1. Virtual network players’ India foray faces cost barrier

Virtual network players’ India foray faces cost barrier

VNOs are not licensed telecom operators but players armed with marketing skills who buy bandwidth and airtime from licensed operators and retail them to consumers.

By: | New Delhi | Published: May 2, 2016 5:59 AM
telecom The telecom commission’s new set of rules, is unlikely to give the government’s Digital India programme a boost.(Indian Express)

The high pan-India entry fee at Rs 7.5 crore for a 10-year period and double payment of revenue share licence fee and spectrum usage charge, outlined in the new policy framework, could keep major global VNOs (Virtual Network Operator) away from India, telecom industry experts believe. Moreover, the new guidelines aren’t likely to help smaller domestic players like Internet service providers (ISPs) or operators of common service centres, they point out.

As such, the telecom commission’s new set of rules, is unlikely to give the government’s Digital India programme a boost. Moreover, communications & IT minister Ravi Shankar Prasad’s plans to turn around state-owned operators BSNL and MTNL, via VNOs, could remain just that.

Asking VNOs to cough up an 8% licence fee and a 5% spectrum usage charge (SUC) — of adjusted gross revenue — can’t help players, analysts say. These fees are in addition to levies being paid, to the government, by the licensed operator from whom the VNO has bought the bandwidth.

For perspective, the entry fee for a pan-India unified licence, by which operators can provide various services like mobile services, broadband and Internet, national and international long distance, comes at R15 crore for a 20-year period.

VNOs are not licensed telecom operators but players armed with marketing skills who buy bandwidth and airtime from licensed operators and retail them to consumers. Typically operators with poor selling abilities but a good infrastructure team up with VNOs to shore up their revenues.

“The high entry fee coupled with licence fees and SUC will make VNOs uncompetitive,” an industry watcher asserted. He believes that the licence fee for VNOs should just be nil or just a token amount of R1-2 lakh like it is in most

countries.

In countries like UK, USA and Germany there is no entry fee for VNOs. In South Korea the fee is Rs 3,921 while in Hong Kong it is R18,905. The highest charge is in countries like Italy and France at Rs 49 lakh and Rs 14 lakh respectively.

Telecom minister Ravi Shankar Prasad had recently told FE in an interview that he will adopt a flexible approach towards framing guidelines for VNOs. The recommendations regarding high entry fee and double taxation were made by the Telecom Regulatory Authority of India (Trai) which were accepted by the telecom commission. Industry sources said that since the matter is before the telecom minister now for a final approval, he should look into these issues and rectify them or else the whole plank of Digital India, broadband penetration in rural areas, smart cities and revival of BSNL/MTNL will get defeated.

“I have provided Internet Service Providers’ licence to all common service centres (CSCs). All village post offices will also be turned into CSCs and in turn ISPs. These will be allowed to become VNOs. This combined infrastructure will create an alternate model of digital delivery. All this, infrastructure will give a leg up to rural marketing,” Prasad had told FE.

However, if the high entry fee is not rolled back and also the payment of licence fee and SUC, it will be difficult for VNOs to compete with mobile operators as their tariffs will be uncompetitive and find no takers.

For instance, if an entity agrees to become a VNO of BSNL it will need to pay an entry fee of `7.5 crore following which it will buy airtime in bulk and sell it to consumers. These revenues will attract a licence fee, SUC and other levies. The high costs will prevent it from being able to offer tariffs that are competitive with those of Bharti Airtel or Vodafone. Meanwhile, the revenues earned by BSNL from the VNO will attract a licence fee and SUC.

Industry sources said that the licence fee and SUC should be charged from one entity — either the licensed operator or the VNO, not both.

However, government sources defended their move stating that if token licence fee is charged then there’s a possibility of fly-by-night operators entering the fray at the cost of serious players. On payment of licence fee and SUC by both the entities they said that was required since VNOs will buy bulk airtime so will get discount and may retail it at a higher charge so the government will lose revenue

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