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Policy Road Map: Expectations from National Telecom Policy, 2011

February 17, 2011
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Minister for communications and IT, Kapil Sibal, announced the framing of the National Telecom Policy (NTP), 2011 to replace the existing one drafted in 1999. This is being seen as a positive move by the industry, which has been battling serious controversies in the past few months. The Department of Telecommunications (DoT) is believed to be already at work on drafting the NTP, with an emphasis on “clear and transparent” provisions. Industry experts share their views on the key issues that need to be addressed while formulating the policy...

8Jaideep-Ghosh-KPMGmahesh-uppalSiddharth-Vishwanath-AD-P

What are the industry’s expectations from the NTP, 2011? 

Kunal Bajaj 

The telecom industry is looking forward to a clear and coherent policy framework with a road map for the future so that people can understand what direction the policy would be taking and plan their strategy and internal operations accordingly. Being prepared for changes beforehand will be better than reacting to regulatory and policy changes that come up from time to time. Clearly, the areas that the NTP needs to cover are spectrum, pricing, licensing and allocation of resources. It should also cover issues like interconnection. Moreover, it should address the fact that we are moving to a world of convergence. So, future policies should be technology neutral and market oriented to make sure that there is no “unlevelled playing field” or unfair allocation of resources.

Jaideep Ghosh

The new policy should be based on the following factors:

• Enhancing teledensity and further improving the reach and adoption of telecommunications.

• Technology neutrality: wireless/wireline, GSM/CDMA, Wi-Max, etc.

•Creation of a level playing field between public and private operators as well as incumbent and new operators.

• Focus on customer services and proliferation of broadband and other advanced technologies.

Dr Mahesh Uppal 

The primary expectation from the new policy would be resolving the disputes around spectrum allocation. This has been the most contentious issue of the past decade. It has also led to a lot of arbitrary decisions to be made by bureaucrats and politicians, which have hurt serious investors and those who were working on quality and services. A predictable regulatory environment, especially for a resource like spectrum, is urgently needed. The importance of wireless for telecom growth is much more important in the Indian context since we are more dependent on wireless compared to other countries. Other countries have much larger fixed line networks. Even as early as 1980, all the major economies had almost nationwide fixed line networks. For example, the usage of fixed line in the US is very high; even in China, the fixed line network is huge. However, in India, we have virtually no serious fixed line network in places beyond major cities. Even in cities, the coverage is not ubiquitous.

Siddharth Vishwanath 

The NTP, 2011 should not only set out a clear policy framework for telecom operators but also focus on the broadband and manufacturing sectors. Some of the focus areas should include national security; consumer interest, both in terms of pricing and quality of service; and long-term sustainability of operators.

How will delinking of spectrum from licences impact telecom operators? 

Kunal Bajaj 

The delinking of spectrum from licences would not have a huge impact on existing and incumbent telecom operators. However, for prospective entrants and for future competition and innovation in this space, it bears a lot of importance. One of the main barriers for players looking to enter the telecom space is that they have to acquire unified access services licences (UASL) that come at a huge cost. This is primarily due to the high cost of spectrum. Also, even though VOIP has been allowed in India for a very long time now, the reason we do not have any innovation or stand-alone players or internet service providers in the VOIP space is that voice services cannot be offered without a UASL. Thus, any innovation in this space is very demarking. Lower entry barriers, that is, through a licence that offers services and does not come bundled with spectrum, means that new players would be able to participate and bring in competition to this space.

Jaideep Ghosh 

In most countries, spectrum management is delegated to a different administrative group from the group that regulates other aspects of telecom operations such as price regulation or anti-competitive conduct. By having a separate spectrum licence policy, the technical, reporting and compliance requirements can be standardised across all users of radio spectrum.

Impact on players in India:

•  Existing players as well as recent entrants have drawn up their business plans based on the award of spectrum along with the licence. Any modification to the same, within the licence period would adversely impact their business plan.

•  Increase in service-specific competition since delinking would lower entry barriers for service categories like IP-based voice and non-voice services.

• Players will have to upgrade their networks to more spectrally efficient ones as spectrum would come at a market-determined price and hence, may be more expensive than the existing cost.

• Operators would be looking at innovative models for efficient utilisation of spectrum. For example, an operator that currently has a low subscriber base or partial presence (fewer circles or a urban/rural centric business model) may look at spectrum sharing with other operators (if allowed by the government) to augment revenues.

 Dr Mahesh Uppal 

First, it would bring India in line with other countries. Spectrum is a resource and thus bundling it with the licence to provide services is not a right practice. Existing norms do not encourage optimal usage, and given the scarcity of spectrum, this is where the biggest challenge lies. Creating a regime where people have to acquire spectrum separately, without there being any rights to start-up or additional spectrum, would mean that the operator will know that he will first have to acquire the resource at market prices. Also, keeping the high cost of spectrum in mind, the operator would want to deploy most efficient technologies, so as to use the resource to the best value. Under the current regime, the moment you reach a certain threshold of subscribers, you receive more spectrum; but the public policy, which says that a commodity like spectrum should be efficiently and judicially utilised, is lost.

Siddharth Vishwanath 

While operators like Bharti, Vodafone and Idea will have to pay for spectrum beyond 6.2 MHz, new operators like Uninor, Etisalat and Loop as well as the GSM arm of Reliance Communications and Tata Teleservices Limited will have to pay for spectrum beyond 4.4 MHz.

Delinking spectrum from licences could be a first step towards allowing spectrum trading and, if implemented, would be a positive step. However, it would make the entry of new players difficult and might suggest that they should get start-up spectrum at a predetermined price.

What are the key issues that should be addressed by the NTP, 2011? 

Kunal Bajaj 

The foremost issue is the allocation of spectrum. The second issue is the need for a converged licensing policy (that is, service- and technology-independent licensing). The level of pricing of the licence and spectrum is another issue. It is not just the existing spectrum that needs attention but also the future road map for releasing more spectrum by taking it from existing non-civilian/government owners and making it available for public services. The technology alignment for refarming spectrum in the future should be kept in mind. Services, carriers and competitors, all need to be interconnected. Policies pertaining to how the entire framework for interconnecting these services will be followed and planned should be laid out.

There are emerging technologies in other parts of the world that are currently being developed; no one knows yet what they are going to lead to once they become commercial. The policy framework, however, should be flexible enough to adapt and evolve with these technological changes.

Jaideep Ghosh 

The specific issues that may be looked at are as follows:

Spectrum-related issues:

•  A common agency to manage all radio waves – telecom and beyond – which, in turn, would ensure efficient use of spectrum across bands and also look at benefits from technological advancements (like digital dividends).

•  Specify the regulation with respect to spectrum sharing and trading, and treatment of spectrum in case of mergers and acquisitions (M&As).

• Guidelines on efficient utilisation of spectrum by existing licence holders (both telecom and non-telecom); consider norms for spectrum auditing.

• Specify the method for allocation of additional spectrum to telecom players – there should be clear guidelines on determining the price at any given point in time.

•  Specify a mechanism for regular review of spectrum charges based on evolution of the market and technological advancements.

• Guidelines on licence validity  – impact on subscribers in case the licence is not extended.

M&As:

Given the fact that the Indian market has a large number of operators compared to most other markets, consolidation is a likely event. In that context, the M&A guidelines should be clear.

Other issues:

•  India has a diverse population with varied communication needs and hence, the government may look at well-defined policy measures that would help address the needs of various subscriber segments (for example, MVNOs, wherein operators can get into strategic alliances with niche entities having targeted offerings; revenue sharing between VAS players and operators, etc.)

•  Clarity on the provisions of the USO Fund so that it can be efficiently utilised.

 Dr Mahesh Uppal

Primarily, we want a transparent and coherent spectrum regime. Second, we want a clear distinction between the approach to infrastructure and the approach to services using that infrastructure. We need to create an enabling environment that helps us expand infrastructure at the lowest possible price and in the shortest period of time. Services will not be able reach anywhere if the required infrastructure is not available. So we must make sure that any bottlenecks in the creation of infrastructure are removed. Also, we need to ensure that once the infrastructure is there, it should be used optimally.

Siddharth Vishwanath 

The most important issues pertaining to spectrum allocation are clear M&A guidelines, national security and quality of service. In fact, spectrum sharing and spectrum trading may become a way of allowing operators to function efficiently. M&A guidelines may be relaxed to encourage consolidation in the sector and help operators exit if they are unable to sustain operations.

The spectrum regime should be free-market oriented with complete transparency in pricing. Moreover, spectrum allocation ought to be based on prices determined through appropriate price discovery processes such as spectrum auctions. At the same time, the road map for spectrum availability needs to be transparent. Although 3G and BWA spectrum has been auctioned, it was not done with clear availability of future spectrum. Allowing spectrum trading would be yet another step in the right direction.

However, the risk of such a spectrum regime is that it would create huge barriers for new entrants as it may result in malpractices like spectrum hoarding. Thus, appropriate checks and balances such as spectrum utilisation reviews may need to be institutionalised.

National security is extremely important and appropriate policy and implementation guidelines that are pragmatic yet effective need to be laid down. In today’s context, consumer interest in terms of tariffs is well taken care of thanks to the degree of competition in the marketplace (India has the lowest telecom tariffs in the world). However, it is the promised services versus the quality that is eventually delivered that needs to be addressed.

What additions and changes would you recommend in the drafting of the NTP, 2011 that would spur future growth of the sector? 

Kunal Bajaj 

They are looking at completely redrafting the telecom policy and thus, the framework is being designed from scratch.

Jaideep Ghosh 

This has been answered in the previous questions.

Dr Mahesh Uppal 

The policy should incorporate amendments to allow for consolidation in the sector. The basic barrier to consolidation is the wrong treatment of some key issues like spectrum and infrastructure. If they are treated coherently in the policy keeping in mind best practices, we will see that consolidation would be relatively easy. If companies know that the resource is priced according to market prices, they will know that only those people will use it who can add value to that resource.

The government must recognise that a better way of getting value from the sector is to create an enabling environment rather than collect huge upfront spectrum fees. It should not use it as a milch cow. If the government becomes a stakeholder in the sector, it will find that huge value can be unlocked through the telecom industry.

Siddharth Vishwanath 

Apart from the necessary focus on broadband and telecom manufacturing, the telecom policy should also create a stable policy framework that is relevant for the next five to seven years.

What steps are required to augment telecom manufacturing in the country in the event that the NTP specifically addresses this issue?

Kunal Bajaj 

The policy can look at incentives for local manufacturers and international original equipment manufacturers(OEMs) so that they make more investments in setting up local manufacturing. We have seen some success in this area recently. OEMs have set up local manufacturing units though not as large as they should be. There can be financial incentives, tax breaks and/or other types of incentives so that both domestic and global players benefit from setting up local manufacturing facilities.

Jaideep Ghosh

•  The policy may look at providing specific impetus to research and development.

•  It may provide clear guidelines to promote telecom equipment manufacturing special zones (as in China and Taiwan).

• Any incentive and/or policy measure should take a holistic view to encompass all possible product categories within the telecom value chain and may also consider export opportunities as this is a key driver for developing the manufacturing ecosystem.

• For promoting domestic manufacturing (including network equipment, handsets, parts and components), a favourable duty and tax regime may be considered.

 Dr Mahesh Uppal 

Similar to the case of spectrum, we should recognise that a vibrant manufacturing industry in the country can deliver both lower costs and innovation to India’s growing telecom market. The most important thing is to encourage countries not to reinvent the wheel but to innovate instead. The government should also remove any kind of barriers to their growth and reduce the regulatory cost of manufacturing. There has to be greater support for R&D efforts in telecom manufacturing.

Siddharth Vishwanath 

The current telecom policies do not provide incentives or support to Indian telecom manufacturers. For them to compete with international players, they need incentives, such as the incentive to operators to buy telecom equipment manufactured in India. The government may also consider setting up special zones for telecom manufacturing.

 
 
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