Mint, New Delhi Mobis Philipose column
Feb 19, 2013 (Mint - McClatchy-Tribune Information Services via COMTEX) --
Concerns about Reliance Industries Ltd's (RIL's) back-door entry into telecom voice services have abated with the Telecom Commission deciding that companies with BWA (broadband wireless access) spectrum and an ISP (Internet service provider) licence can migrate to a new unified licence regime and offer voice services on payment of Rs.1,658 crore. Incumbent companies as well as many of their investors had feared that the migration fee would be much lower.
According to a report in The Hindu Business Line about a month ago, the Cellular Operators Association of India (COAI) had written to the department of telecommunications opposing the government's new unified licence policy, which would allow RIL to get into the voice market by acquiring a pan-India unified licence for only Rs.15 crore. It should also be noted here that the payment of Rs.1,658 crore is only for the unified licence and does not include any spectrum. COAI's comments on Monday that this will lead to a level-playing field makes it clear that RIL will not have any advantages as far as regulatory costs are concerned, unless of course the government overrules the Telecom Commission's recommendations.
Investors are also breathing relatively easy because of the challenges of introducing voice services over the 2300 megahertz spectrum band, which BWA allottees have received. According to an analyst with a domestic institutional brokerage firm, voice services over TD-LTE (time-division long-term evolution) technology, which RIL is working on, haven't been launched commercially anywhere in the world. The other option of introducing VoIP (voice over Internet protocol) isn't a very viable option either because of a relatively weak quality of connection.
The analyst adds that one option for RIL is to either tie-up with an existing operator that has excess capacity or buy out a voice operator when mergers and acquisitions rules for the sector are clear. Again, this will add to RIL's costs and hamper its ability to drive down tariffs and compete effectively.
The recent experiences of new operators such as Telenor, which has sunk extremely large amounts into garnering a minuscule share of the market (while continuing to post cash losses), show that the Indian telecom market poses great challenges to new operators. Even incumbent companies generate sub-optimal, single-digit returns on capital employed.
Of course, having said all this, one cannot fully rule out any impact from RIL's entry, especially given the company's gigantic cash pile.
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