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Will the
shift to a unified licence regime sort out the mess that
has been made of India's telecom policy, by conflicting
objectives and contradictory policy shifts? Not if the
Cellular Operators' Association of India (COAI) has its
way, for it has already declared its intention of turning
to the courts to overturn the decision, which, it claims,
has distorted the playing field.
Theoretically, unification implies that the holder of a
licence to provide a particular form of telecom service
can, subject to certain conditions regarding the payment
of penalties and special entry fees, offer the full range
of fixed, mobile and value-added services. However, for
now, unification involves only the fixed,
wireless-in-local-loop (WiLL) and cellular sectors, though
the claim is that in subsequent stages it will cover
national and international long distance and other
value-added services (such as internet provision) as well.
Given the current state of roll-out of telecom services,
the immediate beneficiaries of the government's decision
are Reliance Infocomm, with a basic services licence in
seventeen telecom circles, and Tata Teleservices. Reliance
is expected to pay a total of Rs 1,581 crore (including an
entry fee of Rs 1,096 crore and a penalty of Rs 485 crore),
while the Tatas will have to put out Rs 545 crore in order
to convert their basic licences to unified licences.
Cellular operators, on the other hand, do not have to pay
any entry fee for such migration.
There are three grounds, not always made explicit, on
which the COAI opposes a unified license regime. First in
its view, the government's decision endorses the violation
of license conditions by some of the basic service
licensees, who won themselves the right to provide
'limited mobility' services and used that right to stage a
back-door entry into the cellular area. Second, even
though this entry occurs after migration from a license
fee to a revenue-sharing regime, the entry fee and
penalties being imposed on players like Reliance Infocomm
and Tata Teleservices to extend 'limited mobility' into
full cellular service provision are extremely low,
providing them with a competitive advantage. And, third,
the decision involves a mid-process retraction of an
implicit promise made by the government to limit
competition in different telecom sectors in order to
ensure the viability of relatively new private entrants.
The irritation expressed by cellular operators is partly
understandable. When the policy of promoting private entry
into the telecom sector was initiated in the early 1990s,
the telecom sector was segmented, for policy purposes,
into fixed (basic) services, mobile services, national and
international long-distance telephony, and various
value-added services such as internet service provision.
The rules and regulations that were initially framed, and
subsequently modified, related to the terms on which entry
was permitted. Among these terms were of course the part
(or 'circle') of the country to which a licensee had
access, the number of entrants that would be considered
for each circle, the duration for which a license would be
granted, and the framework to determine the fees that an
operator would be charged for entering an area and the
restrictions, if any, on the tariffs that consumers would
be required to pay.
The first dilution of the segmentation principle occurred
partly for technological reasons and partly because the
government wanted to make the best of what was a bad
policy from the point of view of 'universal service
provision', or providing population-wide and
geographically widespread access to telephony. A telecom
network consists of a network of exchanges and a set of
'local loops' or connections between the switch in an
exchange and the end-use equipment at the premises of the
subscriber. Conventionally, all these connections are
ensured by a combination of optical fibre and copper
cables laid underground or overhead. Needless to say, the
cost of the cables themselves and of laying them made
network expansion expensive and even unviable, in areas
with low telephone and call densities.
These constraints notwithstanding, the earlier public
sector monopolies did manage to move substantially towards
universal service provision, even if it meant delaying the
realization of the objective of providing telephones on
demand and of sacrificing some additional profit. When
framing the rules for private entry, the government
retained universal service provision as a goal, and even
laid down explicit targets as part of the licensing
conditions. However, once the process of privatization
began, it was clear that it would be too much to expect
the private sector to be committed to this goal of
universal service provision. And since public sector firms
(awaiting privatization) were expected to compete with new
private operators, it would be unfair to expect them to
stick to their past commitment to such provision.
To partly deal with these problems, the government decided
to encourage technologies that reduced the cost of network
expansion, especially in areas with low telephone and call
densities, in the hope that this would help universal
service provision. The technology that came in handy here
was that offering wireless connectivity in the local loop,
or wireless-in-local-loop (WiLL). The switch in the
exchange could be connected via cable to a central
wireless access point, which could then service a number
of wireless connections within an area of, say, 25
kilometres. That was the range associated with the
technology that was offered by Qualcomm Inc. of the US to
Indian Telephone Industries (ITI), and has been adopted by
many providers in preference to an indigenous technology
developed at the Indian Institute of Technology, Chennai,
which, though cheaper, had a smaller range.
Obviously, once WiLL technology is put in place, those
connected through this means will be able to utilize their
end-user equipment anywhere within the specified range
relative to the access point. Since, in addition,
technological developments have delivered portable
end-user equipment, subscribers to the service can benefit
from mobility within the area defined by the range. Thus,
permitting a basic provider to use WiLL technology
amounted to allowing him to provide 'limited mobility' as
well. This is precisely what happened, through a
recommendation of the TRAI and an end-2002 ruling by the
Telecom Disputes Settlement and Apellate Tribunal (TDSAT).
Cellular operators were forced to challenge the decision
in the Supreme Court on the ground that WiLL is not just a
technical extension of basic service provision but a
separate value-added service that overlaps with the
service reserved for provision by cellular operators.
Technological developments had actually gone further. It
was soon clear that a WiLL service provider could hand
over a consumer to another access point within or outside
a short-distance charging area (SDCA), allowing it to
offer full-fledged cellular-type services with national
roaming. From a technological point of view, therefore,
'limited mobility' was a misnomer. In an audacious move,
Reliance made a public offer of such services, for a fee,
to its potential subscribers.
This induced the COAI to voice its opposition more
strongly. However, in a second decision—necessitated by a
Supreme Court direction to reconsider the matter, keeping
in mind the question of a level playing field—the TDSAT
ruled that the basic telecom operators who were offering
limited mobility services should be allowed to continue
doing so, subject to the conditions that: (i) a
distinction is maintained between 'limited mobility' and
cellular service provision, by ensuring that calls were
not handed over when a subscriber moved out of the SDCA;
and (ii) the playing field is levelled by levying an
additional entry fee on basic operators providing the
value added service.
Conceptually, the TDSAT was demanding a ban on something
that was technologically feasible and worth exploiting
from the point of view of the consumer. Seen in this
light, the subsequent decision to push for a unified
licence for telephony that breaks down the technologically
obsolete segmentation implicit in the policy of the
government, does make sense. The only remaining issue was
whether the disadvantage faced by the original cellular
provider because of the higher entry fee paid by it, is
redressed.
In an effort to level the playing field, the government
has made it incumbent for basic operators wanting to offer
cellular services to pay an amount equal to the difference
between the licence fee paid by the fourth (and, thus far,
the last) entrant into a particular circle, and the fee
paid to provide limited mobility services. Since a late
entrant faced with established incumbents may not be
willing to pay a high licence fee, and since the position
of a basic operator in a circle is stronger than a
cellular service provider who is a later entrant, this may
not be the best compromise. This has angered the COAI and
fuelled allegations that basic operators, especially
Reliance Infocomm with a presence in seventeen circles,
are being favoured.
While this may be true, sympathy for the cellular
operators is waning, given their own track record.
Cellular operators have always exploited the fact that
private entry not mean state withdrawal or absence, but
was to be accompanied by state protection (of private
oligopoly, through restricted entry) and state regulation
of the nature of services provided and levels of tariffs
charged. Their strategy has been to win entry by making
irrational bids that render the business unviable, protect
their oligopolistic position by lobbying the state against
permitting new entrants, and improve their viability by
initially charging exorbitant tariffs and subsequently
forcing the government to drop the license fee regime and
allow operators to migrate to a revenue-sharing principle.
In short, profiteering based on government protection was
at the core of their business plan.
Unfortunately for them, pressured from different sides
and by circumstances, the government has over time not
only permitted the original public sector units to serve
as a third operator in each circle but provided for
a fourth private operator as well. Now it has permitted
basic providers to turn into cellular operators. This
has increased competition quite irreversibly, given
the fact that the decision was backed by the TRAI, the
TDSAT and the Group of Ministers on Telecom, before
being approved by the cabinet. The cellular operators
seem to have no option but to resign themselves to the
new competitive environment, despite their threat of
turning to the Supreme Court once again. A major restructuring
of the industry is inevitable. This will possibly be
good for competition and for the consumers. But the
objective of universal service provision is unlikely
to be served.
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