Spectrum Trading in India: How to Untie the Gordian Knot?

Abstract

This case brings out the role of institutions in an evolving policy domain and also highlights corporate governance issues in regulatory and policy organisations in India. The role of institutions in developing countries is more important than in developed economies, as the former are characterised by a poor institutional environment and often inappropriate organisational structures for governance. Telecom and Information Technology (IT) sectors contribute significantly to economic growth and national competitiveness. Therefore, having an appropriate sector structure with well-defined roles for agencies involved in the governance of the sector is important. Furthermore, top-level organisations are expected to be role models of corporate governance.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Exhibit 1: Structure of the Telecom Sector in India

All text in the flow diagram is within rectangular boxes. A box on top of the diagram reads “Competition Commission of India.” The flow diagram begins with Box 1 labeled “Ministry of Communications and IT, Department of Telecom, (Telecom Commission).” A downward arrow from this box connects to Box 2 with heading “Government /Partially Government Service Providers.” Six boxes below the heading are arranged in three rows and two columns. Each box on the left is connected to the box on the right by a rightward arrow. Text in the boxes is tabulated below:

BSNL (Corporatized)

Fixed, Cellular, ISP, NLD, ILD (All India other than Mumbai and Delhi)

VSNL now TATA Communications (Privatized Incumbent)

International/National Private Line Services

MTNL (Corporatized and Partially Privatized)

Fixed, Cellular, ISP, NLD, ILD services in Delhi and Mumbai

A rightward arrow from Box 1 connects to Box 3 with heading “Tower Companies.” Text in the four rectangular boxes beneath the heading is listed below:

  • Indus Towers Limited
  • Bharti Infratel Limited
  • Reliance Infratel Limited
  • Others

A bidirectional upward arrow from Box 2 connects to Box 4 labeled “Subscribers.” A bidirectional upward arrow from Box 3 connects to Box 5 with heading “Private Operators.” Eight boxes beneath the heading are arranged in four rows and two columns. Each box on the left is connected to the box on the right by a rightward arrow. Text in the boxes is tabulated below:

Bharti-Airtel

Fixed, Cellular, NLD, ILD, VSAT, and ISP

Vodafone Idea

Cellular

Reliance Jio

Cellular

Others

Fixed, Cellular, NLD, ILD, VSAT, and ISP

A bidirectional arrow from Box 5 connects to Box 4. A bidirectional upward arrow from Box 4 connects to Box 6 with heading “Regulators.” Text in the two rectangular boxes beneath the heading is listed below:

  • Telecom Dispute Resolution Settlement Appellate Tribunal (TDSAT)
  • Telecom Regulatory Authority of India

A leftward arrow from Box 6 connects to Box 1. An upward arrow from Box 6 connects to Box 7 with heading “Judicial System.” A box beneath the heading reads “Supreme Court.” A downward arrow from Box 6 connects to Box 5. A rightward arrow from Box 1 connects to Box 6.

A flow diagram shows the Telecom sector based on the study by the Competition Commission of India.

Source: Author’s Analysis

Exhibit 2: Key Reforms and Developments in the Sector

Sr No

Year

Reform

1

1991

  • Announcement of the New Economic Policy in July 1991
  • Manufacturing delicenced

2

1992

  • Private participation in service provision

3

1994

  • Formulation of the National Telecom Policy 1994
  • Licence issued for providing mobile phone services in four metros under a fixed licence fee

4

1997

  • Separation of policy and regulation: TRAI set up on March 28, 1997

5

1999

  • Formulation of the New Telecom Policy 1999
  • The Government replaced the fixed annual licence fee with the revenue-sharing regime.

6

2000

  • BSNL formed on October 1, 2000
  • Restructuring of TRAI and creation of TDSAT
  • Private participation in national long distance

7

2001

  • Introduction of the fourth cellular operator

8

2002

  • Videsh Sanchar Nigam Limited (monopoly player in international long-distance sector) privatised

9

2003

  • Unified access license introduced

10

2004

  • Private participation in international long distance

11

2008

  • Introduction of additional 2G licences

12

2010

  • 3G and 4G/LTE spectrum auctions

13

2012

  • Formulation of the National Telecom Policy 2012
  • The SC cancels 122 2G spectrum licences

14

2015

  • DoT allows spectrum trading

15

2018

  • Formulation of the National Digital Communications Policy, 2018

Source: https://iimlibrariesconsortium.ac.in/assets/snippets/workingpaperpdf/705538772015-03-22.pdf, https://www.financialexpress.com/industry/dot-notifies-spectrum-trading-guidelines/150715/, and https://pib.gov.in/newsite/PrintRelease.aspx?relid=183741.

Exhibit 3: Company Profiles of Key TSPs in India

1. Bharat Sanchar Nigam Ltd (BSNL)

BSNL is the public-sector TSP in India. It was incorporated on September 15, 2000, to take over the business of providing telecom services and network management from Government’s Department of Telecom Services (DTS) and Department of Telecom Operations (DTO). 1 It mainly provided 2G and 3G mobile services and wireline telephone services across the country, except in Delhi and Mumbai, where the public-sector TSP was MTNL. 2 By January 31, 2019, it had a subscriber base of more than 118 million and a market share of 10.05%. 3

2. Bharti Airtel Ltd. (Airtel)

Bharti Tele-Ventures Ltd was started by Sunil Bharti Mittal in the year 1995 by launching its services in Delhi under the brand name “Airtel.” By 2005, it gradually became a pan-India TSP by virtue of various acquisitions and mergers. In 2006, the name Bharti Airtel Ltd was adopted. By the year 2010–11, the company had expanded to South Asia and Africa and was offering 3G mobile services in India and had operations in 18 countries. 4

It provided 2G and 3G mobile services, mobile commerce, fixed-line, broadband, DTH and enterprise services and national/international long-distance services on a pan-India basis. By February 2014, it crossed the 200 million subscriber mark and also started providing 4G/LTE mobile services. 5 By January 31, 2019, it had a subscriber base of more than 340 million with a market share of 28.80%. 6

3. Reliance Communications Ltd. (RCom)

RCom was incorporated on July 31, 2002, as Reliance Infocomm Ltd, to provide cellular services across the country. In 2005, Anil Ambani got the control of Reliance Infocomm Ltd as part of a family settlement with his brother, Mukesh Ambani, and in 2006, Reliance Infocomm Ltd was renamed RCom. By 2010, RCom became the second-largest telecom company with a subscriber base of about 125 million. 7

RCom’s business started to decline as the liberal licencing policy saw several TSP’s growing to around 15 (by 2012), increasing competition and reducing operational margins. The cancellation of telecom licences by the SC further impacted the sector. Issues in the sector, coupled with some bad business decisions by RCom (delayed asset sale 8 ) and majority of RCom’s investments going into spectrum auctions and spectrum liberalisation, resulted in increasing debt and falling revenue for the company.

By January 31, 2019, RCom’s subscriber base was only around 0.02 million, with a market share of just 0.002%. 9 In February 2019, RCom filed for bankruptcy as it was unable to pay its debts, which stood at around INR 42,000 crores (420 billion). 10

4. Reliance Jio Infocomm Ltd. (RJio)

In 2010, Mukesh Ambani-led Reliance Industries Ltd (RIL) had bought 95% stakes in Infotel Broadband Services Ltd (IBSL), the only company to win the 4G/LTE spectrum licence in all 22 circles. 11 Later in 2013, IBSL was renamed RJio. 12 The company launched commercial services in September 2016. It simultaneously launched economical 4G/LTE handsets, under the brand name LYF, to boost 4G/LTE penetration. 13

RJio created a world record by acquiring 16 million subscribers within 1 month of commercial launch. 14 It crossed the 100 million subscriber mark within 6 months 15 and the 200 million mark within 2 years 16 of launch.

By January 31, 2019, it had a subscriber base of around 289 million, with a market share of 24.49%. 17 It was the only wireless service provider having significant monthly growth in the subscriber base.

5. Vodafone Idea Ltd.

Vodafone Idea Ltd was incorporated in August 2018 by the merger of two TSP’s, i.e. Vodafone India Ltd and Idea Cellular Ltd. In the new entity, the Vodafone group had around 45% stake, the Aditya Birla Group (Idea) had around 26% and the public held the remaining stakes. It provided pan-India 2G, 3G and 4G/LTE mobile, IoT (Internet of things) and enterprise services.

At the time of the formation, i.e. August 2018, Vodafone Idea Ltd had more than 408 million subscribers and became the largest TSP in India, having around 41% of the market share. By January 31, 2019, it had a subscriber base of more than 415 million with a market share of 35.12%. 18

Exhibit 4: Subscription Details of the Telecom Sector in India as on January 31, 2019

India was the world’s second-largest telecom market, having more than 1.2 billion subscribers. With around 98% of the subscribers, the wireless segment (mobile) dominated the market. Private TSPs dominated the telecom market, with around 89% of the market share. 19

The sector had undergone a major consolidation since 2016. As a result of numerous acquisitions, mergers and exits, the number of active wireless TSPs had reduced from 15 in the year 2012 to only 4 in 2019. 20 These TSPs were Vodafone Idea Ltd., Bharti Airtel Ltd (Airtel), Reliance Jio Infocomm Ltd. (RJio) and BSNL, having around 35%, 29%, 24% and 10% market share, respectively. Reliance Communications Ltd (RCom), a prominent market player until 2015, was shutting down its business and had already applied for insolvency. The only public-sector TSP in the sector was BSNL. 21

Telecom Subscription Data

Wireless Telecom Subscribers

Wireline Telecom Subscribers

Sr No

Operator

Subscribers (million)

Market Share (%)

Sr No

Operator

Subscribers (million)

Market Share (%)

1

Vodafone Idea

415.16

35.12

1

BSNL

11.35

52.07

2

Airtel

340.36

28.80

2

Bharti Airtel

4.07

18.69

3

RJio

289.44

24.49

3

MTNL

3.26

14.95

4

BSNL

115.36

9.76

4

Tata Teleservices

1.85

8.47

5

Tata Teleservices*

18.16

1.54

5

RCom

0.75

3.46

6

MTNL**

3.47

0.29

6

Vodafone

0.29

1.33

7

RCom***

0.02

0.00

7

Quadrant

0.23

1.03

Total

1181.97

Total

21.79

Total Telecom Subscribers

1203

Source: https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

*Tata Teleservices was in the process of merging its wireless business with Airtel.

**MTNL was in the process of merging with BSNL.

***RCom was shutting down its business and had applied for insolvency.

Exhibit 5: Spectrum-Trading Guidelines

The following are the details of the guidelines: 2 2

  • Only outright sale. Leasing was not allowed.
  • Block sizes for trading were specified and linked to the band. The block size for trading in the 2300-MHz band was 20 MHz in the TDD mode, whereas the block size for 900- and 1800-MHz bands was 2 × 200 kHz.
  • For transactions involving only part sale, both the buyer and seller would have to meet the entire roll-out obligations associated with that spectrum. If, however, the buyer had met a part of its obligation through its earlier spectrum holding, then such a roll-out would be considered towards the buyer’s roll-out obligation for the traded spectrum.
  • Only the access spectrum could be traded, as that was the only spectrum available through auctions.
  • Trading could happen only across the entire service area.
  • The original validity period of the licence would apply to the traded spectrum.
  • The seller is required to clear all dues before concluding any agreement for the spectrum. Any dues recoverable after the effective date of the trade would be the liability of the buyer. If any amount is found recoverable after the effective date of the sale, then it would be at the government discretion to decide to recover it from either the seller or the buyer or jointly.
  • The buyer should comply with the spectrum caps declared from time to time for the total spectrum available after the trade.
  • The spectrum could be traded only after two years of its acquisition.
  • The seller needed to clear all the SUC payable until the effective date of the trade.
  • The amount received from trading would be counted against the AGR of the buyer to calculate both the licence fee and the SUC.

Exhibit 6: List of Key Spectrum-Trading Deals and Acquisitions/Mergers

Sr No

Telecom Service Providers

Time

Deal Type

Quantum of the Spectrum

Amount

Status

1

RCom and RJio

January 2016

Spectrum trading

33.75 MHz in 9 circles

INR 4500 crores (45 billion)

Completed 23

2

Airtel and Videocon

March 2016

Acquisition

2 × 5 MHz in 6 circles

INR 4428 crores (44.28 billion)

Completed 24

3

Airtel and Aircel

July 2016

Spectrum trading

20 MHz in 8 circles

INR 3500 crores (35 billion)

Completed 25

4

RCom and MTS

October 2017

Merger

3.75 MHz in 9 circles

INR 5000 crores (50 billion)

Completed 26

5

RCom and RJio

December 2017

Spectrum trading

122.4 MHz

INR 7300 crores (73 billion)

Called off 27

6

Airtel and Telenor

May 2018

Merger

43.4 MHz in 7 circles

No cash deal

Completed 28

7

Vodafone and Idea Cellular Ltd

August 2018

Merger

NA

NA

Completed 29

8

Airtel and Tata Teleservices

July 2019

Merger

71.25 MHz in 19 circles

No cash deal

Completed 30

Notes

1. https://www.bsnl.co.in/opencms/bsnl/BSNL/about_us/company/about_bsnl.html

2. http://mtnl.in/about-us.html

3. https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

4. https://www.airtel.in/about-bharti/about-bharti-airtel

5. https://s3-ap-southeast-1.amazonaws.com/bsy/iportal/images/Annual-report-2017-18_324BCC06D8C6765F2F6C750DD9CD8C63.pdf

6. https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

7. https://www.indiatoday.in/magazine/the-big-story/story/20190325-the-fall-of-a-billionaire-1477813-2019-03-15

8. ../../../../../Cases/RCom case study/New folder/ https://www.livemint.com/Companies/CPZVyCoGV9l9zT6vj5h8TJ/RCom-signs-term-sheet-with-Tillman-and-TPG-for-sale-of-towe.html

9. https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

10. https://economictimes.indiatimes.com/industry/telecom/anil-ambani-cant-find-a-fix-for-rcom-files-for-bankruptcy/articleshow/67798419.cms?from=mdr

11. https://economictimes.indiatimes.com/industry/telecom/reliance-industries-buys-95-stake-in-infotel-broadband-for-rs-4800-cr/articleshow/6037260.cms

12. https://www.gadgetsnow.com/tech-news/RILs-Infotel-Broadband-renamed-Reliance-Jio-Infocomm/articleshow/18271907.cms

13. https://www.gadgetsnow.com/infocus/reliance-jio-all-you-need-to-know/infocusshow/57005891.cms

14. https://www.hindustantimes.com/business-news/reliance-jio-creates-world-record-16-million-subscribers-in-one-month/story-SroJMRSzg1MqINKDzTLWPJ.html

15. https://indianexpress.com/article/technology/tech-news-technology/reliance-jio-crosses-50-million-subscriber-mark-in-83-days-4400972/

16. https://www.financialexpress.com/industry/reliance-jio-enters-a-new-league-crosses-200-million-user-mark/1221741/

17. https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

18. https://main.trai.gov.in/sites/default/files/PR_No.22of2019.pdf

19. Ibid

20. Tata Teleservices, a smaller TSP, was in the process of merging its wireless business with Airtel. MTNL, the public-sector TSP in Delhi and Mumbai was, in the process of merging its business with BSNL.

21. Including MTNL.

22. Retrieved January 20, 2019, from http://dot.gov.in/sites/default/files/2015_10_13%20Trading-WPC_0.pdf?download=1.

23. Source: https://www.thehindubusinessline.com/info-tech/rcomrjio-in-a-4500cr-spectrum-trading-deal/article8120958.ece, https://www.livemint.com/Companies/jtP90jupJjDy9npfHotboN/RCom-Reliance-Jio-sign-pact-on-spectrum-allotment.html and https://economictimes.indiatimes.com/industry/telecom/reliance-jio-rcom-sign-spectrum-sharing-trading-pacts/printarticle/50622390.cms

24. https://www.mobileworldlive.com/asia/asia-news/airtel-to-acquire-spectrum-from-videocom-for-659m/ and https://economictimes.indiatimes.com/news/company/corporate-trends/bharti-airtels-deals-with-videocon-aircel-approved-cci/articleshow/59391210.cms?from=mdr

25. https://telecomtalk.info/airtel-completes-spectrum-deal-with-aircel-in-odisha-circle/156041/, https://economictimes.indiatimes.com/industry/telecom/telecom-news/airtel-says-released-rs-453-crore-aircel-says-got-only-rs-341-crore/articleshow/67480477.cms?from=mdr and https://www.businesstoday.in/sectors/telecom/nclt-rules-in-favour-of-airtel-in-spectrum-deal-with-aircel/story/343653.html

26. https://telecom.economictimes.indiatimes.com/news/telecom-department-approves-rcom-mts-merger/61182496

27. https://economictimes.indiatimes.com/industry/telecom/telecom-news/rcom-jio-spectrum-deal-brothers-bailout-doesnt-mean-anil-ambani-is-out-of-the-dumps/articleshow/68571528.cms?from=mdr and https://economictimes.indiatimes.com/industry/telecom/telecom-news/rcom-rjio-terminate-asset-sale-agreement-by-mutual-consent/articleshow/68468744.cms?from=mdr

28. https://economictimes.indiatimes.com/news/company/corporate-trends/dot-approves-merger-of-bharti-airtel-and-telenor-india/articleshow/64157286.cms

29. https://economictimes.indiatimes.com/industry/telecom/telecom-news/idea-vodafone-say-merger-complete-now-indias-largest-telco-with-408-million-active-users/articleshow/65619297.cms?from=mdr

30. https://economictimes.indiatimes.com/industry/telecom/telecom-news/tata-teleservices-merger-dot-seeks-rs-7200-crore-bank-guarantee-from-airtel/articleshow/68833052.cms?from=mdr

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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