How spectrum refarming affects telecom operators in India

Telecom Lead India: Refarming
of spectrum is likely to negatively impact fortunes of telecom operators in
India. Telecom Lead is presenting select points from Vodafone resident director
TV Ramachandran’s letter to Indian telecom minister Kapil Sibal explaining the
negative impact.


Refarming is one of the main recommendations by TRAI.


At a press meet organized by COAI, CEOs of Vodafone, Airtel
and Idea Cellular confirmed that they are rejecting the TRAI recommendation on




Refarming will do lasting damage to the mobile service
offered by Vodafone to its urban and rural customers and adversely affect those that wish to
contact our customers.


Vodafone has 10 Circles coming up for licence extension in
2014 and 2015. These Circles represent around 65 percent of Vodafone India’s
total mobile subscriber base of 150 million and contribute 65-70 percent of
Vodafone’s total rural subscriber base of 60 million.


Vodafone has start-up spectrum in the 900MHz band in each of
these Circles. This spectrum forms the foundation of the networks deployed.


Vodafone has built around 55,000 base stations in these 10
Circles and achieved population coverage of around 93 percent and geographic
area coverage of around 70 percent. Vodafone uses 1800MHz spectrum primarily in
the urban areas where additional capacity is required and 900MHz microcells to
provide coverage within buildings.




Spectrum at lower frequencies propagates further than
spectrum at higher frequencies. In simple terms, except in areas of high traffic density, fewer base
stations using 900MHz spectrum are required than those using 1800MHz to provide
the same quality of service.


The withdrawal of 900MHz of spectrum will therefore result
in significant gaps in coverage and a reduction in the level of service enjoyed
by customers.


The loss of 900MHz spectrum also will mean the removal of
the 900MHz microcells. This will result in a loss of in-building coverage in
the central business districts and other congested traffic centers.


Importantly, these new coverage gaps and reduced quality of
service will also affect those seeking to call/text/email Vodafone customers
across all networks and circles.


Vodafone estimates that, without any additional site build,
the loss of the 900MHz spectrum in the 10 Circles will reduce the population coverage by
around 20 percent. The loss of geographic coverage will be far greater.


In order to try to compensate for the loss of 900MHz
spectrum Vodafone will need to further deploy in excess of 20,000 sites1 in
order to try and replicate existing levels of coverage and capacity. However,
we believe that it may not be possible ever to bring our network up to the same
level of quality using 1800MHz spectrum, because: 

We will be unable to locate sites in the optimal locations
in urban areas because of the unavailability of suitable locations and; In some sensitive
areas e.g., Lutyens Delhi, Civil Lines, Cantonment areas, etc., there may be a
restriction on any construction of new sites.


In rural areas, it would not be viable to build additional
sites (and incur ongoing operating costs for power, diesel, maintenance
etc.) in areas with low traffic density. Villages that previously enjoyed
mobile coverage will therefore cease to do so. The loss of connectivity for
rural subscribers will not only impact the future rural telephony objectives
enunciated in NTP- 2011, but it will actually undo the significant achievements
already made.


Refarming of 900MHz spectrum will therefore result in a
lasting loss of service or, at the very least, a reduction in the quality of service for millions of
urban and rural customers.


The installation of each additional site would imply a
significant increase in the usage of power and especially diesel (due to unreliable electricity
supply especially in the rural areas) which would go against the efforts of the
Government for Green Telecommunications. Proliferation of towers will also lead
to increased EMF concerns in society.


The investment to replace the existing 900MHz network will
mean added cost burden for the operator which will translate into higher tariffs for


We should also note that replacing a 900MHz network with an
1800MHz network is not an exercise that can be carried out in 6-18 months.
Network planning, the identification and acquisition of new sites, the
importation of 1800MHz radio equipment, WPC and SACFA clearances, etc.
introduce significant lags in network deployment. In total, we estimate that it
will take at between 3-5 years to migrate and optimize our network to an
alternative frequency band.




Besides a severe and immediate impact on consumers, taking
away 900MHz will also adversely affect the country’s public policy objectives.


It is well recognized that mobile services have played a key
role in delivering the fruits of connectivity to Indian citizens. There are
several international studies and reports that document the benefits of mobile
services and their multiplier effect on GDP and economic growth. It is generally accepted that a 10 percentage points increase in
mobile penetration results in a 0.6 percentage points increase in growth of GDP.


Each additional site will require either power or diesel.


An India specific study on the socio-economic impact of
telecommunications, carried out by the Indian Council for Research on International Economic
Relations (ICRIER) has found clear evidence to suggest that mobile penetration
facilitates economic growth. The study analyzed the relationship between State
Domestic Product (SDP) and mobile tele-density and established a significant
positive correlation between increase in mobile penetration and growth. It
estimated that Indian states with higher mobile penetration are expected to
grow faster, with the growth rate being 1.2 percentage points higher for every
10 percentage points increase in mobile penetration. It concluded that there are significant
benefits to be reaped from increase in teledensity and the only realistic way
to achieve rapid growth in teledensity is through the wireless platform.


Disruption of services to a vast majority of consumers
especially in the rural areas would deny connectivity to those very segments of society that
stand to gain the most from these services.


Further, by compelling operators to invest scarce capital
resources to replace an existing network to serve existing subscribers will be at a huge
opportunity cost as it would divert resources from venturing out into new geographies and
connecting the unconnected. This will also jeopardize the ability of these operators to invest
further in data services and achieve the Government’s goal of 60 percent internet penetration by


The Government must test this approach on the anvil of the
objectives of policy (both NTP-99 and NTP-2011) whose primary objective is to ensure that the
benefits/fruits of connectivity are reached to the Indian citizens residing in rural, remote,
tribal and hilly areas and making available affordable, reliable and secure
telecommunication and broadband services across the entire country.




Huge investments have been made by Vodafone in the 10
Circles on the basis of the promise and expectation of continuity provided under licence. The total
investment in the network in these 10 circles to date is around Rs 16, 700 crore.


A significant proportion of the investments made by Vodafone
in its 900 MHz network have been made recently. As the 900 MHz radio equipment
at each site cannot be reused in an 1800MHz network, therefore it will all need
to be written off at huge expense to Vodafone. This is bound to significantly
and adversely impact the Balance Sheet and undermine the confidence of
investors in the sector and the country.


Vodafone estimates that apart from the write-off of existing
investments, it will cost around INR 10,000 crores to replace its 900MHz with an 1800MHz network.
These are funds that could have been available to expand the network into new geographies.
We estimate that if this expenditure were redirected to investment in our network then we could
provide coverage to around 50,000 additional villages. This is a much better use of our
capital and a massive lost opportunity for the country.


This is only the impact on Vodafone. In the initial phase of
licensing two licenses were issued in every service area. It is these licenses that were
given the spectrum allocations in 900MHz that are coming up for extension in
2014 and 2015. This means that the impact of “refarming” in terms of:
additional sites, affected customers and additional investment required, etc., can
be, as much as, double of what has been indicated above.


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