Market leader Bharti Airtel has supported increasing the spectrum cap to 33 per cent while advocating retaining the 50 per cent limit whereas Reliance Jio is in favour of retaining the 25 per cent cap and removing the 50 per cent limit.
Others including Vodafone and Idea Cellular had supported removing the concept of capping as spectrum was bought through auctions, and operators could deploy any technology on a spectrum band.
Reliance Communications, which has declared closing down its 2G and 3G services, had supported abolishing the intra-band cap of 50 per cent. The spectrum cap is the limit of airwaves a telecom
operator can hold. The cap or ceiling currently stands at 50 per cent in a spectrum band and 25 per cent of the spectrum assigned in a telecom
circle to an operator.
The Department of Telecommunications (DoT) will take a call on the recommendations. The inter-ministerial group (IMG), which was formed to address the financial stress of the telecom sector, had asked the DoT to seek Trai’s views on spectrum caps and see if the limits should be relaxed or not.
After the go-ahead from the DoT, the revised spectrum cap rules and other recommendations of the IMG will be sent to the Cabinet. The Telecom Commission (TC), which is the highest decision-making body of the DoT, has approved the IMG recommendations of giving relief to telecom operators by increasing the spectrum payment tenure to 16 years and change in the interest rate from the PLR (prime lending rate) to the MCLR (marginal cost of funds-based lending rate).
According to Trai, the spectrum cap of 25 per cent was imposed at a time when there were six-ten telecom service providers (TSPs) in a licensed service area (LSA) but given the ongoing consolidation in the sector, the number of TSPs in a circle may be fewer.
“Some merger proposals have already been filed while some are still in process. M&A guidelines allow holding 50% of market share in terms of subscriber base as well as revenue. Therefore, 25% cap on overall spectrum holding may put constraint on the ongoing consolidation phase,” Trai said.
Trai fears the 25 per cent cap might restrict the capability to purchase additional spectrum in auctions. In the last auction held in October last year, there was no bidder for spectrum in the 700 MHz band. “If the overall spectrum cap is revised to 35 per cent from the present level of 25 per cent; theoretically, there may be minimum 3 TSPs in each LSA. However, each TSP is unlikely to have equal amount of spectrum; therefore, in the more likely scenario, there will be minimum 4 TSPs in each LSA. It would balance the need to promote consolidation in the telecom industry and to ensure enough competition in the market at the same time,” the regulator added.
Regarding the 50 per cent cap, Trai said considering the fact that the LTE device eco system was evolving in each spectrum band, there was no need to put a spectrum cap in it. “In fact, asking a TSP to acquire spectrum in different band to deploy the same technology increases the cost of network with no real gains,” it said.
Trai feels that licensees should decide the combination of spectrum bands which they want within an overall spectrum cap.
However, Trai said as lower frequencies offered significantly superior quality and were relatively scarce, TSPs with exclusive rights over sub-1 GHz spectrum would have a competitive advantage over others and thus might create a non-level playing field. Therefore, it is essential to have a cap on the spectrum holding in the sub-1 GHz bands. But, retaining an individual spectrum intra-band cap may also result in an unwarranted fragmentation of spectrum.
In case of a merger of two licensees, both having spectrum in any of the sub-1 GHz bands, the combined entity may be required to shed smaller blocks of it if the combined spectrum holding exceeds the intra-band cap of 50 per cent.
Therefore, “the Authority is of the opinion that the current intra-band cap should be removed. Instead, there should be a cap of 50 per cent on the combined spectrum holding in the sub-1 GHz bands (700 MHz, 800 MHz and 900 MHz bands)”.