Rajas lock-in period move to lock out industry growth, say telcos

Written by Anandita Singh Mankotia | New Delhi | Updated: Jan 31 2009, 05:46am hrs
Communications and IT minister A Raja's last attempt to exonerate himself of the charges of giving away new telecom licences and spectrum at throw-away prices has found no takers with all telecom operators, incumbents as well as new ones, deeming it unsupportive and a 'step backward' as it would discourage the vital foreign investment essential for expanding in rural areas. Also, it discourages consolidation of an already fragmented Indian telecom market.

All the stakeholders have communicated the same to the Telecom Regulatory Authority of India (Trai), which is in the process of formulating its response to the department of telecommunications proposal.

On Raja's instance, the telecom commission had earlier proposed that for new telecom licensees, the promoters may not be allowed to sell their equity for a period of three years. However, funds can be brought in through issue of fresh shares.

Opposing the move the Association of Unified Telecom Service providers of India (AUSPI) has said if any such provision has to be added, it must be for future licensees, hinting that the new UASL licencees weren't aware of any such provision when they applied for the licence.

The world's largest telecom operator by revenue, Vodafone, which operates in the country in a joint venture with the Essar group, and the country's second largest telecom operator, Reliance Communications Ltd, have also expressed doubts over the move stating that till now in the absence of such a clause, the telecom field progressed tremendously well and there isn't any new rational for bringing the lock-in period at this time.

Of the 50 largest telecom markets in the world, 41 have three or four operators; eight have five or six operators. That leaves India, which has 12 operators currently operating in the country, with the potential to increase still further. The most obvious consequence of this fragmentation for efficiency is in terms of spectrum, they have said.

Vodafone has further stated that inefficient operators, or more specifically operators who lack the capacity and resources for innovation and delivering greatest value, add little to the competitive dynamics but restrict efficiency. In these circumstances, consolidation also would be potentially advantageous from the customer's perspective. Competition between five or six vibrant, healthy and efficient operators is likely to be much more intense than competition among 10 or more.

The Cellular Operators Association of India (COAI) has opposed the move stating, that huge resources are required for the next phase of rollout into rural and remote areas and foreign investment would play a key role here, hence policy and regulation should be such that it attracts rather than deters foreign investment.

On the issue of how to avoid fly-by-night operators, RComm said, To the best of our knowledge, all the new licensees have already recruited lot of staff and are investing heavily for rolling out their networks in the respective service areas. To call the telecom service providers as fly-by-night operators, would be quite unfair and unjustified. Hence there is no need to impose any new condition on any of the telecom service areas whether new or old and such artificial barriers only de-motivate the industry and do not serve any purpose.

Swan Telecom, a new licencee, which has partnered with the Arabic telecom giant Etisalat and would be subject to the lock-in period policy if imposed by the government, too has been critical of the move. It has maintained that any such move would limit expansion of the companies, leading to lesser companies, which would reduce competition in the market.

Swan has also stated that as long as the shares of the promoter (who have 10% or more stake in the licensee company and whose net worth have been taken into consideration for determining the eligibility for grant of license) are purchased by a third party who continues to meet the net worth requirement under the UAS licence and continues to hold 10% or more of the total shares of the licensee company, transfers should be freely permitted in accordance with all the relevant applicable laws in India.