Four years after the first telecom policy, it seems that the powers that be have finally understood the domestic telecom sector's needs.

The recent Internet policy for private operators could be the precursor to the new telecom policy, where in the government did not hold back any punches, with virtually no restriction on the number of players and minimal licence fees. The Prime Minister's Council on Trade and Industry also has similar ideas about the telecom sector. It has mooted total convergence of technologies, which will break across all existing monopolies in the sector. If implemented, the system will do away with segment-specific licences and, instead, allow an operator to provide the entire spectrum of services ranging from basic and cellular telephony to Internet and data services, all under one roof.

What this essentially means is the end of bidding systems and also any cap on service providers. This is akin to a widely popular Finnish model - wherein any number ofservice providers can co-exist with each other. The logic being that competition takes care of any market imperfections. This will also increase the scope for cross-subsidisation, since the same entity might provide basic and cellular services in the same circle. But this will prove to be a boon for the subscribers owing to lowering of costs.

The group, in its report submitted to the PMO, has suggested an alternative for licences, which entails an auction of a frequency spectrum, after which the bidders will be free to decide the manner of its utilisation. In essence, this move will help remove the blot on the earlier telecom policy-- the current licensing regime, which has put paid to the growth of non-metro cellular operators. The move will be a godsend for operators who have been paying licence fees, which was akin to an advance tax. The ownership of an entire frequency spectrum, with the liberty of utilisation, could enable an operator to operate the spectrum for anything from broadcasting to telephony.Also depending of the manner in which it is implemented, a frequency spectrum could do away with geographical limitations.

Another proposal the council has mooted is that of a revenue-sharing arrangement between the government and the operator. Payment of 10-15 per cent of revenues earned by the service provider will compensate the government for any losses caused by discontinuing the licence-fee regime.

On the flip side, a revenue-sharing regime will enable the operator to comfortably break even in a shorter period, especially since the removal of the gargantuan licence fees will now enable the operator certain liberties. For example, logically, the fixed cost per subscriber should be inversely proportional to the number of subscribers. However, in the licencing regime, the fixed cost has proven to be high initially, as a small subscriber base contributed less for bearing licence fees, equipment costs, interest and developmental charges. Any delay in the realisation of projected revenues further delayedcash flow, thereby putting the lenders to these projects at risk. The extension in the licence-fee payment period did provide some relief. But now the operator will be able to cut his coat according to his cloth.

Lastly, for India to take the next step into a networking superpower, the proliferation of Internet and e-commerce is necessary. This will require the enactment of cyber laws, thus eliminating the archaic Indian Telegraph Act, 1885. According infrastructure status to telecom will also help immensely. At the moment, India must implement these measures quickly, and also keep itself abreast of transformations taking place globally. Relevant changes in this context must be implemented in the country from time to time.

Oil

One would expect that sagging domestic oil reserves would get a boost after the passing of the Oil Field Regulation Bill by the Lok Sabha, which accords sops like a 100 per cent tax exemption for the first five years of exploration. But whether this will lead to anysignificant increase in oil production in the next few years is still doubtful.

India's strong legal framework (as compared to countries like Russia and Vietnam) could come in handy, especially since the company that strikes oil has a right to produce it in that field. However, the problem in India is that out of the 48 blocks proposed to be given out, majority of them are yet to be explored.

Today, approximately Rs 300-400 crore is spent on exploration per field before any conclusion regarding viability can be reached. Hence, we are looking at investments worth Rs 18,000 crore for exploration alone in half of the 48 fields announced by the government.

Thus, looking at the trend in international prices, it is highly unlikely that any domestic or foreign company will be willing to invest such amounts in exploration without assured returns. Moreover, exploration activities the world over have declined as companies are waiting for prices to improve before committing additional funds.

The only silverlining, therefore, is that oil-rig rentals are at their historical lows ($25,000 per day for offshore rig and Rs 15 lakh per day for onshore rig). Intriguingly, in India, the explored fields have only marginal oil reserves, estimated at two million tonnes, which is barely the output of Neelam oil fields shut down recently. All this casts a question mark over the policy of boosting explorations, and subsequently production in India.

(With contributions from Percy Dubash and Manish Saxena)