Talk is not cheap

The pressure on call rates is mounting as telecom companies are made to surrender spectrum that came bundled with licences issued to them since 1994. The policy-making Telecom Commission has recommended to a Cabinet ministerial group that Airtel, Vodafone and Idea must bid for bandwidth alongside newer players when their permits come up for renewal from 2014. The decision follows from the Supreme Court ruling that frequencies used by cellular companies be auctioned to ensure fair allocation of a natural resource. Fairness calls for incumbents and challengers to be treated alike. Then again, auctions would not have discovered the right price unless those already inside the clubhouse are made to bid alongside those who want to get in. Besides, the government wants the frequency the older companies are using freed up: the 900 MHz band is better at delivering high-speed data services like streaming video.

Telecom companies now face costly spectrum as more players bid prices higher and the expense of switching their networks to a less efficient frequency. The Telecom Regulatory Authority of India (Trai) estimates companies would need to raise call costs by 8.5-13 paise per minute if every megahertz of allotted spectrum, and more that is yet to be allotted, is sold to the highest bidder over the next two decades. It does not see this as a crushing burden in a nation with some of the cheapest call rates in the world. The older telecom companies, however, reckon the migration to a different frequency would require them to upgrade their networks, a daunting prospect when spectrum costs have gone through the roof. The new players argue that is a small price to pay for a more competitive industry.

Despite a decade of muddled policies, the number of India's telephone users has sprinted to nearly 1 billion. The government's reading is that subscribers are willing to shell out a little extra for a better policy environment.


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