Policy lacks level playing field for existing players

Updated: Nov 22 2005, 05:30am hrs
Consumers will benefit by a minimum 10% drop in lower tariffs for international and long-distance calls and increased competition by new niche operators entering the market.

The reduction in the entry fee for new national long distance (NLD) licences from Rs 100 crore to Rs 2.5 crore and for new international long distance (ILD) licences from Rs 25 crore to Rs 2.5 crore would lower barriers to entry, and especially permit infrastructure providers (many of whom are not service providers) to start providing NLD services.

GAIL, for instance, took immediate advantage of this and announced that it would apply for an NLD licence.

There have been dissenting voices though. Existing NLD and ILD telecom operators are alleging discrimination, since the concessions apply only to new entrants and not to existing service providers. DoT refused to compensate the existing licence holders (mainly Bharti, Tatas and Reliance Infocomm). The Telecom Regulatory Authority of India (Trai) also was against compensating the existing licencees, stating that they had failed to meet over 40% of their roll-out obligations.

Three NLD operators (Reliance Infocomm, Tatas and Bharti) wrote to DoT seeking compensation of about Rs 2,800 crore. But, surprisingly, Sunil Bharti Mittal of Bharti later dissociated himself from this demand, and stated that he would now only seek a refund of about Rs 100 crore on the unexpired portion of the licence fee already paid by Bharti.

The finance ministry has also raised objections, stating that the revenue cut would cause a loss of Rs 4,000 million to the Central government, and protested that it had not been consulted over the reduction in entry fees and revenue sharing. But Dayanidhi Maran contends that increasing traffic would more than make up for this notional loss to the exchequer.

Another benefit to the private sector is that operators can now cherrypick areas which are remunerative. Fully-integrated operators (Bharti, BSNL, MTNL, Reliance) will benefit the most as they will be able to provide the entire range of services, including STD and ISD and Net telephony.

Access service providers (mainly Bharti, Tata, Reliance, BSNL and MTNL) would now be allowed to provide internet telephony to their subscribers, and also use the network of NLD and ILD service licensees for offering broadband and internet services, besides internet telephony. Currently, domestic users have limited choice as internet telephony is restricted to PC-to-PC calls and within closed user groups. Now internet telephony calls would be allowed to terminate on a landline (though the subscriber would require an IP-enabled handset at his end).

It is significant that stand-alone ISPs (like Satyam and Spectranet) cannot offer internet telephony to make calls within India. These stand-alone ISPs can only offer internet access and content services within India, and will not be able to enter the NLD telephony segment. This may have been a key factor behind Sifys sale.

Since it has also been decided to do away with IP II (infrastructure and fibre providers) and IP VPN licences, these players would necessarily have to migrate to NLD/ILD service licences. Companies that do not migrate would not be allowed to provide bandwidth services to corporates as per their current licence guidelines. This would adversely impact players such as Railtel, Gailtel and Sify.

The big winners would be the business process outsourcing and knowledge process outsourcing industries. Multinationals and large business houses would also benefit since the government has now permitted NLD and ILD players to directly access corporate subscribers for providing leased circuits or closed user group networks.

The author is a telecom consultant