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Policy Impact: Implications of draft NTP 2011 for the sector

December 30, 2011
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The draft National Telecom Policy (NTP), 2011 aims to provide a comprehensive and transparent road map for the industry while addressing key concerns related to licensing, spectrum allocation and refarming, and low broadband penetration. tele.net recently held a conference, “Impact of National Telecom Policy 2011”, where industry experts shared their views on the implications of the policy and the likely challenges in implementation…

Kunal-Bajaj-Advisor-bda-CAbhishek-Chauhan-FrostSulJaideep-Ghosh-KPMGAkshay-Grover-EYmahesh-uppal

What trends are likely to emerge in the sector, based on the draft NTP 2011?

Kunal Bajaj

With the implementation of NTP 2011, we expect more clarity on spectrum and licence ownership. Also, we expect the implementation of liberal merger and acquisition (M&A) norms. Globally, there has been significant innovation in the small and medium enterprise (SME) space, in terms of hosting, voice and data. However, this is not very common in India as operators are restricted by multiple licences. Once the policy is implemented, we expect to see various technological innovations in the SME business.

Abhishek Chouhan

First, data traffic is going to grow manyfold. The policy is expected to facilitate indigenous equipment manufacturing. Huge investments would be required in the sector; however, there is uncertainty regarding the funding.

Jaideep Ghosh

First, we expect significant activity in the infrastructure space, including increased use of fibre at sites and in access networks. Moreover, there will be a growing focus on domestic manufacturing.

Akshay Grover

There will be a focus on data services which will drive operator growth. We also expect consolidation in the market. Besides, network infrastructure providers or passive infrastructure companies will improve the scope of operations as operators roll out hotspots, etc.

Dr Mahesh Uppal

The policy may not bring any dramatic change in the industry. If we look closely at the draft policy, one of the interpretations could be that the government is planning to allow anything unless it is forbidden. If that happens, the sector will witness significant business growth. However, this will depend on the effective implementation of the policy by the Department of Telecommunications and the Telecom Regulatory Authority of India (TRAI).

Which elements of the draft policy are likely to be incorporated in the final document?

Kunal Bajaj

The fee being charged for additional spectrum is likely to be applicable. However, whether it will be an order of magnitude or an absolute number is yet to be decided. A liberal M&A policy is likely to be implemented. The industry is looking forward to it and the government is providing support to liberalise the rules and regulations for M&As in the sector. However, some areas related to sharing and trading of spectrum may not be immediately clarified. Moreover, it must be remembered that the minister for communications and IT has stated that NTP 2011 is a guide, a vision statement, which will be implemented after several rounds of consultation and deliberation. Thereafter, the proposed regulations will be implemented over a period of time. Sharing and trading of spectrum will be one of the areas that will be considered at a later stage.

Abhishek Chauhan

The draft policy provides an overview of the changes required in the sector. It will be filtered at various levels before it becomes a final policy document. Till that happens, it becomes very difficult to comment on the issues addressed by the draft.

Again, whether the guidelines for spectrum sharing would be a part of the final policy or not will be decided over time.

Akshay Grover

The fee arrangement for additional spectrum acquired by an operator is likely to be implemented. However, the amount to be paid and the mechanism to determine the fee have not been decided. The final policy is expected to provide an exit route for operators. Sharing and trading of spectrum is not expected in the near future.

Spectrum farming is an area where the government will not find any support from incumbent operators.

From the broadband perspective, how do you see the Wi-Fi market developing in India?

Kunal Bajaj

The existing infrastructure is inadequate for providing backhaul to Wi-Fi networks. Wi-Fi infrastructure needs to be set up indoors, at homes, offices, campuses, etc. While such networks can also be deployed in commercial places, inadequate DSL connectivity is a serious challenge for this. Wi-Fi would serve as a data offload technology for 3G and broadband wireless access.

Abhishek Chauhan

At present, hotspots have not seen much proliferation, except in cities like Bengaluru and Delhi. However, Wi-Fi hotspots may not be successful as consumers prefer to carry a wireless access device such as a smartphone or a personal digital assistant to access the internet on the go.

Akshay Grover

Wi-Fi is an inexpensive backhaul technology, but only if used in conjunction with a fibre-based network. Further, it can be used as an offload technology for 3G and long term evolution. Going forward, both these technologies would witness significant growth, which will drive the penetration of Wi-Fi. I believe that the Indian Wi-Fi market will be huge.

What is the likely impact of the proposed “one nation, one licence” regime?

Kunal Bajaj

Its overall impact would be minimal. The provision examines domestic and international roaming. About 5 per cent of the roaming revenues would be impacted. While this may be considered a high margin, the total revenues will be largely untouched. In fact, we may even witness a reverse impact owing to price elasticity. As a result, the minutes of usage may increase.

Abhishek Chauhan

The one nation, one licence regime is aimed at providing a single licence for all services and service areas to enable convergence. This includes several facets, the most important ones being enhancing the scope of mobile number portability and introduction of free roaming.

Eliminating roaming would entail reviewing roaming charges with the ultimate objective of removing them.

This has several advantages and disadvantages. A major advantage is that it would prevent users from switching operators even if they change circles. On the other hand, it would benefit less than 10 per cent of the country’s travelling population. As roaming charges account for about 10 per cent of the operators’ total revenues, their elimination would temporarily impact the companies’ EBITDA, which may decline by 4-5 per cent. In terms of the impact on revenues, quantification of revenue is the biggest challenge at this stage. Currently, service providers pay 6-10 per cent of their revenues as licence fees, depending on the circle. They also spend 6 per cent of their revenues on domestic and international long distance services and internet telephony services. For mobile, long distance and internet telephony service providers, the licence fee will be reduced by 1 percentage point each year starting 2012-13 to reach 6 per cent in 2015-16.

Jaideep Ghosh

Two important points to be discussed in this regard include dividing the technology-neutral unified licences into two categories, the network service operator and the service delivery operator, and the entry of mobile virtual network operators (MVNOs). In this scenario, the number of service delivery licences would increase. However, the business case for MVNOs is not strong enough.

Akshay Grover

Globally, telecom operators are becoming a data pipe. Therefore, this trend is not confined to the Indian telecom space. However, the applications offered by operators are not at par with those offered by Apple, Inc. This is why these applications have not witnessed the targeted uptake levels in India. Therefore, operators have started selling data in collaboration with application developers through various platforms.

What M&A-related trends are expected following the implementation of NTP 2011?

Kunal Bajaj

There would be two phases of consolidation. The first phase will involve a large operator acquiring a small one. However, as the sector progresses, one can also expect several non-traditional partnerships. In the second phase, one or two small players may attempt to buy out a mid-sized player which may not be competitive enough.

Abhishek Chauhan

Two scenarios are likely: a GSM incumbent can acquire a new player; or a new entrant can acquire a GSM incumbent.

Jaideep Ghosh

The M&A scenario will prove to be difficult for the smaller players. Also, if all regulatory issues are addressed, the trends will be evident in the next 12 months. To some extent, the trends are dependent on the proposed pricing norms for 2G spectrum. If it is cheaper for an operator to purchase spectrum priced according to the set base price, the company may not want to acquire another player at all. Also, any future M&A may depend on the urgency of small players to sell their operations at low valuations.

Akshay Grover

The recent recommendations of TRAI on M&A guidelines, which would be included in NTP 2011, are aimed at opening up avenues for operators to achieve consolidation in the sector. The proposed regulatory environment is expected to support consolidation with operators likely to adopt one of the four possible strategies: a GSM incumbent acquires a new entrant; a GSM incumbent acquires another GSM incumbent; a new entrant acquires a GSM incumbent; and a new entrant acquires another new player. The first and third scenarios are likely to be common in the near future.

 
 
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