The Telecom Regulatory Authority of India (TRAI) recently released its recommendations on spectrum allocation.tele.net met TRAI chairman Pradip Baijal to get his views on this rather complex issue and industry reactions to the recommendations. Excerpts from the interview...

There has been some controversy over the spectrum recommendations brought out by TRAI. Some segments of the industry believe they favour CDMA operators. Any comments?

If you read the policy carefully, it says that when spectrum allocations started, the market was very small and the tariffs were very high. So we gave very small amounts of spectrum to both CDMA and GSM operators. There has been phenomenal growth since then. If you believe that India is a leading mobile player in the world, India too must start giving spectrum that leads to careful planning of networks. You cannot have networks that are inefficiently planned. Therefore, we have to move to some kind of regime which gives a good amount of spectrum to the players.

In our recommendations, we have stated that the international standards for CDMA are 14 MHz and for GSM they are 20 MHz. In comparison, Indian CDMA operators have got 2.5 MHz and 5 MHz, while GSM operators have got 6.2 MHz to 10 MHz. So, we have said that now that you are looking at a huge growth potential, we need to at least move to international standards. We are saying, this is the scenario, take your decision. If assistance is required from TRAI, we will provide it.

The minister has reportedly commented that some of the recommendations are outside the specified "terms of reference". Would you like to comment on this?

We have explained to the minister that they are not outside the TRAI Act, and I am sure he is satisfied. Basically, there are two kinds of areas. One, where we are asked a question and give recommendations. Two, where we can give recommendations suo moto. This is in the TRAI Act. So, if there is any recommendation outside our terms of reference, we can do so suo moto. There were good reasons for doing that and we have explained this to the minister.

There is talk about auctioning of spectrum for 3G services, instead of providing this spectrum free to operators, as has been suggested by TRAI. What are your views on this?

Auctioning of spectrum is the best way to go forward because no one can accuse you of any partiality, etc. But then we have to recognise that we live in India. We have to recognise what happened when 3G allocations took place in Europe and America.We have to see what happened when 2G spectrum was auctioned in India and how the system changed to a revenue-share regime. Then, you also have to see that, unlike other countries, there is a huge scarcity of spectrum in India –­ both for CDMA and GSM. Even if we make the best efforts, I am quite clear in my mind that the operators cannot be given enough spectrum, because a lot of the available spectrum is occupied by the present users.We have had long discussions with the present users. They are not able to vacate sizeable portions of spectrum. So, even 2G operators have to move into 3G spectrum to provide 2G services. That is the basis of our recommendations.

Governments always have multiple aims. As far as the regulator is concerned, the main aim is consumer interest and growth. We are convinced that even with zero spectrum charge, as in the mobile space, there will be so much growth that the government might be a gainer in the long run. The government has many aims, so, if it decides to charge for spectrum upfront, that is its prerogative. Our duty is only to make recommendations to the best of our ability.

We have also said that the Indian telecom sector is highly taxed. So we have kept this in mind. If the government wants to sell its spectrum in a nondiscriminatory manner, then, of course,auction is the best option.

In your opinion, what will be the impact of charging a fee?

It is obvious that the private operator who puts in that money will not do so from his own pocket. It will get loaded on to the service. This is precisely what happened in the first round of auctions for 2G services and in FM radio.

When do you expect the government to actually come out with a spectrum policy?

The minister has said three months, but I can't make a statement on behalf of the government. I will be guided by what the minister says.

What do you think is the potential of 3G in India?

The potential of 3G in India, like 2G, will depend on price. You are well aware that 2G services started in 1995. Till 2003, we had added 13 million subscribers. It is only when the entry price of handsets and tariffs came down drastically that we saw sizeable growth. If prices can be brought down for 3G services, through the presence of big players and economies of scale, there will be growth. Otherwise, there will not be explosive growth. India is very price sensitive.

What about the target that has been set for the country –­ 200 million users by 2007. Do you think that is a reasonable target?

That is one of the main reasons for us to recommend a zero entry fee –­ because you can't reach those numbers with higher tariffs. After all, 3G also gives 2G services, and that will be added to the total. Since you do not have adequate spectrum for 2G, you can't tell them, bad luck fellows.So, you have to balance your policy recommendations with the baggage you have in the sector. You don't live in a utopia.

The other target that was set was for internet growth. What regulatory framework is being created to provide an impetus to this sector?

We had given recommendations and the government issued a broadband policy in 2004. Last year, the tariff was Rs 1,500 for a 100 kbps connection, now it is Rs 400Rs 500. The service will grow; people will come up with more content and business.So, some sort of kickstart has happened. It will be reviewed continuously.

Do you have any comment on TDSAT overturning two of TRAI's rulings?

That is something that is in the judicial space, we don't comment on that. We have gone to the Supreme Court. I will be bound by what the Supreme Court says.

Moving to another issue, TRAI had asked for more funding. What is the latest development on this?

No, we have not asked for more funding.What we had said was that when you look at benchmarks for regulators internationally, the first benchmark is that, is the regulator independent of government funding? Because, if this is not so, we will have to go to the government for clearance for all our financial needs. Unless the source of funding is independent, the regulator cannot frame its own rules on hiring and allowances, independently.

If you see, there is Sebi, there is an insurance regulatory authority of India with independent sources of income. There, government discipline is not imposed. So, they can provide better conditions for some employees. In our case, because government rules and regulations apply to everything, our employees start getting less than what their government counterparts get.When that happens, we are not able to recruit people.

There were also some demands by TRAI for increased powers so that errant operators could be dealt with more effectively...

Basically, at present, suppose quality of service parameters are not adhered to, our only option is to go to a court of law and prosecute. In a number of countries, authorities like TRAI have been given the authority to impose fines. So, that was what we were asking for.

On the issue of interconnection usage charge (IUC), why is a review taking place at this stage?

Well, IUC is a function of cost. If the network has grown so much, the costs may become different. So they need to be reviewed. We had always said that as far as ADC is concerned, it is a terminating regime, you cannot terminate the regime unless you review it annually. We had said it would terminate in three to five years. So if it has to terminate, even in five years, as the minister has said, it has to be continuously reduced and brought down to zero.

But what about the impact of this on the financials of companies like BSNL?

Well, good luck to them. After all, they are not a loss-making company and even if they were, you can't have a system where other operators finance the competitive operators in perpetuity. The USO is there for payment of rural rollout. The ADC is not there for that. It is there for a different purpose –­ because in the short run the incumbent operator cannot do tariff rebalancing. That is why you allow him three to five years of tariff rebalancing, and you give some sort of subsidy.

A final question, once issues like spectrum and IUC have been dealt with, what other major regulatory issues remain in the sector?

Oh, my goodness, there are any number of issues that are left. Number portability is a very popular issue. Then there are emergency services, billing and quality of services. The quality of service is deteriorating very fast because when spectrum was actually allocated, no one had thought of this explosive growth. So, now there is less spectrum, so quality of service is going down.These are very big issues.