Indian Telecom Regulator Puts Service Licenses on Hold

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The Telecom Regulatory Authority of India (TRAI) has asked India's Department of Telecommunications (DOT) in a letter not to issue more licenses to operate telecommunications services until it analyzes the competitive landscape.

India awarded 281 telecom licenses as of June 30 this year, but 343 applicants are still waiting for a decision covering 22 service areas in the country, according to a letter from the DOT to TRAI. The backlog continues even after the DOT stopped accepting license applications in October 2007 after surging interest.

The DOT is worried that with too many licensees, it may not be able to ensure that adequate spectrum is available to operators to expand their services and maintain service quality. The DOT believes there is already sufficient competition in the market but the TRAI wants to study the issue.

TRAI recommended in 2007 that there should not be a cap on service providers in a particular service area, but DOT has asked the regulator to review that decision. TRAI will also decide on whether spectrum should be auctioned instead of the current system of giving a licensee an entitlement to spectrum.

The pending applications are for the DOT's Unified Services Access License (UASL) that allows licensees to offer a variety of services, including mobile and fixed telephony services, and Internet services.

Among the companies waiting for a license are AT&T's Indian joint venture and some construction companies that have found mobile telecom services to be a new diversification opportunity.

A number of companies are queuing up for licenses because the country's mobile telephony market is booming. In May, the latest month for which figures are available, India added 11.6 million new mobile subscribers, up by 35 percent from additions in the same quarter in the previous year, according to TRAI. The country had 415 million subscribers at the end of May, TRAI said.

There is worry in some government and industry circles that investors may be bidding for licenses to make quick money by subsequently selling stakes in their telecom companies at huge valuations to large Indian and foreign service providers, said informed sources.

In the case of 3G services, the government has taken the view that licenses and spectrum should be auctioned. This auction has been postponed since January, as there are divisions in the government on the floor price for the auction.

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