Dot may hobble Qualcomm with shorter 4G tenure

New Delhi: This could prove to be a double whammy for US chipmaker Qualcomm.

If sources are to be believed, its 4G licence period has been reduced by 18 months and rollout obligations by two years after rivals lobbied for a “level playing field”. The Department of Telecom has reportedly decided to award spectrum to Qualcomm after a near two-year delay, with two penalties. So while all other licensees from the 2010 broadband wireless auction (BWA) for 4G services need to renew licences after 20 years, Qualcomm will have to do so in 18.5 years.

Sources also tell us that Qualcomm’s rollout obligations have also been made tougher - it has only three years to complete the rollout of services against five years awarded to other players.

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If these penalties are indeed imposed, Qualcomm’s India plans may get hampered as its future tieups with established telecom players in India for 4G services rollout may be adversely affected. Despite several attempts, senior DoT officials did not respond to queries on the matter.

So while Qualcomm may, as of now, accept spectrum with penalties, it is certain to knock on the doors of the the Telecom Disputes Settlement Tribunal (TDSAT) simultaneously opposing penalties. In a letter to Communications Minister Kapil Sibal last month, the company made it clear that it would accept the spectrum assignment “without prejudice” to its ability to contest any penalty that DoT may seek to impose on its Indian venture, Wireless Business Services Pvt Ltd (WBSPL).

So why is Qualcomm being penalised for delay, when the only other foreign-owned venture - Augere - received its ISP (internet service provider) licence and spectrum in 2011, one year after the auctions, but was not blamed for the delay? Qualcomm is being blamed for the delay in getting spectrum when DoT itself asked the US company to follow an elaborate clearance process with the Foreign Investment Promotion Board (FIPB).

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Sources told Firstpost that penalties could be the result of Reliance Industries’ lobbying for a “level playing field” in the fiercely competitive 4G space. RIL sources had earlier asserted that their company had merely sought a level playing field, without asking any competitor’s licence period to be reduced. They had also said that in case Qualcomm’s licence period remains 20 years, the licence period of other players should be extended.

Qualcomm has been struggling to begin 4G operations in India. It was denied a licence even though it bid for and won spectrum in four circles at the BWA auction of 2010. In the auctions, companies such as RIL (through Infotel Broadband), Bharti, Augere, and Tikona Digital were granted licences for 4G. Only Bharti has begun services till now. Qualcomm bagged licences for the circles of Delhi, Mumbai, Kerala and Haryana and has invested $1 billion till date to start 4G operations in India.

In March, Qualcomm won its case for the grant of licence and spectrum for 4G operations at TDSAT, which also ruled that Qualcomm be given spectrum without any penalty by DoT. “They could move TDSAT again. And this could happen even after they are given spectrum. They have begun negotiations with 3G players for a tieup, Any penalty is a violation of the earlier TDSAT order,” an industry source said.

It is interesting to note that RIL, which owns a pan-India licence for 4G, has written repeatedly to DoT asking it to ensure a level playing field and reduce the licence period of Qualcomm to 18 years, perhaps in the apprehension that Qualcomm could partner Bharti Airtel and, therefore, make the 4G space quite competitive.

Industry sources confirmed that Qualcomm is in talks with the big GSM players - Bharti and Vodafone specifically - to enter into an equity partnership for 4G. These companies, which are established 3G players, will be able to use Qualcomm’s LTE technology to converge voice and data services under a single offering. Sources said initially Qualcomm is looking for equity investment from either Bharti or Vodafone so that its existing Indian partners are bought out.

At present, Qualcomm operates in India as Wireless Business Services Pvt Ltd (WBSPL) in which two Indian companies - Tulip and GHC - hold 13 percent equity each and Qualcomm owns the remaining 74 percent.

“Qualcomm has made it clear even before it entered the 4G fray that it wants to handhold 3G players by helping them establish networks where it provides the all-critical technology - LTE. Once the integration of voice and data is complete, Qualcomm will withdraw. It wants to only recover costs while offloading equity in WBSPL. But Qualcomm is not going anywhere immediately, and this moving away will take time,” the source said.

The source also said that in case Qulcomm’s existing Indian partners are not bought out by either Bharti or Vodafone, WBSPL could issue fresh shares to accommodate the new partner and that the transaction would now be valued at $1.2-1.3 billion, taking into account the investment made by Qualcomm and interest accrued on it. But it remains to bee seen whether Bharti or Vodafone actually come forward for a tieup with Qualcomm. An official at one of these big GSM players said they would take a call only after it is clear when Qualcomm will get spectrum and with what conditions.

Meanwhile, industry experts suggest that Reliance may be delaying its own 4G launch to achieve two things: watching the reaction to Bharti’s offering (which has only data and no voice) even as it forges tieups for equipment and voice services. Unconfirmed reports suggest that Reliance (which will run 4G through Infotel Broadband) has already begun 4G trials in Jamnagar but a formal rollout could happen by December this year.

Not just RIL, even Bharti needs more tieups since it has 4G permits for only four circles and needs access to key markets like Mumbai and Delhi. This is where a tieup with Qualcomm makes sense. The service launched by Bharti in Kolkata last month offers data speeds that are more than 10 times faster than 3G but at nearly the same tariffs - a Rs 999-1,999 monthly for free downloads in the range of 6-18 GB. Speeds after this limit is reached will fall to 128 Kbps.