With the Telecom Regulatory Authority of India (TRAI) set to come out with its final recommendations on unified licencing, there is much debate on the likely scenario post-unified licensing. Telecom experts comment on the implications of the new policy for the sector, the players, and the consumers...

Will the proposed rural service providers, or “niche operators”, help in increasing rural teledensity?

Shantanu Das Gupta
As per the draft recommendations of the unified licence framework, there are three categories of licences: unified license, class license and licensing through authorization.
The class licence category includes niche operators, included to promote growth of telecom services in rural/backward areas from a teledensity point of view. Class license holders can provide a limited range of telecom services. This market is not attractive today and, as such, there is not much drive to enter it. With growing penetration of technologies and gradually improving education as well as income standards, telephony and Internet are likely to witness growth in these areas. The niche operators can definitely help growth in these areas by suitably marketing their services. And, in future, if the markets do well, other players would also like to enter this market. However, with practices like USO in place, certain players have extra sources of revenue compared to others, which allows them to invest and penetrate the backward area also.

Further, unified licence holders will have the licence to provide all services applicable to class licence holders. As such, they too can look at these areas. In view of all this, the niche operators will face challenges to protect their business interests.

Mohit Saraf
In terms of teledensity, the countryside is clearly falling by the wayside. The Telecom Regulatory Authority of India’s (TRAI) miracle cure is niche operators. But is this promised miracle a mirage – an exercise in self-delusional policy formulation fuelled by an inexplicable obsession with teledensity?

First, a few quick facts. The so-called “niche operators” will provide fixed telephony services alone and not mobile services. They will operate in areas where rural teledensity (based on fixed line subscribers) is less than 1 per cent. They are required to pay a fixed 6 per cent of their annual gross revenue as licence fee.

The rural telecom market in India is characterized by low paying ability of subscribers and high operating costs due to inhospitable terrain and other systemic factors. Private operators - motivated almost purely by profit considerations – are unlikely to be gung-ho about venturing into such terrain. But there is hope. The bottomline is that offering services in rural areas should be an economically sustainable activity. TRAI’s suggestion that universal service obligation (USO) support may be extended to niche operators could be the answer. USO funds running into millions of dollars are currently lying idle. At this rate, the USO could well stand for “unutilized service obligation”!

Lastly, the insistence on calculating teledensity based on landlines detracts attention from mobile connectivity in rural areas. Rural telecom connectivity should be viewed holistically and not fall prey to narrowly defined statistical formulas. This is an opportune time for TRAI to take a call on this issue.

Archana Sassan
Yes, the setting up of a rural service provider system will be a welcome effort by the Government of India to increase rural teledensity.

The New Telecom Policy, 1999 (NTP, 1999) envisaged access to basic telecom services at affordable and reasonable rates in rural/remote areas. The financial resources for meeting this obligation were to be met through the USO Fund and a universal service levy (USL). The NTP, 1999 further envisaged that implementation of the USO for rural/remote areas was to be undertaken by all basic service providers, who could be reimbursed from the USL.

The NTP, 1999 sets a rural teledensity target of 3 by 2007. If the teledensity of rural India is to increase to 3 by 2007 and to 4 by 2010, it is imperative to introduce the rural service provider system. The idea behind the system is that a service provider will be permitted to operate only in the rural areas. In order to ensure this, TRAI should make recommendations providing incentives to service providers to offer rural telephony. The government has already taken the first step in this direction by disbursing Rs. 2.5 billion from the USO Fund to fixed line service providers for meeting the operational costs of providing rural telephony. Similar benefits in the nature of tax incentives or import duty relaxation could also be made available to service providers in order to encourage their foray into rural areas.

Mahesh Uppal
In principle, yes. Rural service providers, or niche operators, who have been proposed by TRAI could work. However, the conditions outlined are still very unattractive for any new investment, which is urgently required in these areas. There is much more effort to avoid hurting the current players who are not performing than for providing incentives for those who might want, and be able, to serve the rural areas with new business models and technologies. It is impossible for TRAI to justify that paging and trunking operators share no part of their revenues with the government, but that niche players do so. Similarly, restricting the use of technology by rural players to only fixed telephony and multimedia flies in the face of the claims that regulation in India is technology neutral. We need to remove all stops to allow those who want to serve the rural areas to do so, preferably with support from the USO Fund.

What new services will become possible under the unified licence regime?

Shantanu Das Gupta
The unified licensing regime simply implies that such a unified licence holder is eligible to provide all types of telecom services (both voice and non-voice/data) to the customer. The services include telephony, internet, broadband, TV, cable TV, DTH and radio broadcasting.
The services, are broadly defined as per the NTP, 1999. The scope has definitely become broader as we see services like cable and broadcasting coming together with telephony and internet.

Mohit Saraf
Under the recommended unified licensing regime, all services like telephony, internet, broadband, cable TV, DTH, TV and radio broadcasting will be made available through a single service provider. What would this translate into in terms of new technologies? Wireless internet and broadband via set-top are likely to hit the market aggressively. Improved variants of IP-based telephony may be in the offing. New services like IP TV, VoIP, games and security packages. Wi-Max and unified messaging can be expected to take off soon. Technologies like Wi-Fi, Bluetooth and WLAN are likely to become more affordable. Home networking, combining telephony, internet access and (in a larger sense though not strictly) broadcasting would possibly ensure that the world pours into your room!

Archana Sassan
The TRAI, vide its recommendations dated October 27, 2003, provided for a unified licence regime that would bring under one ambit all services covering all geographical areas using any technology.

In the guidelines dated November 11, 2003 issued by the Department of Telecommunications, as a first step, basic and cellular services were proposed to be unified in one service area. Moving forward, the various models (TRAI has recommended three) as proposed by TRAI in its consultation paper of March 2004, should lay out a path where not only basic and cellular services but also long distance (national and international) and internet services could be unified under one licence.

Various new services should become possible on the unification of licences. For example, we are already witnessing telecom services moving from voice to data transmission and an exponential growth in data-based applications. The unified licence regime would integrate our offices and homes into one entity, and one number could be made available for an entire array of services. These are some of the new services that would be made available to the consumer upon unification of licences.

Mahesh Uppal
There is no new service that will become possible after the new regime comes into force. The telecom market in India has been effectively open for all services except those that require spectrum. To an extent, since some existing players will find costs considerably down, they could, in principle, bundle several services. For instance, they could offer a service that allows the customer to move more easily between its own fixed and mobile services. Or, allow single billing for multiple services.

Who will be the likely winners and losers once unified licensing is in place?

Shantanu Das Gupta
The key word is adaptation. Unified licence provides an opportunity to players like Reliance and Airtel who are financially strong and are operating in a lot of areas. They can look forward to a scenario that has broader scope and higher potential. However, they need to deal with implementation issues. The pace at which one adapts oneself can be the difference between the winners and the losers.

One definite gainer is the customer or the end-user, who can look forward to a single point of provision for a variety of services that can relieve a lot of maintenance issues and reduce overall costs of ownership of these services. Some verticals like IT and ITES, which can make a lot of use of these services, stand to gain a lot.

Mohit Saraf
It is widely hoped that the unprecedented access to technology promised by unified licensing would help revolutionise consumer lifestyles. Successful implementation of unified licensing would hopefully ensure that the customer is not just the king but the emperor.

Identification of other winners and losers under a unified licence regime appears to be a futile exercise as of now. Much depends on how critical issues such as licence fees for the new entrants are addressed by TRAI.

Doubtless, bigger players like Reliance and Bharti would be in a position to capitalize the most from a unified licence regime. It is obvious that their sheer financial strength and scale of operations would ensure that they have an upper hand in any regime – unified or otherwise. Smaller players like Spice, HFCL and Shyam, which operate in limited circles, could, perhaps, be in a somewhat disadvantageous position. Their market shares in the particular circle may be diminished due to the rollout of services by new licensees under a unified licence regime.

NLD players are likely to sit comfortably on their virtual monopoly – manufactured cash couches until rationalized licence fees pave the way for aggressive competition.

A technology-neutral unified licence regime dramatically lowers the entry barrier (post-licence fee rationalization) for cash-strapped innovators and entrepreneurs by creating virtually limitless opportunities for them to break into a multimedia universe of services through technological innovations. Even the Goliath players face the prospect of losing out to the Davids in a Darwinian survival-of-the-fittest world.

Archana Sassan
The telecom market in India is in upbeat mode, and we would like to believe that there is room for every service provider to emerge successful. However, predictably, in an era of intra-circle mergers and acquisitions, it is telecom service providers with deep pockets who will provide quality and cost-effective service to the end-user in the delivery chain, achieving better synergies/economies of scale, who will emerge victorious.

Mahesh Uppal
The new regime will help the incumbent BSNL and other national and international long distance operators like Bharti, Reliance, VSNL and Data Access, since new competitors would still find the entry barriers high. New players will have to pay at least Rs. 1.07 billion if they wish to enter the market now.

Finally, will unified licensing lead to convergence?

Shantanu Das Gupta
The concepts of unified licensing and convergence go together. Convergence simply implies that the means of providing various aspects of communication should be brought together. Unified licensing as defined above is looking beyond telephony at other services and brining them closer. However, unified licensing only provides a policy framework that looks at convergence. The real challenge lies in implementation.

It is to be understood that a policy framework can be interrupted in different ways. Also, there will be vested interests who would like to bend the policy for their gain. As such, the regulatory body has to take control of this factor also.

Moreover, the implementation aspect relies on the growth of infrastructure that needs to support all this. Technical expertise to tackle the problems that arise will be equally important. All this calls for higher investments, which have to be driven by customer demand. Thus, at the initial stages, when demand would just be building up, the government will need to give certain incentives to players to motivate them.

Mohit Saraf
Convergence should be a natural corollary to unified licensing. But is the proposed unified licensing regime truly unified?

TRAI has clarified that for providing broadcasting services using wireless spectrum, the Ministry of Information and Broadcasting will continue to issue licences. The ministry will also continue to exercise control over content.

For convergence to be realized, issues relating to spectrum allocation and management also need to be addressed by TRAI, especially regarding calculation of spectrum fees.

A judiciously implemented unified licence regime would increase the probability of ushering in an era of convergence. On this critical policy issue, TRAI finally seems to be converging towards a decisive solution.

Archana Sassan
The Draft Convergence Bill, 2000 defines “convergence” as convergence of mediums or technologies, facilitating provision of all services by using a given facility or network and vice versa. Unified licensing provides an enabling environment to achieve this. As already mentioned, unified licensing has been initiated to unify all services covering all geographical areas using any form of technology. A service provider being able to provide a whole range of technologically feasible services and the consumer being able to receive the same at any time and place of his choice is the underlying objective of both unified licensing and the Convergence Bill.

Mahesh Uppal
If the Ministry of Information and Broadcasting and the Ministry of Communications and Information Technology can come to an agreement on a composite telecom licence that includes broadcasting, we could say that a kind of convergence has been incorporated in the licensing regime. This is not yet the case. However, reconciling the carriage and content regulation is not a trivial task and much homework would need to be done by the regulators.