To provide more regulatory clarity in the telecom sector, the Department of Telecommunications (DoT) has issued the new unified licensing guidelines. While the move is being seen as a progressive step, the industry feels that several policy and regulatory concerns remain unaddressed. Service providers are concerned about issues related to spectrum sharing/trading and intra-circle roaming (ICR) agreements, especially for 3G services. The sector is now awaiting the announcement of the new merger and acquisition (M&A) norms, which would be released by end-September 2013. Industry analysts share their perspective on the new unified licensing regime and its likely impact on the sector…

What is your view on the unified licensing guidelines issued by DoT?

 Pankaj Agrawal

While the implementation of the unified licensing regime is a starting point, it will not have an impact on the market because other regulatory issues related to spectrum sharing/trading and M&A norms have not been addressed. Although the new guidelines allow operators to offer multiple services under a single licence, it will not be of much use if the service provider does not have spectrum. For the regime to benefit service providers, DoT needs to provide clarity on such regulatory issues.

 Kunal Bajaj

As per the new unified licensing guidelines, the licence has been delinked from spectrum, which is a positive move. This is a step towards a modern licensing regime, which promotes competition in the market. The new guidelines will also facilitate technology advancement as well as the introduction of new technologies.

The flip side is that some service providers will be adversely affected owing to the increase in the licence fee. Also, there is no clarity on spectrum and active infrastructure sharing, which is necessary for the new regime to be effective.

There is uncertainty over the validity of ICR agreements – whether DoT will follow the existing guidelines for 3G services which do not allow such pacts or 2G guidelines that allow operators to provide intercircle roaming services in circles where they hold spectrum.

 Jaideep Ghosh

The notification of unified licensing guidelines is a positive step towards bringing clarity and establishing the norms announced in the National Telecom Policy, 2012. Inclusion of all basic services under one licence as well as delinking the licence from spectrum would reduce complexity in licence management and increase transparency by providing consistent licence conditions for all services. However, there are certain aspects of the guidelines which may require further discussions between the government and the industry. IP-1 licensees have been excluded from the unified licensing regime. This exempts these licensees from paying the 8 per cent licence fee. Further, active and passive infrastructure sharing with other licensees has been allowed. This would help in cost savings, which may be channelised towards marketing activities.

Under the current regulations, an operator can hold up to 9.99 per cent stake in a competitor in the same service area. The new guidelines, however, prohibit any form of cross-holding for unified licensees in a particular service area. While this would help in preventing a monopolistic situation, it may affect companies like Vodafone, which owns 4.4 per cent stake in Bharti Airtel, and Reliance Communications, which operates its GSM business under Reliance Telecom.

The condition for migrating to the unified licensing regime in the event of a merger or an acquisition may have grey areas such as the clause that allows the government to charge the price it deems correct for the spectrum held by the company, if allocated administratively. Further, while the guidelines allow roaming agreements among telecom operators within the same or different service areas, they prohibit customer acquisition in the spectrum band not held or technology not deployed or for services/facilities not offered by the licensee on its network. This emphasises DoT’s stance on 3G ICR pacts and may have an adverse impact on the industry.

Overall, while the guidelines are a step in the right direction, there are regulatory issues that need more clarity.

 Harit Shah

Implementation of unified licensing guidelines is a positive step for the sector. Overall, the guidelines are in line with the expectations of the industry. Under the new regime, the licence has been delinked from spectrum. Operators will be allowed to offer various services using a single unified licence, which can be purchased for Rs 150 million for pan-Indian operations. On the downside, the licence fee has been fixed at 8 per cent of the annual gross revenue of service providers, as opposed to 6 per cent proposed by the industry. Cross-holding norms have also been done away with. However, these issues are likely to be addressed in the M&A norms, which would be announced in the near future.

 How will these new guidelines affect consolidation in the industry?

 Pankaj Agrawal

The guidelines will not impact consolidation significantly except for operators which have spectrum in the 2300 MHz band (suitable for data services) and want to offer voice services. But even these operators can provide voice services over long term evolution (LTE). As per the new guidelines, Vodafone will now have to offload its stake in Bharti Airtel within a year.

 Kunal Bajaj

The unified licensing guidelines stipulate that operators will not be allowed to hold stake in other service providers in the same circle. Therefore, some operators will have to offload equity in other companies, which will be a complex process. For instance, the Vodafone Group will have to sell its stake in Bharti Airtel. Similarly, SingTel holds stake in Airtel directly and indirectly in another service provider. Hence, the parent company holding structure will become more complex.

Abolishment of cross-holding will not affect acquisitions in the sector. Even under the previous licensing regime, cross-holding was not allowed beyond 10 per cent. If an operator wanted to hold over 10 per cent stake in another service provider, it had to opt for acquisition.

Jaideep Ghosh

The deciding factor for consolidation in the industry would be spectrum holding. Decisions on acquisitions would require clarity on the M&A policy in the sector. Hence, though the new guidelines have provided an enabling regulatory environment by clarifying licensing issues, they are not expected to immediately affect consolidation in the industry.

 Harit Shah

Abolishment of cross-holding norms will require Vodafone to offload its stake in Bharti Airtel. However, the move is unlikely to affect consolidation. The government needs to come up with liberal M&A norms, which will provide an impetus to consolidation.

 What will be the impact of the government’s decision to allow internet service providers (ISPs) to offer voice telephony services on the dynamics of the voice market?

 Pankaj Agrawal

ISPs with broadband wireless access (BWA) spectrum can provide voice over LTE, but the ecosystem for spectrum in the 2300 MHz band is not yet developed for mass market mobility. At present, mobile handsets that support LTE-time division duplex (TDD) technology are not available in the market. Therefore, allowing these companies to offer voice services will not impact the market dynamics until the LTE ecosystem is developed.

Spectrum in the 2300 MHz band is suitable for providing home broadband services and offloading wireless traffic. For instance, service providers in Australia use spectrum in the 2300 MHz band to offload data traffic but not for offering mobile services.

 Kunal Bajaj

For offering voice services, technology will be the main consideration for ISPs like Reliance Jio Infocomm Limited (RJIL). So far, LTE-TDD has not been tested commercially anywhere in the world. It is not known whether the technology platform will be able to support voice services. Moreover, RJIL is likely to deploy a fixed wireless model rather than a full cellular one. Even if RJIL offers voice services through fixed wireless, the coverage will be limited to small premises. The target market for RJIL would be very different from that for other service providers.

 Jaideep Ghosh

As per the new guidelines, ISPs that do not hold spectrum have been allowed to provide internet telephony with certain limitations. Their biggest concern is the prohibition on providing voice communication to and from a telephone connected to PSTN/PLMN/GMPCS. Therefore, internet telephony services provided by ISPs without BWA spectrum are not expected to have a significant impact on the dynamics of the voice market. However, ISPs with BWA spectrum have been allowed to provide mobile voice services. This could increase competition in the wireless market.

 Harit Shah

Allowing ISPs, including companies with BWA spectrum, to offer voice services is likely to increase market competition, which will benefit consumers. However, the entry of these companies will depend on the feasibility of providing voice services in the 2300 MHz band. Spectrum in the 2300 MHz band is not considered suitable for offering voice services and consequently, ISPs will have to acquire spectrum in the 1800 MHz band in the upcoming auctions. Similarly, spectrum in the 900 MHz band is considered more efficient for providing voice services.

With the announcement of unified licensing guidelines and the hike in foreign direct investment, has the government addressed the regulatory concerns of operators? What additional steps need to be taken to provide more clarity on other regulatory issues?

 Pankaj Agrawal

There is uncertainty around spectrum refarming, the reserve price for spectrum in the 1800 MHz band, and the timeline for auction of spectrum in the 2100 MHz and 700 MHz bands. Unless the government provides clarity on these regulatory issues, operators will be reluctant to invest in expanding data services and rolling out networks. Investments in the 2100 MHz band have been limited as operators are uncertain whether spectrum in the 900 MHz band will be liberalised. Clarity on spectrum sharing/trading and M&A norms will enable existing service providers as well as new entrants to plan their investments. For instance, Telenor is a global operator and will not limit itself to the voice segment in six circles. Sistema Shyam TeleServices Limited may also opt for acquisition to expand its footprint.

 Kunal Bajaj

The government has partly addressed the regulatory concerns of operators. The biggest concern, however, continues to be the uncertainty on spectrum-related issues – the one-time fee, licence renewal, and terms and conditions for the upcoming spectrum auction. While the introduction of the unified licensing regime is a step forward, it will not have a major impact on the sector without clarity on the spectrum issue. The government needs to introduce new M&A norms to provide more clarity on issues related to spectrum sharing/trading. Mandating an operator, which plans to buy another service provider, to pay for additional spectrum will be a major deterrent to acquisition. This is because most of the acquisitions are likely to be driven by the need for procuring spectrum and for increasing the subscriber base.

 Jaideep Ghosh

While the unified licensing guidelines have provided clarity on aspects such as licensing conditions and coverage, issues related to 3G roaming pacts and spectrum pricing in the event of moving to the unified licensing regime following a merger need to be addressed. The cross-holding clause and its impact also need to be assessed. In addition, a well-defined M&A policy would further provide clarity and give an impetus to the sector.

 Harit Shah

The government is yet to address the major concerns of the industry. Allowing spectrum sharing/trading will be a positive move for the industry. The government can allow sharing of 3G spectrum rather than of 2G as the former is not fully utilised by operators currently. The government also needs to specify new M&A norms and provide clarity on whether a service provider acquiring another telecom company will be required to pay a fee for the latter’s spectrum holdings.