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Licensing Road Map: Industry seeks clarity on TRAI’s recommendations

March 30, 2012
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The Telecom Regulatory Authority of India (TRAI) released the draft guidelines on Unified Licence/Class Licence and Migration of Existing Licences on February 10, 2012. The move is seen as a step towards bringing in the one nation, one licence regime in line with the draft National Telecom Policy (NTP), 2011. At present, the regulator is seeking the opinion of various stakeholders in this regard. Industry experts share their views on the benefits of such a regime, its potential impact on the telecom sector and its financial implications as well as the issues and challenges in the implementation of TRAI’s draft guidelines...

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What are your views on TRAI’s recent draft guidelines on Unified Licence/Class Licence and Migration of Existing Licences?

Ashish Basil

Overall, the guidelines are in line with the global practice of clearly separating the licence from spectrum.

Gaurav Dixit

There has been considerable debate on the concept of unified licensing. Today, the distinction amongst technologies is gradually diminishing due to rapid improvements in this space. A particular technology can be used to provide multiple services. Thus, the entire concept of unified licensing becomes prominent. With a unified licence, operators would be able to offer services like voice, internet telephony and internet protocol television on a single platform. This would also reduce the investment risk for operators as they would be free to provide any type of service.

Jaideep Ghosh

The draft NTP, 2011 explained the government’s objective of creating a one nation, one licence regime across services and service areas. TRAI’s draft guidelines are another step in this direction. Placing all the basic communication services under a unified licence would reduce complexity and increase transparency in licence management by providing consistent licensing conditions across services.

These guidelines, however, depart from the draft NTP 2011 in the area of unified licence categories. The draft NTP 2011 envisaged technology-neutral unified licences in two separate categories, network service operators and service delivery operators, in order to separate network ownership and maintenance from service delivery to the end-consumer. On the other hand, TRAI’s draft guidelines mention only a single unified licence, irrespective of network management and service delivery rights. More clarity is required in this regard.

In terms of the impact on telecom players, these guidelines would not affect the existing operators significantly. They do, however, extend the convergence objective, as discussed in the draft NTP, by combining telephony services  including triple-play services like voice, video and data under a unified licence.

These guidelines mention that the existing category 1 infrastructure providers (IP-1) would be required to take the unified licence by paying the prescribed entry fee. However, as the telecom minister mentioned in his press statement, a decision on the recommendation to bring IP-1 service providers (who are currently unlicensed passive infrastructure providers) under the licensing regime has been deferred for further examination.

How would these guidelines impact the competitive landscape of the telecom industry?

Ashish Basil

These guidelines address issues related to the migration of existing licensees to a uniform licensing regime and are expected to provide clarity on the separation of licences from spectrum. As such, these guidelines will not materially impact the competitive landscape, which would be driven by stipulations under NTP, 2012. These stipulations would be related to mergers and acquisitions, and active infrastructure sharing.

Gaurav Dixit

The guidelines would allow operators to deploy new services quickly, saving them the time and effort made in applying for and acquiring multiple licences – one for each service. It will also encourage mergers and acquisitions in the sector as operators which do not have the capability to offer diverse services would either merge with or be acquired by other companies. Further, unified licensing would facilitate competition and would be favourable for subscribers. To garner a higher market share, operators would be ready to offer a host of services; however, only those who have the financial and operational strength would survive the competition. Operators offering only one service would find it difficult to sustain competition as compared to those offering a complete service package.

Jaideep Ghosh

These guidelines would have the largest impact on the internet service provider (ISP) market. Some of these players are very small in terms of operational area, with a limited internet subscriber base. It might not be easy for these players to meet the stipulated licence qualification criteria while migrating from the unified licence (restricted) to the unified licence regime.

Competition in the wireless market is likely to increase as companies holding spectrum for services such as broadband wireless access (BWA) would be able to provide triple-play services under the unified licence regime.

How are the proposed guidelines likely to impact the incumbent operators? What will be the financial implications?

Ashish Basil

The proposed guidelines would have a marginal impact on the incumbent operators. The universal licence regime lays down a minimum net worth and the financial criteria to acquire a licence and bid for spectrum. Most of the large operators will not face any major constraints in meeting the criteria.

Gaurav Dixit

The move towards unified licensing is likely to favour the incumbents. While market competition would increase, the incumbent operators, which have a large presence across the country, will have a significant advantage in terms of providing a bouquet of services.

Having said that, it cannot be ignored that incumbents have witnessed declining profits over the past year and a half. Moreover, once the sector achieves some clarity in terms of charges that should be levied on operators such as the licence fee and spectrum usage charges, these payouts would have a bearing on the financials of the incumbents.

Overall, the move towards unified licensing will be beneficial for the incumbents as they have the required capability to bear additional expenses as well as have strong promoter support.

Jaideep Ghosh

The incumbent operators are not likely to be impacted significantly by the proposed guidelines as there would not be any change in the type of services that they can provide between the two licensing regimes. However, their competitiveness may change with BWA players being able to offer voice and related services.

The financial implication in terms of licence fee payouts is likely to be more perceptible at an individual operator level rather than at the industry level. As per the telecom minister’s press statement, there will be a uniform licence fee across  licences and service areas, which would be progressively made equal to 8 per cent of the adjusted gross revenue (AGR) in two yearly steps starting from 2012-13. Under the current licensing regime, the licence fee varies from 6 per cent to 10 per cent of the AGR, based on the service area. The industry average is a little more than 8 per cent and, therefore, there will not be many changes overall. At present, the net payout towards the licence fee is a function of the subscriber split (hence revenues) across circles. A move towards a uniform licence fee would thus have implications at the individual operator level depending on the geography and revenue mix.

The proposed entry fee of Rs 200 million for a pan-Indian unified licence is a nominal charge as compared to the overall revenue of the incumbent operators. The combined impact of fixed as well as variable operator payouts is likely to be negligible.

What are the likely issues/challenges in the implementation of these guidelines?

Ashish Basil

We do not see any significant challenges in implementing these guidelines.

Gaurav Dixit

Although the guidelines will be beneficial for the sector, there are a few ambiguities in the recommendations. One issue could be the ambiguity regarding the licence fee to be paid by the operator as the recommendations do not throw any light on the percentage of the AGR that needs to be paid as the licence fee. While it does mention that the licence fee should be at least 10 per cent of the entry fee, TRAI, in its earlier recommendations on Spectrum Management and Licensing Framework, which were released in May 2010, had proposed that the licence fee should be brought to a uniform 6 per cent over a period of four years, that is, by 2014. However, no final decision in this regard has been taken. Also, there should be some clarity on the detailed migration plan, which has to be put in place for each type of licence. The guidelines should clearly mention the payment to be made by operators, refund of the licence fee, the entry fee, spectrum usage charges, interconnection usage charges, etc. to minimise roadblocks related to their implementation.

Jaideep Ghosh

The government, telecom operators and end-consumers are the key stakeholders with regard to the implementation of the unified licence guidelines.

For the government, there would be no revenue loss. Moreover, there could be a higher revenue realisation from IP-1 and ISP players in view of the telecom minister’s press statement, which mentions the licence fee as 8 per cent of the AGR for all telecom services. However, a decision is awaited regarding the inclusion of IP-1 players in the unified licence regime. For telecom operators, the impact is likely to be more pronounced in the ISP sector. Given its small scale of operations, the ISP sector could witness consolidation after the implementation of these guidelines.  The wireless telephony sector is not likely to be impacted significantly. While applying for a unified licence, operators are likely to focus on service areas that are their strongholds instead of going for pan-Indian operations.

Consumers of wireless telephony services are not likely to pose any challenges with respect to the implementation of the TRAI guidelines.

 
 
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