Till date, almost all licences to provide basic and cellular services spanning the entire country have been issued. These include cellular licenses for services in India's four metros - Mumbai, Delhi, Chennai, and Calcutta - cellular licenses in 19 circles covering the entire country, paging licenses to more than 20 operators, and nine basic-services licence. But several loopholes in the formulation and interpretation of the previous policy led to a situation wherein the new entrants were saddled with enormous costs far beyond their projections.

Reports suggest that in the soon-to-be-announced new telecom policy basic-service providers may be free to tap thecellular segment and vice- versa. What this essentially means is that the bidding system will come to an end, and any cap on service providers will be waived. This will be akin to the Finnish model, wherein any number of service providers can co-exist with each other.

The logic being that competition will take care of any market imperfections. But it has to be noted that there will be immense scope for cross-subsidisation since the same entity might provide basic and cellular service in the same circle. But this will prove to be a boon for subscribers owing to lowering of costs. The new policy might incorporate a clause, whereby, the licence fee will make way for a one-time entry fee pegged at one-fifth the licence fee. This will be a godsend for operators who have been paying licence fee akin to an advance tax.

There is no doubt that the current licensing regime put paid to the growth of the non-metro cellular operators. The fact that loans to telecom projects are of a seven- year maturity exertedtremendous pressure on the cellular operators to meet their licence-fee obligations. Initially, the licence period for cellular operators was 10 years (recently extended to 15 years), and their annual licence-fee payment is computed as follows- Y/11 for the years 1 to 5 and 1.2Y/11 for the years 6 to 10, where Y is the total licence-fee obligation for a 10-year period. For most of the circles, the high licence fees almost constitute 80 per cent of the project cost.

Logically, the fixed cost per subscriber is inversely proportional to the number of subscribers. This proved to be high initially as a small subscriber base has contributed less for bearing licence fees, equipment costs, interest, and developmental charges. Any delay in the realisation of projected revenues further delayed cash flow, thereby putting the lenders to these projects at great risk. The extension in the licence-fee payment period did provide some relief. But the government should ensure a revenue- sharing arrangement from now onwardsfor the operators to comfortably break even.

In sharp contrast, the metro cellular operators have paid very low licence fees for the first three years, and are slated to pay licence fee linked to subscriber levels. Currently, a metro cellular operator will have to pay around Rs 6,023 per annum as licence fee. All this could change in a revenue-sharing scenario. But in the event of a player like Mahanagar Telephone Nigam (MTNL), which provides basic services in Mumbai and Delhi, entering the fray in Chennai and Calcutta for basic services and also becoming the cellular operator in these cities, there could be immense competition for the private operators.

At least, the government has given ample indication that it will provide revenue sharing as a criterion for the new basic-service circles. Moreover, the 'last mile linkage '(allowing the ISP to provide connectivity directly to the subscriber without the intervention of the basic-service provider) clause in the new ISP policy should safeguard the interestsof private ISPs, who now try to bypass players like MTNL.

Moreover, to ensure the proliferation of Internet and e-commerce, cyber laws will have to be enacted, putting an end to the archaic Indian Telegraph Act, 1885. According infrastructure status to telecom will provide ready access to funds from entities like the IFDC and other financial institutions. Last but not the least, the ending of DoT's monopoly over domestic long-distance telephony should usher in bigwigs like VSNL, MTNL, and Reliance Telecom into the sector. Considering the convergence of telephony and software, it is possible that VSNL's monopoly over international telephony might end earlier than 2004.