Telcos resist differential licensing, unbundling of layers; say move regressive

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November 4, 2020 4:25 PM

If government decides to implement such an unbundled regime, there should not be any mandatory migration until the validity of existing licences, Airtel said.

The validity of the licence will range between three months to two years, depending on the purpose for which the trial is being conducted.The validity of the licence will range between three months to two years, depending on the purpose for which the trial is being conducted.

Telecom operators have collectively opposed any move to introduce differential licensing via unbundling of various layers, arguing that the proposal goes against regulatory consistency and would wreak unknown and unpredictable impact on investments made, leading to investor uncertainty.

The operators Reliance Jio, Vodafone Idea, and Airtel, as well as industry body Cellular Operators Association of India (COAI) have asserted that such unbundling is neither necessary nor desirable.

Debt-laden Vodafone Idea has told the Telecom Regulatory Authority of India (Trai) that that there is an urgent need to address underlying issue of poor financial health rather than recommend or implement yet another licensing framework that would “create ambiguity and additional challenges”, and deter investments.

India’s largest telecom operator Reliance Jio — in its submission on Trai’s discussion paper ‘Enabling unbundling of different layers through differential licensing’ — has said that a converged licence for network and service layer offers clarity, and certainty to an operator making investment in the network. Any move to split the functions would be “regressive” and increase the sector’s compliance burden.

“We submit that any step to separate a network licence will be a regressive step which will introduce uncertainty in the licensing regime, increase the compliance burden and adversely impact the future investment in the networks,” Jio said.

The telco has opposed the proposal to introduce differential licensing, for unbundling different layers, saying it goes against the principles of regulatory predictability and consistent policies.

The ‘Unified Licensing regime’ is culmination of many evolutionary steps, it said and added that process of unification is yet to be completed, as the “artificial boundaries” of licence service areas and services still persist. Hence, complete unification and convergence “is still a few steps away”.

“Thus clearly, the proposal to introduce a disruption in the form of seeking to unbundle network and service layers with a completely new type of licensing regime would introduce a great level of uncertainty in the system, with unknown and unpredictable impact on investments made, leading to investor uncertainty,” Jio said.

Responding to Trai’s paper, Bharti Airtel asserted that there must be no fundamental change to licensing regime, “which in any case is working fine”.

Citing the massive investments that have been ploughed into the sector, Airtel said priority areas like strengthening of telecom infrastructure and broadband services would require enormous fund infusion. The investment requirements is estimated to be about Rs 2,00,000 crore over the next 2-3 years for spectrum, technology, equipment and fibre backbone.

“For generating such amount of investment, government needs to provide incentives, reduce regulatory cost, provide appropriate policy and financial stimulus to the existing telecom service providers under the current licensing framework rather than changing the licensing regime itself,” Airtel said in its submissions to Trai.

It said existing licensing regime supports a layered approach including infrastructure providers. Any structural change in the licensing regime leads to “regulatory uncertainty” and will deter investors from investing in the future.

“…there is no requirement to introduce network-specific licences as the industry has already made sufficient investments in the sector for acquiring spectrum resources and enhancing networks and increasing their coverage footprint,” Airtel said.

In case Trai still decides to introduce ‘Network Service Layer Licences’, such players should be permitted to take the Service Delivery Category licences, and “no worse off should be ensured for existing licensees”, it contended.

Airtel noted that government support is needed for the sector in form of rationalisation of taxes and levies. It also highlighted the need for exempting levy of GST on licence fees, spectrum usage charges and payment of spectrum acquired in auctions; as well as refund of unutilised input tax credit immediately.

If government decides to implement such an unbundled regime, there should not be any mandatory migration until the validity of existing licences, Airtel said.

Terming unbundling as “neither necessary nor desirable”, Vodafone Idea has pointed out that networks follow a gestating life cycle. Ushering in changes that require business models to be re-configured at a time when existing investments are not already fully recovered, would be “counter-productive”, VIL warned.

The lack of investments in the sector cannot be attributed to the current construct of the licencing regime. Rather, it is due to the “severe financial stress that is gripping the sector”, it said.

The prices remain below cost, and there is an urgent need to increase industry’s revenues.

“There is a need to therefore address the underlying issue of poor financial health rather than recommend /implement yet another licensing framework that will in fact…create ambiguity and additional challenges, which are likely to further deter investments from flowing into the sector,” VIL said.

There is an urgent need to address core issue of high regulatory levies, and requirement of floor pricing, it added.

“…we would also urge the Authority that in case any significant changes are proposed to be made in existing licence policy, then a clear compensation methodology should also be enumerated, especially for investments made in last 10 years,” VIL said.

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