There are three types of operator licenses awarded for individual circles: 'Basic' for fixed-line services; 'Cellular Mobile Telephone Service' (CMTS) for mobile; and 'Unified Access Service' (UAS) covering both. In addition, the National Long Distance (NLD) license covers all circles.

The government's Department of Telecom (DOT) ruled in October 2007 that operators with Unified Access Service licenses are free to offer both GSM and CDMA-based services, paving the way for operators to roll out second networks. (See Reliance Gets GSM Nod.)

The DOT sends companies a letter of intent (LOI) for each circle as a precursor to awarding licenses. The LOI requires the company to pay an upfront entry fee and meet certain other requirements, including the submission of bank guarantees and proof that it does not hold more than 10 percent ownership in any other operator in that circle.

If those conditions are met, the operator is awarded a license and, if it wishes to offer wireless services, it must wait in line for spectrum allocation.

Entry fees vary by each circle, ranging from INR11 million (US$275,993) for Himachal Pradesh to INR2.04 billion ($51.18 million) for Mumbai, adding up to a total of INR16.6 billion ($416.5 million) for nationwide coverage. Service providers also pay a portion of their adjusted gross revenues in license fees – 10 percent for metros and category A circles, 8 percent for B circles, and 6 percent for C circles.

Companies that were previously paying an 8 percent fee for the Tamil Nadu circle have been paying 9 percent during the transition to include the Chennai metro; that fee will rise to 10 percent from March 31.

Wireless spectrum is allocated initially in a block of 4.4 MHz for GSM-based operators and 2.5 MHz for CDMA operators. Additional spectrum is granted on the basis of subscriber growth and efficiency benchmarks. A shortage of available frequency has slowed the allocation of spectrum, and new license holders are expecting a long wait before they can set up operations. (See Spectrum Fight Escalates in India).

Spectrum usage fees depend on the amount an operator has been allocated: 4.4 MHz of spectrum carries a charge of 2 percent of adjusted gross revenues, for 6.2 MHz operators pay 3 percent, 4 percent for 8 MHz and 10 MHz, 5 percent for 12.5 MHz, and 6 percent for 15 MHz.

The DOT has proposed switching to the license fee model for spectrum charges, so that operators would pay a percentage of their revenues depending on the circle covered by the spectrum. That would apparently bring in an additional INR11 billion ($273 million) in fees during the 2008/2009 financial year.

Last year the TRAI – the regulatory body that makes recommendations to the DOT – had suggested keeping the same frequency-based system, but increasing fees to 5 percent of adjusted gross revenues for up to 10 MHz of spectrum, 6 percent for 12.5 MHz, 7 percent for 15 MHz, and 8 percent for more than 15 MHz.