The New Telecom Policy (NTP), 2005, which is to replace the existing NTP, 1999, is expected to be released in early 2006. Meanwhile, the draft telecom policy proposed by the Department of Telecommunications (DoT) has been brought out and will be discussed with the Telecom Commission before it is sent for cabinet approval.

According to senior DoT officials, initiating the NTP, 2005 has become imperative in order to take the telecom sector to its next level of growth. This was especially so, “given the emerging opportunities in the telecom industry and the challenges in maintaining the momentum of telecom growth, its coverage and new value-added services,” as the draft reads.

The draft NTP, 2005 suggests a series of changes to increase competition, push rural connectivity and empower DoT to encourage smaller players and newcomers “even at the expense of discriminating against the larger players”, says a senior DoT official.

Broadly, the draft policy is focused on customer-related issues such as permitting number portability, spectrum management, implementing the carrier access code (CAC), setting up an ombudsman, and unbundling last mile access for broadband services.

Further, it has set a target of achieving a teledensity of 22 per cent by 2007 and 30 per cent by 2010, from the present 10 per cent. The NTP, 2005 is also looking at connecting all the villages by 2007. It envisages a broadband penetration of 20 million and an internet penetration of 40 million by 2010.

The highlights of the draft NTP, 2005 are as follows…

Access deficit charges
The draft policy has criticised the current access deficit charge (ADC) regime, based on a per-minute charge, as “nontransparent and difficult to monitor and administer”. Instead, it is of the opinion that since both the universal service obligation (USO) and the ADC basically serve the same purpose of ensuring affordable rural telecom access, the two should be merged by switching to a hybrid revenue-sharing regime.

Currently, there are three slabs for revenue sharing ?? 6 per cent, 8 per cent and 10 per cent ?? for access providers (fixed and cellular) depending on the circles. DoT has proposed the introduction of a uniform revenue share of 6 per cent for all access providers. This will cut back call tariffs by 15 to 20 per cent, besides being transparent and easy to administer.

The move, if finalised, will follow DoT’s earlier effort in November to bring down the annual revenue share licence fee for national and international long distance licensees from 15 per cent to 6 per cent. The quantum of ADC is, however, to be retained at Rs 50 billion per annum.

Taxes
DoT acknowledges the fact that telecom service providers have to pay multiple taxes, which, apart from ADC, include spectrum charges, sales tax, service tax and education cess. However, it does not agree with the suggestion of telecom companies that the complicated tax regime should be replaced by a single tax akin to a service tax, which can then be assigned to a fund (like the USO Fund). Instead, DoT feels that since the taxes have to be shared with the states, there should be a time-bound phasing out of different types of taxes till they are merged into just two or three broad levies.

Rural connectivity
With a view to promote rural telephony, the new policy is considering asking the government to allow seven years’ exemption of revenue share for service providers on revenues from rural subscribers.

Competition policy
The draft proposes to lay down a competition policy which will essentially look after the interests of smaller players and newcomers ?? even at the expense of discriminating against larger players. Officials claim that there is a need for such a norm as different segments in the sector are at different stages of maturity. Therefore, it is essential to ensure that smaller players and newcomers are not at a disadvantage when pitted against the existing players. This will ensure that consumers have greater choice, higher affordability and better quality of service.

According to the draft, the government will define telecom players’ strengths and weaknesses in any of the A, B, C or metro circles in which they operate. The definitions will take into account the operator’s market presence, focus and strengths in different segments, other than in which it holds a licence. Accordingly, “appropriate restrictions and/or obligations in the form of pricing controls, disclosure norms and market share caps would be imposed”. Telecom operators who have acquired “significant market power” and have crossed a prescribed market share can face restrictions on pricing and may have to disclose more information than other players. It would be applicable to any operator who has more subscribers or carries more traffic or has generated more revenue than the prescribed limit. In other words, the restrictions on pricing will mean that an operator who reaches the threshold market share cannot lower tariffs further to snag more subscribers.

Mergers and acquisitions
DoT wants to have a larger say in mergers and acquisitions across all segments ?? landline, cellular, internet, broadband and long distance. It has proposed a system of special approval by the Telecom Regulatory Authority of India (TRAI) and the government, “where the mergers or acquisition process reduces customer choice in defined market segments to less than three operators, or increases the combined entity’s market share to over 50 per cent in a specific segment”. Moreover, the draft states that the government can review a merger or an acquisition 12 months after its completion to check if spectrum is being used efficiently. At present, mergers and acquisitions are allowed only if there are three players in a telecom circle and the promoter does not hold more than 10 per cent equity in two service providers in the same circle.

VSAT
The draft NTP, 2005 recommends an “open sky” policy for VSAT operators to allow them direct negotiation rights to hire satellite bandwidth from foreign and domestic players, including the Indian Space Research Organisation (ISRO). This, it expects, will hasten further liberalisation in the sector. At the moment, VSAT operators cannot hire transponder space on foreign satellites directly, but must do so via the Department of Space, which hires transponder space from abroad and sells it to them. In this context, an open sky policy will make the service more affordable to the end-user. There is a rider, however. VSAT operators will be subject to security and monitoring restrictions applicable to internet service providers. In addition, ISRO will have the first right of refusal.

The government is also likely to allow VSAT players to operate in the KA band, in addition to waiving service tax for 10 years for rural connections.

Further, the draft indicates that the government may revamp the current licensing procedures for satellite networks to a single GMPCS policy, which will be applicable to all satellite mobile services. Also on the agenda are: a domestic satellite policy to be made available on a “pay per use”‘ basis; connectivity up to 2 Mbps to be permitted using VSAT; and automatic clearances from the wireless and planning cell of DoT.

Equipment manufacturers
 DoT has pegged the telecom equipment manufacturing industry in India at $40 billion by 2010. “India has emerged as the fastest growing market for telecommunications and a significant market for global telecom vendors,” states the draft policy. Going by the combined volumes from large domestic demand and huge opportunity of exports to the Asia-Pacific region, the policy foresees tremendous potential for telecom manufacturing in India and plans to give an added thrust to indigenous manufacturing of telecom equipment. It expects to meet 75 per cent of the demand through indigenous manufacturing. The draft also seeks to encourage and accelerate the process of international infrastructure vendors setting up manufacturing facilities in India.

The draft policy has also identified the major impediments to manufacturing in the country. These are high cost, inadequate infrastructure, high taxation, multiple/ inflexible labour laws, costly finance, and low research and development (R&D) expenditure. However, it does not discuss ways to improve the situation.

One-India tariff
The much-talked-about IndiaOne tariffs may face difficulties as analysts as well as DoT feel it would be impossible to introduce a single rate for local and long distance calls because it would mean increasing local call tariffs. The new policy has indicated that there would be a change in the tariff calculation format. For instance, local calls are currently charged at Rs 1.20 for up to three minutes. This may change to a per-minute or per-30-second billing. The policy has also proposed that tariffs could be determined on the basis of costs involved in the carriage as calls have three cost components ?? origination, carriage and termination. The determination of this rate could be based on the weighted average cost involved in the carriage.

Apart from the aspects discussed above, in order to benefit consumers, the draft NTP, 2005 suggests that number portability be implemented within one year of the policy announcement. It also envisages implementing the CAC and setting up of an ombudsman for telecom subscribers.

The other issues that the draft policy touches upon are fixed wireless terminals, which it states should be treated as fixed phones and not as limited mobility phones. It has also made roaming services mandatory for all operators and has proposed further liberalisation of internet telephony by suggesting unbundling of BSNL’s network for faster internet penetration.

Overall, the draft policy will make telephony cheaper for the end-user, make communication services available to all, and provide access to public safety, public health, defence and emergency response teams in the event of national disasters.The policy would certainly be a big leap forward.

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