Policies : The Revolution

Someone has rightly said 'Well begun is half done'. The government of India's
National Telecom Policy in the year 1994, was a step in the right direction,
which brought a revolutionary change in the telecom space over a span of fifteen
years.

Prior to NTP 1994, telecommunications was a state monopoly. NTP ushered in
changes and allowed the entry of the private sector into both wireline telephony
and cellular sector, that had been left completely un-exploited by state
monopoly. Foreign direct investment up to 49% of total equity was also permitted
in these two areas. By 1996, a bill for the setting up of a Telecom Regulatory
Authority of India was enacted, and by early 1997 the authority,Trai, had
started functioning.

However, NTP failed to give the expected impetus to the growth, due to lack
of entrepreneurial experience in telecom. But despite failure, the policy laid
the foundation stone of a global telecom success story.

In the year 1999, a comprehensive review involving inputs from a wide circle
of experts, from economists to finance and telecom experts followed, and a
revised Telecom Policy (NTP 99) was introduced. Post NTP 99, the growth in
telecom has been stupendous. Afterwards, the progressive policies of the
government, regulatory measures put in place by Trai and entrepreneurial
excellence of the service providers made India's telecom sector a success story
of liberalization. From an abysmal teledensity of below 1% in 1985, we have now
approached teledensity in excess of 34.50%. The availability and affordability
of telecom services has gone hand in hand.

Common Man's Mobile

In the first few years of its launch, the mobile phone was a toy for the
rich and mighty. For the common man it was a distant dream. Thanks to Trai and
DoT, the dream has become a reality.

Trai's Tariff Telecommunication Order (TTO) in the year 1999, was a landmark
in the history of telecommunications services in India. Since then there has
been continuous decline in mobile services traiff from various services
segments, as Trai started regulating tariff for the telecom sector. The local
call tariff form mobile phones had declined from a level of Rs 16.80 per minute
(prior to TTO), to be paid for both outgoing and incoming calls, to a level of
less than Re 1, for outgoing calls. Free incoming on mobile phones have also
resulted in adding of low ARPU costumers, mainly from middle and lower middle
class.

Introduction of Calling Party Pays (CPP) regime and cost based
interconnection usage charges have also enabled the cellular mobile telephone
services market in India to become one of the most competitive and fastest
growing markets in the world.

The reduction of STD rates after 8 pm made people beeline in front of PCOs to
talk to their near and dear ones. The step increased the usage of STD services
among the lower middle class.

Reduction on import duty on mobile handsets was again a step which brought
services closer to the common man. Besides, it also gave a thumbs down to the
gray trade of mobile handsets.

Benefiting Telcos

The initiatives of DoT and Trai have also affected telecom service providers
in a positive way.

Private telecom operators had a reason to breathe easy in the year 1999, when
the long-awaited revenue sharing policy arrived. They were off the hook for dues
valued at about Rs 1,433 crore. The prospects for business also improved. The
policy marked a major shift-allowing both basic and cellular service providers
to move from the then existing license fee-based system to a revenue-sharing
system. The government had also met one of their main demands-waiver of the
license fee. It has done so by extending the effective date of the licenses of
all the basic and non-metro cellular operators by six months. The new system
came into effect from August 1,1999.

Trai and DoT have also ensured that a healthy competition prevails in the
telecom sector. Trai gave recommendations to the government for licensing new
operators in almost all services of the telecom sector, which facilitated the
liberalization of the telecom market in India. Trai also initiated the process
of unified licensing recommendations in October 2003, and envisaged a two-stage
process to introduce a unified licensing regime in the country. The first phase,
implemented from November 2003 onwards, has put in place a unified access
licensing (covering both fixed and mobile services) in India. For the second
phase, the unified licensing regime would enable various services, both existing
and new, by services providers, without the need for additional licenses-with
the same media being used for different services which would build economies of
scale and scope. The 'tech-neutral' approach of the government through this
license also benefitted operators.

Similarly, to promote setting up long distance bandwidth capacity in the
country; offer choice to consumers; and promote competition, national long
distance (NLD) service, beyond the service area, was opened to private operators
for competition with effect from January 1, 2000. Trai also said that all
service providers shall be required to provide interconnection to the NLD
operators, so that a subscriber can make long distance calls through any
operator. Usage of existing backbone networks of public and private power
transmission companies including the Railways, GAIL, ONGC was also allowed
immediately for national long distance data communication from January 1, 2000.
International long distance services was also opened to competition in the year
2004.

After opening up NLD services, the government announced the Broadband Policy
2004, on the recommendation of Trai. The authority recognized the significant
impact of the Internet and Boradband services on the GDP of India. The sector
also has all the ingredients to attract new investments and create additional
jobs.

By 2007, telecom space witnessed a 180 degree northward swing. The
exponential growth in wireless telecom services calls for massive investment in
infrastructure, particularly passive, active and backhaul components. As tariffs
touched rock bottom, the only option for telecos to remain profitable was to cut
opex. In April, 2007 Trai recommended infrastructure sharing. The
recommendations included identification for critical infrastructures sites and
infrastructure sharing of passive, active and backhaul network components.

To further burden the operators, Trai split the Access Deficit Charge (ADC)
collected from private telecom players by 33%. In 2006, Rs 5,000 crore was
collected as ADC but Trai's new rule cut this to Rs 3,330 crore by 2007. The
brunt of this cut was faced by BSNL, which got Rs 3,200 as ADC rather than Rs
5,000 crore it got in the year 2006.

Trai decided to phase out ADC from April 2008 onwards. The private telecom
operators stood to collectively save around Rs 750 crore by the next fiscal. As
a result of the move, the impact at the consumer end was a marginal lowering of
tariffs. ADC is a levy imposed by the regulator on the operators to support
rollout of telephones in rural areas. Since Bharat Sanchar Nigam owns 99% of the
rural phones, most of the fund collected is passed on to the state-owned
company.

Spectrum: The Oxygen

After the massive boom in the sector, DoT was facing a major problem in
spectrum allocations for new telecom operators. Scarcity of spectrum was
realised by 2006-07, when there were six-seven operators, adding nearly 8 mn
subscribers every month. The situation got worse in the year 2008, when the
government, despite the crunch in spectrum, chose to allow five more new
operators. The task of creating appropriate subscriber-linked criteria had
become increasingly intractable.

Fortunately, the need to have a subscriber-linked criteria to assign spectrum
has now dwindled. Going by subscriber-based criteria, the government would have
to find new spectrum almost every month to satisfy the demand from both new and
old players. Obviously, DoT does not have radio waves to meet the demands of ten
operators. From the regulatory point of view it was important to create a market
situation, wherein most operators have sufficient spectrum to operate, while at
the same time allowing enough competition in the market. As a result the
committee, headed by additional secretary Subodh Kumar, recommended
subscriber-based spectrum allocation.

Trai also identifed bands of spectrum for immediate and future use, thus
ensuring that the benefits of technology are spread all over the country. Trai
recommended that spectrum identified for 3G should be treated as a standalone
allocation and not as an extension of earlier spectrum allocation fee from
telecom service providers. In the year 2006, the regulatory body recommended
2.1/2.5/2.3 and 3.5Ghz bands for 3G/BWA spectrum auction. A rural rollout
obligation was imposed as part of overall roleout obligation in a time bound
manner. Broadband wireless access was given high priority. The authority has
identified 200 MHz of spectrum is 3.3-3.4 GHz and 3.4-3.6Ghz bands to about
thirteen carriers in contiguous blocks of 15MHz each. However, the spectrum is
yet to be auctioned to the private operators, though BSNL and MTNL have launched
their 3G services.

Akhilesh Shukla

akhileshs@cybermedia.co.in