The Department of Telecommunications (DoT) seems intent on undoing one its most spectacular successes.  Last year, it auctioned spectrum for two important wireless technologies viz 3G and BWA (Broadband Wireless Access), which can help deliver broadband services across India speedily and cheaply.  It was praised for conducting a remarkably transparent auction and for delivering a whopping Rs.105000 crores (over US$22 billion) to the government that expected a fraction of that amount.   However, DoT will squander this success, if reports are true that one of winning bidders may not receive a licence and  forfeit the over Rs.49000 crores already paid to the government.

Last Wednesday newspapers reported  that DoT has rejected the application of US company Qualcomm for an ISP licence.  After an elaborate process to pre-qualify bidders, Qualcomm won BWA spectrum in 4 circles viz. Delhi, Mumbai, Haryana and Kerala and deposited in full its winning bid as required.  Auction rules require it to obtain an ‘A’ Category, Internet Service Provider (ISP). Without this licence, it cannot use the spectrum it won to provide BWA services and will have to forfeit the whole bid amount.

San Diego, California-based Qualcomm is one of the world’s most successful telecom companies. A veritable giant, it has brought scores of wireless technologies to the market. 3G technologies deployed across the world, including India, come from Qualcomm.  Its BWA technology- inexplicably called LTE (Long Term Evolution) - competes aggressively with WiMax, another BWA technology.  Several other BWA players, including Reliance, which has a nationwide licence to offer BWA services, have spoken of plans to deploy LTE technology.

Auction rules stipulate that winners of BWA spectrum set up an Indian subsidiary and apply for an ISP licence within 3 months. Reports suggest Qualcomm set up an identical wholly owned subsidiary for each circle where it had won a licence.  The companies then applied for the required Category A, ISP licences within the stipulated period.  DoT also asked Qualcomm to confirm whether they were its subsidiaries. Qualcomm did so.

Reports suggest that months after the auction results and after receiving Qualcomm’s applications for the ISP licences, DoT raised two baffling concerns.  First, why did Qualcomm not ‘introduce’ its subsidiaries to DoT earlier? Second, why did Qualcomm set up four separate subsidiaries instead of one?

The bid documents have no explicit provision on either of DoT’s concerns. Even if they did, it would be naive to argue that these ‘lapses’ could be “deal-breakers” (almost literally in this case).  In the first case, DoT has sought and received a clarification that companies were indeed Qualcomm’s subsidiaries.  In the latter case, Qualcomm reportedly wrote to DoT offering to merge all the subsidiaries into one, if 4 separate licences cannot be issued. This should have been a no-brainer.

Incidentally, the ISP licence in question is available off-the-shelf, for Rs3 million to any company, without regard to its ownership structure, net worth or number of players in the market.  At least 60 companies already have this licence. All other BWA auction winners have received theirs.

It is easy to miss why BWA players need an ISP licence. BWA is more appropriate for broadband data than voice.  However, it does seem odd to mandate a nationwide ISP licence, when the spectrum was auctioned circle wise. Auction winners cannot set up BWA networks in areas where they have not won spectrum.

There was also a reason why auction winners were required to set up Indian subsidiaries after the auction, and not before. It was the stated intent of the government to attract new bidders, especially international investors to augment the competition for spectrum from the existing telecom players in the market.  Since incorporating companies in India is time consuming, 100% foreign companies were allowed to bid –after prequalification- if they provided an undertaking to set up Indian subsidiaries within 3 months of results being declared. The Indian companies would then apply for the ISP licence. Qualcomm did.

DoT has raised no concerns about Qualcomm’s technology, its ownership or practices in the market place. Qualcomm’s 4 overlapping ISP licences would have meant four times more in fees.  Nor, has DoT commented on the company’s commercial plans. Qualcomm had unilaterally stated several months ago that its priority was its technology business, not the delivery of services. It wanted to test its LTE technology in India’s network and would exit at an appropriate time, leaving its service provider partners to run the business in the long run.

Worryingly for DoT, while 3G services are now available in parts of India, BWA services are not.  Other BWA who have received the licence and the spectrum are yet to begin services or, announced when they will do so.   In an obviously tough market, and the long time it takes to setup networks, delays can drastically hurt a company’s ability to compete effectively.

The unnecessary controversy can only hurt much-needed broadband rollout.  However, since government plans to auction most spectrum in the future, the bigger casualty might be, India’s credibility when it seeks bidders, especially foreign investors.