In an effort to satisfy a longstanding industry demand, India's government recently allowed service providers to share their spectrum holdings -- subject to certain conditions.

"The basic objective of spectrum sharing is to provide an opportunity to the telecom service providers to pool their spectrum holdings to enhance spectral efficiency," said the Telecom Regulatory Authority of India (TRAI) in a statement. "Spectrum sharing would involve both the TSPs [telecom service providers] utilizing the spectrum. Leasing of spectrum is not permitted."

According to the government guidelines, sharing is allowed in the 900MHz, 800MHz, 1800MHz, 2.1GHz, 2.3GHz and 2.5GHz frequency bands. A key condition for sharing is that both service providers own spectrum in the relevant frequency band in a particular circle (service area). Essentially, the rules mean that two operators holding, say, 800MHz spectrum in a particular circle can pool their holdings, but they would prevent an operator that lacks spectrum in this band from using another service provider's airwaves. This obviously limits the scope of the spectrum sharing, which would have been considerable if there were no such restrictions.

Nevertheless, the rules could help India's operators to overcome the problem of spectrum fragmentation, which stops them from offering best-in-class services to end customers. Pooling spectrum could provide a real boost to 3G and 4G services by allowing operators to fatten up the spectrum channels used to support connectivity.

In particular, the guidelines are likely to benefit service providers that already control substantial swathes of spectrum across different frequency bands, including Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India , Bharat Sanchar Nigam Ltd. (BSNL) and new 4G entrant Reliance Jio. In the long run, the rules should also support the sharing of active network equipment.

But when it comes to the issue of 3G roaming, the rules create confusion. Operators have struck agreements allowing them to use the networks of their rivals in circles where they have lacked 3G spectrum. Following prolonged litigation, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) decided that operators should be entitled to maintain these arrangements. As with the new spectrum sharing guidelines, however, an operator cannot benefit from such partnerships unless it owns spectrum in the relevant circle.

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Also controversial is a new spectrum usage charge. "Spectrum Usage Charges (SUC) rate of each of the licensees post sharing shall increase by 0.5% of Aggregate Gross Revenue (AGR)," says the press statement issued by India's government. Clearly, the industry is unhappy about the additional charges.

What's more, rules about spectrum caps have complicated matters for service providers. According to the press statement issued by the government, when authorities are considering spectrum caps, an operator sharing spectrum will be deemed to control half of the airwaves owned by its partner in the band being shared in addition to its own frequency holdings. These restrictions could obviously constitute a barrier to sharing in certain cases.

Authorities continue to prohibit spectrum trading, even though operators have been demanding concessions in this area. The motivation is clearly very different: while spectrum sharing should enable two service providers to use their frequencies more efficiently, spectrum trading could help smaller players to exit the market entirely.

— Gagandeep Kaur, contributing editor, special to Light Reading