UNIFIED LICENSING: Hurdling To a Proactive Role

Recent press reports indicate a soft ening of the Government’s attitude to

the demand by cellular operators for compensation in a new unified access

regime. The finance ministry is now said to be considering an amount of Rs 968

crore as relief to the cellular players. It is unlikely to bring much cheer for

the industry, which has clamoring for a much higher compensation though it

proves that persistent lobbying can yield some concessions. The Government had

earlier maintained that the cellular industry has been given adequate

concessions in 1999 at the time of migration to bail them out over the license

fee default. It is the taxpayer who will be asked to pay ultimately in all cases

of largesse on the part of the Government when it chooses to appease or accept

unjustified subsidies or compensation. The cellular operators have had a good

time for long when call charges were between Rs 16-18 per call for many years.

It is on account of deregulation and competition in the telecom market that the

consumers have, for the first time, benefited from the competition as prices

have come down to around Re 1 per call now. The price reduction has spurred

unprecedented growth of mobile subscribers and the current revenues from the

telecom sector as a whole are projected to reach a level of Rs 50,000 crore in

FY 2003 and is expected to go up to Rs 100,000 crore in the next two to three

years. With the kind of exponential growth being predicted by industry expert,

where is the need or justification for the compensation being asked for by the

cellular industry?

Conceding to any such demand will mean burdening the taxpayers and even rob

customers who have just started to taste the benefits of competition in the

wireless market. Given its current fiscal deficit, it is curious that government

should entertain such demands from the cellular operators. The public, equally,

has a right to voice its opposition to any concession given to industry in a

free market conditions. Nowhere in the world will such a claim by the industry

be allowed. The telecom industry is poised for exponential growth on account of

the recent trends and business confidence needs to be encouraged at this time by

a slew of other measures such as, increasing the present FDI limit of 49

percent.

Recent regulatory measures taken by the TRAI has led to two important

developments. One is the phenomenal growth in telephony, both in the wireless

and the fixed line segments. This has been possible by stimulating competition

in the wireless telephony by creating appropriate environment for both WLL and

mobile service providers. The light handed approach adopted by the regulator in

respect of tariffs has led to a sharp price reduction and entry cost for the new

subscribers. This has resulted in the huge growth witnessed in the last seven

months of the current year 2003. TRAI figures show that the new subscribers

added in the last seven months (more than 12 million) is almost equal to the

total number of 12 million achieved in the last seven years. The addition of

nearly one million each month underscores the impact created by the competition.

As result, it now seems very likely that we will achieve a tele-density figure

of 7 by December 2003, which had been targeted for FY 2005. The fundamentals for

this growth have to be maintained by the regulator if we have to reach 100

million by FY 2005 as projected by TRAI.

To create conditions for this growth, TRAI has proposed a unified license

regime similar to what has been happening in many developed and developing

countries. The current trend worldwide is to adopt the telecom framework to

technological and market changes in a convergent environment. Customers will

thereby have greater choice of service providers and get better voice and data

quality from operators. TRAI’s proposals are a step forward in this regard.

However, the consultation paper seems to have ignored some important

prerequisites for the environment necessary for a unified license regime being

proposed. The paper does not, for instance, clarify the need to have a fair and

non-discriminatory access and interconnection regime to be in force. There are

several difficulties being faced in the present regulations for access and

interconnection by the new/private operators. These issues are known to the

regulator and need no reiteration. However, what is important is that the

regulator has to move away from the traditional concept of protection of the

incumbent to a more proactive role to stimulate market forces to interplay. This

will require strict adherence to the three basic regulatory principles or

parameters of regulatory approach in relation to the dominant player and the

incumbent utility. These are also referred to as three forbidding parameters

• no arbitrary surcharge because of dominant position
• no discount which prejudices the competitive opportunity of the other
  
  companies
• not to give advantage to individual company or users vis-a-vis others.

It is expected that these guiding principles for forbearance

will be implemented effectively in the developing situation in the telecom

market. This has assumed importance in the context of the connectivity issues

that have arisen from the discriminatory and arbitrary actions of the incumbent

player since the introduction of the new IUC regime by the TRAI. The mechanism

for the resolution of the issues is necessary along with the proposed move

towards unified licensing/authorization regime under consideration.

In order to give confidence for new players as well to the

new entrants for the services that would be feasible under the proposed regime

there is need to have special provisions for service providers with significant

market power. The definition of the dominant or significant market power should

be prescribed by the regulator or what is internationally acceptable. This will

help in putting into force these provisions either by a license condition or a

clearly defined ex-ante regulatory criteria. We have been seeing that regulatory

executive power has been challenged before the TDSAT in such areas. To obviate

the tendency of the incumbent to rush to the TDSAT against any orders or

directions for interconnection of the regulator, as has been the experience so

far in the sector some form of special provisions for the interconnection

obligations on the incumbent player would be desirable.

From the consultation paper, it appears that the TRAI intends

to put together in a single license for the network infrastructure in the

category of carrier-service provider and network of existing service providers

as facility-based operators (FBOs).

The type of services that would be offered would in the

nature of basic and long distance services, bandwidth and interconnection and

access. The scheme would cover the features of the two types of licenses–carrier

and carriage. The TRAI has adopted the classification of the unified-licensing

framework from the Singapore model.

There is, however, some change in the services selected in

the proposed unified-licensing regime from the range of telecom services

provided over the licensees’ facilities. In the proposed regime there is no

clarity regarding the justification to keep network application services, such

as, satellite services, VoIP, Internet services and other public switched data

services.

There seems to be less justification to put such

telecommunications services outside the unified license framework. These

services ought to be included on the same principle of technological advances

and market changes in a convergent-communication environment. It may be noted

that this is the guiding principle for the proposed unified licensing framework

for combining basic, mobile. Long-distance voice telephony. By limiting the

unified license to only these categories, we are not taking full advantage of

the convergence and synergies that may be available across the licensees’

capabilities. The full benefits of convergence should be achieved from now on

instead of taking them up at a later time, which will only add to new problems

and avoidable costs. The access obligation for the incumbent operator should be

in line with the established international practice of mandating access to

incumbent’s local sub-loop near the customer’s premises than local exchange

such as in EU, Australia etc.

Once we accept the vitality of the Unified License regime to

extend and propel growth, the service area for all players in the Unified

License regime needs to be same. For the Unified Access Licensing regime, DoT

has already issued rollout obligations. If additional obligations are to be

added, it should leave some scope for discretion to the service provider for

rolling out networks based on market dynamics.

The consultation paper also provides for scope for migration

and exit. It is only fair that the choice to migrate to a new unified regime is

made available. However, some specific issues have to be addressed. In the

present consultation paper, the scope and the definition of markets and the

conditions for migrating have to be clarified by the regulator. The following

issues will have to taken into account.

• Whether migration will lead to concentration/strategic
  
  collaboration/alliances between telecom operators?

• Will it restrict, prevent or distort competition?

• Will it impede the fulfillment of roll out obligation?

• The effect on universal service provisions

If migration results in concentration and lead to operator

turnover that is above a threshold limit, then regulatory intervention becomes

necessary. In order to have a transparent regime, the conditions under which

migration will be permissible will have to be identified/stipulated.

In the revised consultation paper some of these issues need

elaboration by the regulator for effective consultative process. It is hoped

that in the revised consultation paper, TRAI would address these issues.

VS Ailawadi former

chairman, ERC-Haryana and regulatory affairs analyst.