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Pause in Progress: Implementation issues affect operator plans

June 13, 2014
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In the past two years, the government has introduced several policy and regulatory guidelines to mitigate the uncertainty in the telecom sector. In May 2012, the government approved the National Telecom Policy (NTP), 2012 with certain objectives to drive growth in the sector. These objectives are simplifying the licence framework, implementing nationwide mobile number portability (MNP) and free national roaming, ensuring the provision of reliable and on-demand broadband by 2015, introducing new merger and acquisition (M&A) guidelines, ensuring adequate availability of spectrum and adoption of green energy, among others.

Of these objectives, only a few have been successfully achieved by the government so far. First, the government issued unified licence guidelines, which enable licensees to offer any kind of telecom services. Moreover, it delinked spectrum from the licence, thus requiring operators to acquire frequency airwaves separately in the auction. Second, the government launched the MNP facility, but the applicability of the regulation is limited to only the user’s home circle and nationwide MNP is yet to be implemented. Third, the government granted infrastructure status to the telecom tower industry, enabling it to avail of benefits such as tax breaks, accelerated depreciation and access to low-cost funds. However, the telecom industry has been demanding that service providers too should be given infrastructure status.

On the downside, the government has not been able to achieve several of the objectives laid out in the NTP, 2012. For instance, it has not been able to make adequate spectrum available to operators and, consequently, spectrum is being auctioned in a phased manner to maximise its value. This has resulted in operators buying spectrum at high prices. Whether this will lead to the provision of affordable telecom services, which was one of the objectives of the NTP, 2012, remains to be seen.

Meanwhile, the government has been unable to address right-of-way (RoW) issues for deploying telecom infrastructure, as a result of which providing fibre-to-the-home services remains uneconomical for operators. Moreover, RoW issues continue to affect the roll-out of fibre in the backhaul network. Further, though the government has announced M&A guidelines, they are not viewed as conducive to consolidation in the sector. As per the guidelines, the merged entity can have a maximum share of 25 per cent across all spectrum bands. Also, the acquirer will be required to pay the difference between the market-determined price and the entry fee for spectrum held by the target company. These conditions are likely to make acquiring a company unappealing, as it would increase the cost for the acquirer. Further, the two entities planning to merge should not have a combined subscriber and revenue market share of more than 50 per cent in a circle. This requirement will make acquisition difficult if the target company has a significant presence in a circle.

The government has also issued draft spectrum sharing guidelines. As per the guidelines, operators will be required to pay market-determined prices for spectrum that was allotted at administrative prices. Moreover, only service providers holding spectrum will be allowed to share frequency airwaves, but sharing of 3G spectrum will not be allowed. Further, operators will individually have to pay spectrum usage charges at slab rates on the combined spectrum holding. As a result of these conditions, the cost savings achieved through spectrum sharing may be negated to some extent.

Based on a presentation by Ashish Basil, Partner, EY at tele.net’s Eighth Annual Conference on Telecom Infrastructure in India on April 29-30, 2014 at The Leela Ambience, Gurgaon

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