On New Year’s Day 2011, India’s Minister of Communications and Information Technology, Mr Kapil Sibal gave himself a 100 days to come with a new policy regime. This would attempt to fix the many anomalies and distortions in the rules that lie behind the recent scams that have marred the many successes of the sector On 11 April  at a press conference, he reported on the progress made. The broad approach that he shared offers much hope. There is, however, little room for complacency; the devil, as they say, is in the details.

Delinking spectrum from Licences

With its overwhelming dependence on wireless technologies, India has a unique stake in spectrum management. The delinking of spectrum from licensing will bring simplicity as well as transparency to managing telecom sector’s most important resource. The proposed Spectrum Act will doubtless bring a more unified and coherent approach and the promised spectrum audit will deter hoarding and other abuse of spectrum.  All stakeholders, including service providers, technologists, vendors and users, would welcome this.

We know, of course, that in case of spectrum, the agreement on the new policy is the easier part. The challenge is the migration to the regime. The government has yet to provide a date from which the new regime will come into force, or what it plans to deal with the spectrum already with operators or committed to them in their licences. Do not expect an agreement on this.

More liberal M&A guidelines

It is good to hear that government sees the need for more liberal norms for mergers and acquisition. India has over a dozen players in each service area. India can scarcely justify the resulting fragmentation of scarce spectrum supplies. Perverse rules (e.g.  underpriced licences that come bundled with spectrum) attracted non-serious players to enter the sector. New rules must help them exit it.  The limit of a minimum 6 players remain after any proposed M&A activity is good to since experts can show that competition beyond this, brings no real benefit to consumers.

Unified Licences

The government recognises the need to move to unified licences. In today’s telecom markets, it serves little to require companies to have separate licences for the hundreds of services possible using the same infrastructure. Unified licences enable companies to respond to markets as they see fit. This could unleash much innovation and entrepreneurship that could have a ripple down effect on lives and economy. They bring no obvious risk for consumers or governments. If any do appear later, rules can be tweaked accordingly.

However, as in the case of spectrum, the unified licences will die at birth if the government prices them exorbitantly. Indeed, few countries attempt to levy fees for licences that do not bring commensurate rights such as e.g. claim to a scarce resource like spectrum. A telecom licence without such rights is a veritable piece of paper with a permission to provide a service. This is no different from a licence to ply a taxi or set up a restaurant. A price above what operators pay to provide their services today would be retrograde and counterproductive.  It would be difficult to justify a price above Rs 100,000 for such a licence.

Broadband Plan

There would be concerns about the National Broadband Plan, which Mr Sibal said is now in place. The plan envisages a central role for Bharat Sanchar Nigam Limited (BSNL) which is expected to receive several thousand crores of public funds to help set up India’s National Optical Fibre Network.  Even though details are not yet public, it is difficult to agree with even the underlying approach. In today’s telecom environment, BSNL is a laggard with little evidence of skills or experience or even leadership to justify such a responsibility in an important government program.  It is simply not persuasiveness enough that it has already deployed more route kilometres of fibre than other players have.

Licence Duration

There is concern from several quarters that the reduction of the current 20 year tenure of licences to 10 years will hurt investment. Things may not turn out as bad as appears on first sight. Recall that the new licences will come with no bundled spectrum. As discussed above, such a licence is a mere authority to provide services. While we cannot underestimate the mischief makers, it is unlikely that such a licence could come with a fat price tag.  Indeed, one would reasonably expect such licences to be renewed almost automatically. The reduced tenure will provide the government the option to act in exceptional cases. It is unlikely to worry serious players. More so, because much of their infrastructure is already in place and future investments do not present the kind of risks facing a Greenfield investor.

It is clear that India is moving towards a regulatory regime that is more in line with international best practices. Its success will depend on how well and robustly it manages the transition.