurdly low price to telecom service providers. For the record, Mr Sibal justified the earlier policy as one that was responsible for bringing consumer tariffs to the lowest in the world. But he was wrong again on two counts. One, he must know that it was the increased intensity of the competition among the enlarged number of telecom companies that caused call charges to come down sharply. The amount of licence fee they paid was perhaps only marginally relevant to their pricing. In any case, the foreign telecom majors who bought into companies such as Swan Telecom and Uninor paid a hefty premium for the spectrum won by their erstwhile local promoters, and that did not deter their companies from offering the same low rates in the market. Two, Mr Sibal only has to go back to the records to see that, by his own yardstick, there had been enough competition three years ago for spectrum to have merited the market-driven process that he has now advocated: 46 companies were in the queue, and licences were given out only to a few.
Yet Mr Sibal must be commended for the turnabout and declaring his intention to let the market determine the allocation and pricing of spectrum. This is another crucial phase in the telecom growth story. Companies in the industry have all been reporting breathtaking increases in the number of subscribers each month, but that has come with a huge dent on their bottomlines. Five years ago, seven out of 12 telecom companies were profitable; last year just four out of 18 were. It stands to reason that the companies will begin to consolidate and attempt to regain the levels of profitability needed to keep them in business. As a consequence we may not immediately see that frenzied rush of new players evident three years ago. There may be a greater clamour, instead, for mergers and acquisitions. The challenge therefore for the regulator will for some time be not as much to set the licensing norms for new players as much as how to preserve and sustain the current level of competition that has worked wonders for, and is so crucial to, consumer interest.
No doubt in the coming years there will be continued growth in subscribers, whose number the regulator believes will touch one billion within four years, and newer data-rich services will gain customer fancy. No doubt there will then be need for substantially more spectrum. One hopes Mr Sibal's new transparent policy will be ready to service that.