Analysys Mason has released a report on Spectrum Refarming. This was commissioned by Bharti Airtel, Vodafone India and Idea Cellular, who had, prior to this, expressed their concerns over the Telecom Regulatory Authority of India’s (TRAI) suggestions pertaining to spectrum refarming, as part of its recommendations on the Auction of Spectrum.

Now, these companies have sent a copy of the report to the Empowered Group of Ministers (EGoM) established to oversee the upcoming spectrum auction, headed by Pranab Mukherjee, Minister of Finance.

In the correspondence sent with the report, the operators have said that by recommending that spectrum refarming be carried out before the expiration of telecom licences in 2014-16, TRAI has misinterpreted the Supreme Court’s order of reserving the spectrum vacated through licence cancellation for refarming.

The operators have also said that TRAI has chosen to overlook the fact that India has adopted a technology neutral regime since 1999, whereby UAS licencees are permitted to offer all types of access services, including mobile services using any technology.

Meanwhile, the report concludes that TRAI’s recent proposals on this subject will entail a substantial cost to the industry, result in an increase in retail tariffs, and cause significant inconvenience to consumers, with no benefit to any involved stakeholders.

The report points out that the maximum harm will be to the rural consumers, the already-connected, as well as the large population of waiting-to-be-connected.

The report estimates that the implementation of current refarming recommendations will require replacement of 286,590 existing 900MHz base stations with 1800MHz equipment, in addition to deployment of an additional 171,954 new base stations on 1800MHz to fill coverage gaps. This will result in an incremental capex of Rs 547.39 billion, and incremental annual opex of Rs 117.62 billion.

If the incremental investment in refarming and the costs of spectrum are passed on to consumers in the form of enhanced retail voice tariffs, the overall tariffs will go up by as much as Re 0.64 per outgoing minute (Re 0.30 due to refarming and Re 0.34 from spectrum investments).

The report also estimates the impact on environment due to these additional sites at 5.4 million tonnes of CO2, which is equivalent to pollution caused by 4.5 million cars annually.

Pankaj Agrawal, co-head, Analysys Mason India commented that the current recommendations lack the rigour and comprehensiveness of regulatory impact assessment as observed in other markets where refarming has been carried out or is under process. Key operational considerations such as the timeframe required for such large scale migration of sites, availability of both 900MHz and 1800MHz spectrum during the transition phase, as well as availability of sufficient spectrum to support existing voice traffic along with new technologies such as UMTS/LTE have not been analysed thoroughly in the current recommendations.

Given that there are 456 million consumers availing GSM services on the 900MHz band, it becomes imperative to support GSM based voice services even with so-called “liberalised” spectrum. With only limited allocations of spectrum, these consumers will still need to be supported for voice services thus making so-called “liberalisation” merely an academic exercise. Further, the limitations on revenue earning potential of the spectrum do not justify the proposed reserve prices and valuation.

The report concludes that it is it is imperative to have a dedicated and detailed consultation process for spectrum refarming, which should include rationale, objectives, regulatory impact assessment and operational considerations.