Disunited on unified licensing

The Trai's consultation paper is a move towards rationalisation of the licensing structure

The Telecom Regulatory Authority of India's (Trai's) consultation paper on unified licensing for basic and cellular services has generated an unexpected storm of protest from some of the unlikeliest of quarters.

Apart from the Cellular Operators Association of India (COAI), whose lack of enthusiasm for the consultation process might have been the easiest to anticipate (if not understand, ex post), news service reports seem to indicate that Trai is willing to expand the scope of unified licensing.

The main focus of this article is clarificatory and expository, in the face of distracting newspaper accounts that serve to divert attention from the main obstacles to a unified telecom licence.

Was this the correct time for the consultation paper? Absolutely! With due deference to the Telecom Disputes Settlement Appelate Tribunal (TDSAT), where the issue of Wireless in Local Loop (WLL) is sub judice, the past judgements of the tribunal have been characterised by opacity and lack of easy access, a view supported by the recent judgement of the Supreme Court.

The essence of a modern regulatory process, even of the appellate process is transparency. If a TDSAT judgement were to emerge during the course of the Trai consultation process (and not be challenged again in court and thereby de facto terminating the outcome of the process) all of us, particularly phone subscribers, would be that much better informed by a well-structured discussion on the merits of the judgement.

A similar process has also played out in the case of British Telecom "" Mercury interconnection case between the U K Competition Commission and Oftel.

Is the limited purview of the proposed unification a straitjacket for the sector? This misunderstanding was partially self-afflicted by Trai; using (arguably) ill-chosen citations of Malaysia, Australia and a few other countries, detractors have claimed that the entire range of services, particularly long distance, be brought under the purview of a unification scheme, reiterating the hoary chestnut of 'convergence'.

These objections are red herrings, serving merely to detract attention from the main issues of unifying the WLL coverage of basic service and the mobile services of cellular operators. Long distance services, while certainly having the need to be integrated with the other services, are qualitatively different from 'last-mile' services.

Their nationwide licences are relatively cheap (although still high by international norms) and other operators have de facto long distance carriage rights for the circles in which they are licenced, and more refined interconnect terms will solve many of the discrepancies.

The crux of a move to licensing unification in the operations of cell and basic service providers relates to four remaining discrepancies: (a) iniquitous licence and entry fees; (b) differential roll-out obligations; (c) unequal allocation of spectrum; and (d) asymmetric regulatory treatment of their respective services (as for this last issue, the basic principle of regulation is that 'like services need to be regulated alike').

Having said this, the proposed convergence process might be improved and made acceptable to all parties. For one thing, rather than charge the basic service providers, as has been proposed in the paper, recompense the cellular operators.

This will better serve to keep tariffs low and will benefit consumers, rather than having the additional licence fees proposed being loaded on to tariffs. Increased choice and improved access is better served by reducing rather than increasing licence fees.

Accordingly, a promising way out of the current impasse is to allow WLL operators to provide unlimited mobility and simultaneously provide 'fair compensation' to the cellular licencees by allowing the latter to pay a lower revenue share to partially offset the past high entry fees paid.

What constitutes 'fair compensation' to the cellular operators for relinquishing their collective exclusivity over unlimited mobility? A good approximation to the premium that a cellular operator would place, ceteris paribus, circle-wise, on the privilege to offer unlimited mobility (but without the rollout obligations of the Basic Services Licence) would be the differential in the competitively bid amount paid by the fourth cellular operator (NOT the initial first and second licencees) and the entry fee for the Basic Services Licencee. Remember that the fourth cellular operator was allowed in without any demand for compensation by the earlier entrants.

Then, once this 'fair compensation' allowed for the cellular operators is determined in each circle, they may be permitted to recover this amount through payment of a lower revenue share, for example, at 6 per cent of annual gross revenue in category 'A' circles as against the stipulated level of 12 per cent of annual gross revenue.

As and when the Net Present Value (NPV) of future deductions (from revenue share obligations) "" calculated with reference to the date of start of this arrangement, based on a pre-specified rate of discount "" equals the amount allowed to be recovered, the stipulated revenue share percentage for all players should be brought down to a new lower level, in line with international practice.

Secondly, the administrative spectrum pricing regime today does not reflect the marginal value of this scarce public resource. Additional spectrum, at least, should be allocated through auctions, and carefully designed processes will always overcome any 'irrational exuberance' of bidders.

Failure to migrate to a mechanism that 'prices' the scarcity value of spectrum efficiently has the potential to bring on a policy and legal headache that may throw one more spanner in the wireless segment in the not-too-distant future.

Third, in any proposed move, considerations of universal service will continue to remain a spoiler, and an issue that will moreover be used to the hilt by the incumbent public sector fixed services operator to its advantage.

The administrative roll-out obligations bundled with the fixed service licences, which have never been seriously adhered to anyway, might be profitably scrapped, and the cost of rural network rollout borne by the Universal Service Fund (USF), which is being increasingly better structured.

This does not mean that there should be any laxity in enforcement of roll-out obligations under the new dispensation (otherwise the perception that telecom reforms in India have been elitist will be accentuated).

However, the expectations of rural telephony entitlement should be sufficiently tempered in line with resources available with the USF. Over enthusiasm regarding this aspect can easily undermine the credibility of an otherwise laudable programme.

The discussion initiated by Trai is a move towards a rationalisation of the licensing structure. In the context of an attempt to get the big pieces of the telecom jigsaw in place, the Trai's paper is an appropriate step.

Within these pieces, there will be smaller ones that are out of sync, and these need to be shuffled, corrected or thrown out in due course for a complete picture to emerge.

The telecom sector in India is one of the most litigated in the world and the last thing we want is for the forthcoming TDSAT order (or a policy decision) to get bogged down in the course of a challenge on an ill thought aspect. To that extent, and much more beyond, the Trai paper is a very welcome one.

urjitpatel@hotmail.com

(The author is with IDFC. The views expressed are personal)