One licence, one big row

In the dock: the Telecom Regulatory Authority of India (TRAI), for protecting national long distance operators like Bharti and Reliance Infocomm, at the cost of mobile phone service subscribers who would have gained from cheaper subscriber trunk dialling (STD) and international subscriber dialling (ISD) tariffs.

Putting TRAI there are global system for mobile (GSM) mobile service companies "� specifically, GSM companies that are not integrated telecom companies that offer national long distance (NLD) services.

Ranged on the GSM service company side are internet service providers (ISPs), which are allowed to offer restricted internet telephony (only calls from PCs to a phone abroad are currently allowed). ISPs cater to the masses "� their outgoing call rates are virtually a third to a fourth that of normal ILD rates.

ISPs and the GSM camp accuse TRAI of stifling competition by limiting the number of companies that are allowed to enter the NLD and international long distance (ILD) businesses. And how is TRAI doing this? By forcing new entrants to pay stiff entry fees, it is raising the entry barriers.

Otherwise, they say, NLD and ILD tariffs would have further tumbled by 25-50 per cent and the dream of making STD calls at only a small premium to local call rates across the country would become a reality.

Says an agitated Dilip Modi, chairman of the Cellular Operators' Association of India (COAI) who's also the boss of Spice Telecom, which runs mobile services in Punjab and Karnataka: "TRAI talks about more competition. But by raising the entry barrier it has ensured that others cannot enter. It is squeezing the smaller independent players and protecting only integrated telecom players."

Exclaims Amitabh Singhal, secretary general of the Internet Service Providers Association of India (ISPAI): "We will be killed. ISPs won't be able to offer internet telephony and cheaper tariffs."

On the other side of the fence are the Bharti group and Reliance Infocomm. Both may seem like strange bedfellows, but both say that the attack on them is unwarranted "� they have invested large sums to create NLD and ILD infrastructure and need some protection.

In an unusual show of solidarity, Reliance Infocomm and Bharti shot off a joint letter to TRAI last month saying that they would suffer monumental losses if cellular service companies were allowed inter circle connectivity without any payment. Both, the letter pointed out, had invested over Rs 6,000 crore in creating infrastructure for long distance services.

Says a senior executive at a leading NLD and ILD company about what the GSM service companies allege: "They are making a noise for no reason. All the big cellular players will take an NLD and ILD licence. We will, in fact, lose business because most of the pure play cellular operators currently use our network for STD and ILD calls."

In the eye of the storm is TRAI's draft recommendation on unified licensing, which will eventually offer one licence to telecom companies, enabling them to offer a range of services, including NLD and ILD.

In the first phase of unification, TRAI permitted wireless in local loop (WLL) limited mobile companies to offer fully mobile services. In the second phase, it wants to allow all telecom companies to offer NLD and ILD services as part of the same licence.

TRAI now proposes to allow cellular service companies (and ISPs) to migrate to a unified licence (enabling them to offer ILD and NLD services) by paying a stiff Rs 107 crore. The registration fee will be gradually reduced in the next five years to as low as Rs 30 lakh in the fifth year.

What this also implies is that if a cellular service company is prepared to wait, it can pick up a licence at a fraction of the cost after five years (though it may lose subscribers in the five-year period).

TRAI has also suggested that the share of the revenue telecom companies that already offer NLD services have to give the government be cut from the current 15 per cent to six per cent. It favours reducing the bank guarantee they have to provide the government by Rs 100 crore, to Rs 200 crore. And it has absolved them from any network roll-out obligations.

ISPs will be hard hit by the Rs 107 crore licence fee. Singhal says that ISPs account for about 70 million minutes a year, under two per cent of all international calls. With a unified licence, ISPs will be able to offer both ILD and NLD services and incoming calls. So the restrictions on incoming calls will be removed. But the cost of doing business will be crippling.

Says Singhal: "We get not more than Rs 14 crore a year in revenue. The government now wants us to pay an entry fee of Rs 107 crore to offer ILD and NLD services. Where is the business case? I don't see anyone going for it at all."

ISPs complain that TRAI had promised that the entry fee would be "nominal" and that the regulator has gone back on its promise. "Even earlier you could take an ILD and NLD licence for Rs 125 crore. Now it has reduced the licence fee by 10 per cent. It's total hogwash" says an agitated ISP operator.

TRAI officials acknowledge that ISPs have a problem but point out that it is an issue that even regulators in the US are also still grappling with.

Says a TRAI functionary: "A few years ago integrated players said that internet telephony was no threat because the voice quality was inferior. But now with technological change, that is not the case. So you will curse us if we wish away the interests of others in the NLD and ILD business and look at only their interests. That is why we have given a five-year time frame by which fees will fall dramatically."

Why do mobile service companies want an NLD and ILD licence at all? For one, it offers them more flexibility in pricing tariffs, as they will no longer depend on someone else (an NLD or ILD service provider which, in many cases, also competes with them in offering mobile services) who fixes the charge for carrying the call (about 30 per cent of the cost of a call).

Says the head of a cellular services company: "NLD operators make big money and their costs are much lower. With our own operation we reckon that our costs won't be more than five per cent of the total call cost."

So, he argues, mobile service companies can pass on the difference to the customer and the market will boom. If volumes grow, costs and tariffs will fall even further.

Secondly, they can offer the kind of special rates that Reliance Infocomm offers for calls within its network across the country or with other networks with which it has a tie up.

From TRAI's point of view, balancing conflicting claims has not been easy. Says TRAI chairman Pradip Baijal: "It has been a tightrope walk. We wanted to ensure that we do not get into a situation where the matter has to go to court. That is why we have come out with a draft so that we can discuss it openly among the stakeholders."

Cellular service companies accuse TRAI of having different rules for different telecom service providers. As they see it, ILD and NLD licences should be given to them free as they have already paid in excess of what they should have for a GSM cellular licence.

Says T V Ramachandran, COAI secretary general: "For ensuring maximum consumer benefits, unified licensing needs to be implemented at the earliest, following the same principles of migration that were applied to FSPs (fixed line service providers)."

Ramachandran is referring to fixed line service companies moving from offering limited mobile to fully mobile services. Then, the licence fee paid by the fourth mobile operator in a circle was fixed as the benchmark.

Fixed line service companies that had already paid more (for their FSP licence) were allowed to offer fully mobile services without having to pay a licence fee; others had to pay the difference.

The Tatas, for example, had paid Rs 532 crore for a basic services licence in Maharashtra. The fourth cellular operator in the Maharashtra circle paid Rs 392 crore for its licence.

So Tata Teleservices did not have to pay anything to migrate to fully mobile services. This was the case too for others like HFCL in Punjab and the Bharti group in Madhya Pradesh.

Modi and COAI say that the same principles should be adopted for cellular service companies too. By this logic, most of the first and second cellular service companies in a circle who paid more than what the fourth cellular operator paid for a GSM licence should be given an ILD and NLD licence without paying any fee at all.

So Modi's Spice Telecom forked out Rs 358 crore for a GSM licence in Punjab and Karnataka, Rs 288 crore more than what the fourth service company paid for the two circles together. So why should Spice Telecom pay again for an ILD and NLD licence?

COAI also questions the logic of having just five NLD service companies and just four ILD service companies in India. The US has over 621 NLD operators and 360 ILD companies. The Philippines has over 11 NLD and 5 ILD companies. Even Chile has 10 NLD and 10 ILD operators.

Says a COAI functionary: "In most countries, liberalisation first took place in long distance and the large number of operators drove down tariffs. Why should we be different in India when that is best for the customer?"

GSM cellular service companies also argue that it is illogical to force every cellular service company to take an all-India licence, quite simply because their sizes vary "� some like Hutchinson-Essar operate in 11circles; others like Spice have a presence in two circles.

Says Modi: "Our aim is to provide ILD and NLD services to our customers within the circles we control. So picking up an all-India licence will be heavily disadvantageous to the smaller players."

Cellular service companies have, therefore, suggested that licences should be given on a service or circle area basis.

To this litany of complaints and accusations, TRAI officials say that the criticism is baseless. TRAI's viewpoint:

The cellular operators withdrew their case against limited mobile service companies. At that time TRAI told them that they could go to TDSAT. But they didn't and it is a closed chapter. Says a TRAI functionary: "We reduced their revenue share commitment also. So why rake up what was the benchmark then in this case at all?"

To argue that GSM cellular service companies have not got concessions is plain hogwash. They had promised to fork out Rs 20,000 crore by way of licence fee, but were allowed to migrate from a licence fee system to a revenue share regime in the 1990s. And the revenue share has been progressively reduced too.

It is impossible to divide a unified licence circlewise to protect smaller mobile service companies. Says a TRAI official: "Everyone will take licences in lucrative markets like Maharasthra and Gujarat. This will be unfair to those who have put up infrastructure all over the country."

Clearly, such issues will take long to be resolved. In the meantime, the decibel levels will rise steadily and the wires will burn as yet another telecom battle plays itself out across the Indian landscape.