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The TRAI road map for the troubled telecom sector

Posted in Industry updates by Manas Ganguly on March 11, 2012

The telecommunications sector is the most significant and visible success story of economic liberalization in the country. However, its sustainability and continued growth path can only be ensured with firm but soft-touch regulatory measures. Any future foreign investment in the telecom sector will be largely determined by the manner in which the govt address the present upheaval.

To provide the background, The regulatory function in India is performed both by the government — that is, by the department of telecommunications — and by the regulator, the Telecom Regulatory Authority of India (TRAI). Given the present functional jurisdiction, the answers to most regulatory issues lie with the government. The industry’s paramount need, in order to provide for the functional efficiency and financial health of telecom service companies, is that the process of consolidation be catalyzed. The international experience says that five or six licenses are adequate both to ensure the quality of service provided, as well as to induce sufficient competition in the sector. Even if we account for India’s vast population, there is no viable case for having a dozen licenses in each service area.

While there were many license seekers in 2007-08 in the queue for unearned gains and some foreign companies invested in the hugely appreciated script value of the newly licensed companies. By 2012, there is already a clamor for incentivizing a merger and acquisition policy and a friendly exit policy. The issue was partly addressed by the recent judgment of the Supreme Court.

However, the government would be repeating its earlier mistake if the number of licenses is not rationalized. It is imperative that the need and timing for new licenses should be considered by the regulatory authority, TRAI, on a reference from the government. No one is making a case for pre-determined numbers or any form of capping of licenses. However, the process of granting licenses can be initiated in phases to assess the felt need. Meanwhile, a cloud of regulatory uncertainty has spread after a series of review petitions has been filed in the apex court.

The government has announced the draft National Telecom Policy, 2011. Its finalization and announcement deserve the highest priority, in order to dispel any misgivings about regulation that may linger. There are also important recommendations from TRAI which deserve to be accepted by the government for incorporation into the draft telecom policy. The most critical structural recommendation relates to the introduction of a Unified Service License, which will provide for the freedom to use any technology, as well as the separation of spectrum. The acceptance of this policy would also require a defined path for the migration of present UAS license holders. This should be addressed along with the license renewal policy, as many of the industry incumbents will complete 20 years, beginning in 2014. It also entails the determination of a renewal fee.

There is another pending issue that is worrying investors in the telecom sector. That concerns the determination of the price of spectrum beyond the 6.2 MHz that is presently with the major telecom service providers. TRAI has made certain recommendations on this subject. The government may auction 2G spectrum band as per the orders issued by the Supreme Court. Therefore, a balanced view needs to be taken so as to avoid any situation of litigation and irrational bid performance.

Another recommendation from TRAI concerns re-farming in the 900 MHZ band of spectrum. It may be desirable to consider the monetization of the spectrum value in the 900 MHz band, among the possible solutions to resolve this issue. The gains in terms of spectrum release from re-farming are far less, and, further, it would open up a Pandora’s box of litigation.

There are also technology and interconnect issues. TRAI has already recommended the permitting of Voice over Internet Protocol (VoIP). In future, Long Term Evolution (LTE) technology will be a major challenge to the existing telecom service providers. The issue of interconnection within and outside the service area in different spectrum bands is already before the appellate court. There are official announcements of the introduction of one India circle, and the consequent abolition of roaming charges. These deserve serious consideration on grounds of technology, tariff and resolution of National Long Distance licences.

Lastly, the rationalization of tariff must remain with the telecom service providers under the watch of TRAI. The need of the hour is to seek the view of telecom service providers and evolve regulatory policies in the larger national interest, without any tag of “winners” and “losers”.

Reproduced from an article by Nripendra Misra

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