Dialling a new era

Approval of the New Telecom Policy (NTP) by the Cabinet on May 31 gave the Indian telecom sector something to cheer about as it has been embroiled in a number of controversies recently. The telecom sector is a key contributor to the Indian GDP and it is widely expected that the sector’s contribution will increase if the policy is implemented quickly and efficiently. While abolition of roaming charges and extending Mobile Number Portability (MNP) at a national level swept the headlines, details on spectrum, impetus to domestic manufacturing and Internet telephony grabbed few eyeballs.
The new policy has enabled subscribers to enjoy free roaming and retain their mobile numbers in case they opt for a different service provider in some other circle. Though cleared by the Cabinet, the dream of turning India into one telecom circle and making one nation-one-number concept effective will take time as the Department of Telecom (DoT) is yet to work out the modalities. Once implemented, service providers that are already struggling to maintain margins will have to forgo a part of their revenues which stem from roaming charges. However, free national roaming is a global phenomenon and service providers will benefit from increased usage in the long run owing to the absence of roaming charges.
The NTP proposes a unified licensing framework under which single nationwide licence would be required across service areas. Delinking the licensing of networks from service delivery will make it technology-agnostic and flexible to operate. Currently, service providers use specific frequencies to provide GSM or CDMA services. Under the new framework, a licensee would be permitted to offer any telecom service on a non-exclusive basis, any time, anywhere, using any technology within its licence area.
The policy also advocates delinking of spectrum from licence issuance and making spectrum available at market-determined prices. The move is expected to boost transparency and revive investor confidence in the sector.
The new policy stresses that spectrum will be refarmed and conditions related to refarming, spectrum pricing and participation of service providers will be decided by the empowered group of ministers. The issue has been a point of contention, with incumbent service providers opposing Telecom Regulatory Authority of India’s (Trai) proposal on refarming norms whereby some service providers will have to switch from 900 Mhz band to 1,800 Mhz at market-determined rates.
The NTP also provides for clarity on the spectrum to be made available every five years, enabling service providers to plan more efficiently. The Cabinet, though, has put a red flag on proposals to enact a separate law for spectrum management (the Spectrum Act) and to set up a finance firm for the sector. The Cabinet also maintained that the government would retain the policy-making function and would also review the Trai Act.
The draft NTP for the first time recognised the need of giving infrastructure status to the telecom sector. This move is aimed at addressing the requirement of uniform policies to facilitate speedy rollout and issues related to funding, pricing, taxation, competition and security. Also, the policy advocated seamless delivery of converged services in a technology-neutral environment, covering services, networks and devices.
The new policy aims at increasing penetration of telecom services in rural areas to 60 per cent by 2017 and 100 per cent by 2020 from the current level of around 39 per cent. This should significantly help in the goal of having everyone in the country connected and making communication a powerful tool.
The new policy has also led to a revision in the broadband speed to two megabit per second (Mbps) from just 256 kilobytes per second (Kbps) earlier, and it envisages 175 million broadband connections by 2017 and 600 million by 2020. It also intends to connect all village panchayats through optical fibre by 2014 and stimulate the demand for broadband services by promoting content development in regional languages. The deployment, operations and maintenance of an optical fibre infrastructure is expected to support employment generation. While subscribers will be able to access relevant content in local languages, service providers can expect a significant boost in their revenues.
The NTP aims at making India a hub for indigenous manufacturing, research and development and IPR creation, and a decision on the manufacturing policy is expected from the Cabinet in a month’s time. The Cabinet’s stance on this is important as local manufacturing of telecom equipment will generate employment and curtail India’s equipment import bill. The draft envisioned domestic manufacturing to fulfil 80 per cent of local demand with a value addition of 65 per cent by 2020 and provide preferential market access for domestically manufactured products.
The policy also aims at relaxing the norms related to Internet telephony. The move will enable subscribers to use the Internet to make local and STD calls. Internet service providers stand to gain from this step as they will be able to offer voice services along with data; however, service providers have been opposing the plan as it will have an impact on their voice revenues.
Although plans related to spectrum pooling, sharing and trading earned the government some accolades in October 2011, when the original draft was published, clarity on these plans is still awaited. The approval once again disappoints on the M&A (mergers and aquisitions) front by being silent on how consolidation between telecom service providers will be facilitated.
Everything considered, the NTP will encourage greater role for market forces and limit the discretionary power of the government, and is likely to give potential investors more clarity. However, providing a roadmap for operationalising the policy and the timeliness of its implementation is crucial to the telecom policy’s success, else the policy will be another piece of paper.

The writer is national head, telecommunications sector, advisory services, KPMG

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