The telecom sector is the most significant and visible success story of economic liberalisation in the country. However, its sustainability and continued growth can only be ensured with firm but soft-touch regulatory measures. This writer recently had the opportunity to interact with major fund managers of asset management companies likeFidelity, Blackrock, Capital World, UAB, RCM and HSBC.
The concerns expressed by the asset management groups on regulatory uncertainties in telecom sector were genuine and any future foreign investment in the sector would be largely determined by the manner we address the present upheaval.
Unlike many developed countries, the regulatory function in India is performed both in the government, ie, department of telecom, and the regulator, Telecom Regulatory Authority of India (Trai). Given present functional jurisdiction, the answers to most regulatory issues lie with the government.
The paramount need for functional efficiency and financial health of telecom service companies is the process of consolidation. The international experience says that 5-6 licences are adequate for both quality of services and also competition in the sector.
Even if we account for the population of the country, there is no viable case for having a dozen licences in each service area. The truth is that many licence-seekers in 2007-08 were in the queue for unearned gains. This became evident when some foreign companies invested on hugely-appreciated script value of newly-licensed companies.
By 2012, there is already a clamour for incentivised merger and acquisition policy and friendly exit policy. Fortunately, the issue got partly addressed by the recent judgment of the Hon’ble Supreme Court. However, the government would be repeating the mistake if the number of licences are not rationalised.
It is imperative that the need and timing for new licences should be considered by the regulatory authority on reference from the government. No one is making a case for pre-determined numbers or any form of capping of licences. However, the process of granting licences can be initiated in phases to assess the felt need.
The government has announced the draft National Telecom Policy, 2011. The finalisation and its announcement deserve highest priority to dispel regulatory misgivings. There are important recommendations from Trai that deserve to be accepted by the government and incorporated in the NTP 2011.
The most critical structural recommendation is regarding unified service licence with freedom to use any technology and separation of spectrum. The acceptance of this policy would also require a defined path for the migration of present unified access services licence-holders. This should be addressed along with the licence-renewal policy as many of the incumbents would be completing 20 years beginning year 2014. It also entails determination of renewal fee.
There is another pending issue bothering investors in the telecom sector. It is regarding the determination of spectrum price beyond 6.2 MHz presently with the major telecom service providers. Trai has made certain recommendations on this subject.
However, the government would soon auction 2G spectrum band as per the orders of the Supreme Court. Therefore, a balanced view needs to be taken so as to avoid any situation of litigation and irrational bid conclusions.
Another recommendation of Trai is about reframing spectrum in 900 MHz band. It may be desirable to consider the monetisation of the spectrum value in 900 MHz band among the possible solutions to resolve this issue.
There are also technology and interconnect issues. Trai has already recommended permitting voice on internet protocol. In future, 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 one India circle and consequent abolition of roaming charges.
This deserves serious consideration on grounds of technology, tariff and resolution of national long distance licences. Lastly, the rationalisation of tariff must remain with the telecom service providers. 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.
(This article was published in the Economic Times on 15th March, 2012, and in Business Standard on 11th March, 2012)