The Telecom Regulatory Authority of India (TRAI) has initiated the consultation process for the review of licence norms and conditions. Service providers and analysts discuss key issues, including the capping of the number of service providers in each circle, crossover allotment of spectrum and rollout obligations…
Should the number of service providers in a circle be capped, or should the merger and acquisition norms be further relaxed to increase competition? What could be the outcome in either case?
Rekha Jain: Capping the number of operators is not a good idea because we do not know what kind of technologies and services will emerge in the future. Capping actually limits the choice for customers. In a world where technologies are increasingly converging, it is very difficult to predict what the customers will perceive as substitutes, and what new services the operators will provide. Therefore, capping the number of service providers in a particular domain right now has no meaning because another operator in another domain can emerge to provide the same or similar services.
The current merger and acquisition norms are stringent in contrast to the spectrum caps elsewhere. Where such spectrum caps exist, the limit is 30-45 MHz. The trend is towards removing such caps.
It is not possible to predict the number of operators that would emerge if the merger and acquisition norms were to be relaxed. However, all that is required is a framework to prevent the abuse of monopoly power. Consolidation is likely to happen as operators get pushed for profits. New areas for business expansion will emerge, as well as new alliances.
Mahendra Nahata: The very notion of a cap on the number of unified access service (UAS) providers is not only ill-conceived but also completely misguided. According to our analysis of select countries, none of them has a cap, rather all of them extend full support to free and unfettered competition.
Capping the number of players in India, as per the UAS licence regime, will lead to an automatic restriction on the number of basic service providers as well.It will also completely shut the door on foreign investments and technological knowhow, which is vital for the industry.Tariffs in India will continue to go down if no cap is applied on the number of players.Tariffs have seen a steady decline over the years as competition in the market intensified with the regular entry of new players.
T.V. Ramachandran: The Cellular Operators Association of India (COAI) and the GSM industry have always welcomed open and healthy competition on a level playing field.
Given the fact that there are already up to eight operators in every service area, it is unlikely that the introduction of a ninth or even a tenth player will unduly concern the GSM industry from a competition point of view. It is also important to note that 75 per cent of the competition in the mobile segment is among GSM operators.
Any concern that the industry may have on this issue is not on account of the extent of competition, but because of the limited availability of spectrum. It must thereforebe understood that in an environment where spectrum, the raw material required to offer access/mobile services, is limited, it is not possible to follow a policy of unlimited competition and unrestricted entry.
Also, both policy and regulation mandate that once a licence has been granted to offer wireless services, the licensee must be assured of adequate and optimal bandwidth to maintain proper quality of service (QoS) standards as well as serve a larger number of subscribers in order to increase teledensity, and meet the national telecom objectives.
The COAI is therefore of the view that any new entrants should be considered only after ensuring a level playing field for all operators, as well as ensuring the availability of adequate and optimal bandwidth for the existing operators, as committed by the government.
Romal Shetty: The Indian telecom market is going through a phase of “hyper competition”. Due to this extreme level of competition, the average revenue per user (ARPU) and realisation rates are the lowest in the world. Companies are currently profitable as a result of the huge subscriber additions. When subscriber additions stabilise, price realisation will be affected if this hyper competition continues. In the current scenario, capping of operators may not be required, though merger and acquisition rules can be diluted. Capping of the number of operators in a circle may not help improve the operators’ profitability as competition will continue to drive down prices. Relaxing merger and acquisition rules will help consolidation among the smaller players and bring about a bit of operating scale among the regional operators.
Ashok Sud: According to international practice, a market share of 40-50 per cent is indicative of dominance. In the European Union (EU), the presumption of market dominance is based on a market share that is consistently above 50 per cent. In the US, markets which have a Herfindahl-Hirschman Index (HHI) of above 1,800 points, translating into 45 per cent market share, are considered to be concentrated. We recommend a maximum market share of 45 per cent for the merged entity. To avoid the formation of virtual duopolies, it may be advisable to cap the concentration ratio at 75 per cent.
Should a licensee using one technology be assigned additional spectrum meant for another technology under the same licence?
Rekha Jain: A licence is just a document that states that someone has the right to use a particular spectrum band in a certain geographical area, while fulfilling the associated obligations. So yes, if the licensee is using a different band of spectrum, then obviously another licence needs to be acquired. However, that does not necessarily mean that the licence should indicate the service/technology for the operator. The important issue is the need to focus on the review of spectrum policy, governance structure and freeing up spectrum for commercial use without jeopardising our national defence interest. Several countries have been able to do this.
Mahendra Nahata: There is no reason why assigning additional spectrum under the same licence should not be considered. The government should be technology neutral, and the issue of technology selection should be left to the licensees. They should decide which technology they want to use.
T.V. Ramachandran: It is the COAI’s firm view that crossover allotment of spectrum is not permissible under the present policy and licensing regime. A composite reading of various terms and conditions of the licences clearly establishes that when a licence is acquired, it is technology neutral and the licensee has the freedom to choose either the GSM or the CDMA platform to offer mobile services. However, the initial spectrum that is granted by the Wireless Planning and Coordination (WPC) wing is based on the technology choice that is exercised by the licensee, and the licence clearly requires that a choice be made between either a TDMA (GSM)-based system or a CDMabased system.
The licence also states that additional spectrum will be made available based on optimal and efficient utilisation of the already allocated spectrum. Thus, the allotment of additional spectrum is clearly linked to the initial technology choice exercised by the licensee. That the licence does not permit crossover allotments is also reinforced by the technology-sensitive/specific spectrum allotment guidelines prescribed by the government, which lay down two distinct paths for the allotment of spectrum to GSM and CDMA operators. This view is also supported by the actions of the government with regard to the allotment of spectrum. For example, in 1999-2000, when some GSM operators applied for CDMA spectrum after the announcement of technology neutrality, the government turned down the requests on the grounds that the operators were technology neutral only within their designated band. This shows that any reference to the licences being technology neutral and thus permitting the crossover allotment of spectrum is incorrect in light of the clear position taken by the government in 2001.
The Department of Telecommunications (DoT) has itself sought the recommendations of TRAI on the issue of permitting service providers to offer access services using a combination of technologies (GSM/CDMA and/or any other technology) under the same licence. This clearly shows that doing so is not permissible under the present regime.
Romal Shetty: Spectrum is currently the main infrastructure-related stumbling block. Not only are the operators paying huge sums of money for scarce spectrum, but they are also competing severely for it on several fronts.
In a merger/acquisition scenario, an operator might use GSM, CDMA technologies or other transmission systems in the same circle. Spectrum being extremely scarce should be allocated with certain caps put in by the regulator. India is not a mature enough market yet for spectrum caps to be removed.
A merger or acquisition between incumbent operators can effectively monopolise a huge amount of spectrum in a circle. Though spectrum can be allocated to different technologies, there should be a cap to ensure effective competition and avoid hoarding of spectrum. Further, consideration should be given to the effective use of technology and efficient use of spectrum by such technology.
There should also be a concerted effort by the regulator to develop a spectrum management strategy. With the range of telecom services broadening each day, spectrum will continue to pose a considerable challenge.
Ashok Sud: A licensee using one technology may be assigned, on request, additional spectrum meant for another technology under the same licence. For the spectrum so assigned, the licensee should pay the charges applicable for the additional spectrum as per the current UAS licence norms. For any GSM/CDMA spectrum allocated beyond 6.2 MHz/5 MHz, a further fee may be charged.
What is your view on the present rollout obligations? Should they be continued or removed completely? Alternatively, should market forces be allowed to decide the extent of coverage?
Rekha Jain: The Universal Service Obligation (USO) Fund today has enough funds. So there should not be any rollout obligation. Market conditions will ensure that the coverage spreads. The operators are contributing to the rollout obligations. And there is enough money in the USO Fund for the government to manage rollout in any way that it wants to.
Mahendra Nahata: There is no need to have rollout obligations. The issue of extending coverage should be left to market forces. With increasing competition, operators will automatically start extending their coverage to the rural areas as they would be looking for additional subscribers.
T.V. Ramachandran: The very raison d’etre of rollout obligations needs to be reviewed. Past performance has clearly demonstrated that the stipulation of rollout obligations and even the imposition of stiff penalties for non-performance do not necessarily lead to rollout. In fact, this was the reason why the rural rollout obligations stipulated for fixed service providers under their licences were waived in the UAS regime. The rollout obligations for national long distance operators were also waived subsequently.
The Indian mobile industry, which is the most aggressive and intensely competitive segment within telecom, is providing cellular coverage and services to over 8,000 census and non-census cities and towns, as well as lakhs of villages at the lowest tariffs in the world. This aggressive mobile growth has been driven by intense competition and not as a result of rollout obligations stipulated under the licences.
Therefore, we believe that since the government has moved to a market-led policy and licensing regime, and has facilitated the introduction of competition, the concerns of coverage and reach have automatically been addressed.
Romal Shetty: To a large extent, market forces and the need for subscriber growth will ensure network rollouts into remote and less profitable areas. However, this will be the case for operators who have a pan-Indian presence and who have the licences to cover the entire country. Many operators are likely to concentrate on specific urban locations and target high-usage audiences through their marketing and branding strategies. It is quite likely, over a period of time, that certain parts of India will suffer from a lack of adequate telecom facilities compared to similar urban, semi-urban or rural areas in other parts of the country due to the economic circumstances of that region. In such cases, market forces are unlikely to fulfil the rollout obligations and regulator intervention is thus required.
Ashok Sud: The mandatory requirement in terms of rollout was justified when the sector was opening up. There were ambitious targets to be achieved and it was needed to be ensured that the sector grew in the right direction.
Today, the telecom scenario has changed completely. The urban markets are becoming saturated. Operators are perforce exploring new markets and niche areas, such as rural areas, for growth. The government’s offer to subsidise service providers to extend their networks to remote areas was greeted in many instances by offers from the service providers to instead pay the government to undertake such responsibilities. In view of the current situation, the present rollout obligations should be discontinued for both existing and new licences.
