The Telecom Regulatory Authority of India (TRAI) has recently taken an initiative to update the licensing and regulatory regime in line with the technological changes taking place in the telecom industry.

According to TRAI, the telecom industry as it exists today may not be able to sustain the rapid growth it has been witnessing in recent times.Competition and steady subscriber growth will not in itself be sufficient to push further growth in the sector, given the swiftly changing market dynamics, wherein the sector is witnessing the entry of a large number of operators, high wireless growth, innovations in valueadded services, demand for state-of-the-art technologies, introduction of bandwidthhungry applications, demand for additional spectrum for such services and increase in FDI limit.

In light of this, TRAI believes there is an immediate need to revisit some of the telecom policies and change the regulatory framework where required, especially with regard to spectrum policy, investment norms, merger and acquisition norms, competition policy, and the licensing regime.

The Department of Telecommunications (DoT) is also of the same view. It has sought TRAI’s recommendations on the issue of determining the number of access providers in each service area, review of the terms and conditions of the access provider licence including substantial equity holding; transfer of licences, mergers and acquisitions; rollout obligations; permitting service providers to offer access services using a combination of technologies under the same licence; and limiting the number of access providers in each service area.

Taking all these into account, TRAI has brought out a consultation paper: Review of licence terms and conditions, and capping of the number of access providers. The paper throws up relevant arguments and invites stakeholder views on key issues, as follows:

Mergers and acquisitions, and transfer of licences: In the existing licensing regime, mergers and acquisitions as well as transfer of licences are permitted subject to certain conditions. The main issues raised therefore relate to defining markets, the criteria for determining dominance/market power, maximum spectrum holdings for a merged entity, cross-technology mergers, and the minimum number of access providers in a service area as a result of the mergers and acquisitions.

Substantial equity holding: In the existing licensing regime, no single company/legal person can, directly or indirectly, have substantial equity holding, that is, equity of 10 per cent or more in more than one licensee in the same service area for access services. The consultation paper discusses issues relating to the need for a substantial equity clause and the structure it should follow.

Combination of technologies under the same licence: The issue pertains to licensing limitations including spectrum allocation, desirability of enabling a licensee to use a combination of technologies under the same licence and the methodology to be used for allocation of additional spectrum in such a scenario. Rollout obligations: The consultation paper raises the issue of desirability, form and scale of rollout obligations to be imposed on access service providers, especially keeping in mind the present teledensity figures and the widening gap between urban and rural teledensity. It also raises the issue of present practices for verification of rollout, including consequential penal measures in case of non-compliance.

Number of access providers in each service area: The issue pertains to the desirability of limiting the number of access service providers in a service area and determining the optimum number of service providers in a service area. TRAI also examines the role of market forces instead of a prior capping of access providers. The principles of “investor knows best” and “viable business model” have been explored with transparent and predictable state policy. The questions that TRAI raises for consultation are:

Mergers and acquisitions

  • How should the market in the access segment be defined?
  • Should subscriber base be used as a criterion to determine the market share of an operator in a service?
  • According to the existing guidelines, any merger/acquisition that leads to a market share of 67 per cent or more of the merged entity is not permitted. In order to increase competition, what should be the permissible market share of the merged entity?
  • Should the maximum spectrum limit held by the merged entity be specified?
  • Should there be a lower limit on the number of access service providers in a service area in the context of M&A activity? What should this be, and how should it be defined?
  • What are the qualitative or quantitative conditions, in terms of review of potential M&As and transfer of licences, that should be in place to ensure healthy competition?
  • As a regulatory philosophy, should DoT and TRAI focus more on ex-post or ex-ante competition, or a combination of the two? How can such a balance be created?
  • Permitting a combination of technologies under the same licence
  • In view of the fact that in the present licensing regime, the initial spectrum allocation is based on the technology chosen by the licensee (CDMA and GSM) and subsequently, there is a separate growth path for both these technologies based on subscriber numbers. Should a licensee using one technology be assigned additional spectrum meant for another technology under the same licence?
  • In case the licensee is permitted to do so, how and at what price can the licensee be allotted additional spectrum suitable for the chosen alternative technology?
  • Lastly, as such service providers would be using two different technologies for providing mobile services, what should be the methodology for allocating future spectrum? Should any additional rollout obligations be built in?
  • Rollout obligation
  • Should the present rollout obligations be continued or removed completely, and should market forces be allowed to decide the extent of coverage?
  • Is there a case for doing away with performance bank guarantees as telecom licensees are covered through penalty provisions, which could be invoked in case of non-compliance of rollout obligations?
  • Should rollout obligations be again imposed on the existing NLD licensees?

    If yes, what should be the rollout obligations and the penalty provisions in case of failure to meet the same?

  • What additional rollout obligations should be levied on ILD operators?
  • What should be the method of verification of compliance with rollout obligations?
  • What should be the incentives and the penalties with respect to rural rollout obligations?
  • As the licensees are contributing 5 per cent of the AGR towards the Universal Service Obligation Fund, is it advisable to fix a minimum rural rollout obligation? If yes, what should it be?
  • What indicators should be used to ensure quality of service?
  • Determining a cap on the number of access providers in each service area
  • Should there be a limit on the number of access service providers in a circle? If yes, what should be the basis for deciding the number of operators permitted to operate in a service area?
  • Should the issue of deciding the number of operators in each service area be left to market forces

    TRAI has asked all the concerned stakeholders to submit their views by end-July 2007, so as to enable the regulator to formulate its recommendations.

    TRAI hopes that its recommendations will help balance the play of market forces which, in turn, will ensure a stable and predictable regime for operators in the future.