DoT's move to classify fixed wireless phone (FWP) services as limited mobile services has generated heated debate. While some industry experts say the decision is not in the consumer interest as it will increase tariffs and adversely impact rural telephony rollout, others have called it an "exact replay" of the earlier WLL(M) strategy to enter a sector through the backdoor. Yet others see it as a correction of existing anomalies...

Is DoT justified in classifying FWP service as a limited mobile service?

S.C. Khanna: DoT is not justified in classifying FWP as a limited mobile service. FWPs are bulky since they have an integrated NIU and antenna as a desktop telephone terminal. It can, therefore, never be equated with a mobile phone. All FWP connections are provided on wireless technology, which is fixed in the subscriber premises. Mobility should not be mixed up with portability. The technical specifications issued by the Telecommunication Engineering Centre, the highest telecom standards body in the country, in May 2001 and amended on December 3, 2001, declared fixed wireless terminals as part of fixed terminals. These instruments are confined to the premises.

T.V. Ramachandran: Yes, DoT is completely justified in taking the above decision. The word "fixed" is clearly understood and does not require a separate definition in either legal or common parlance. In telecom, the licensor and the regulator have repeatedly clarified that for a service to be classified as "fixed" it has to be restricted within the customer premises. Limited mobility refers to the provision of services that are not restricted to the subscriber premises, but offer mobility within a city/town (in telecom parlance, a short distance charging area –­ SDCA). As these so-called FWPs were being used over a much wider area –­ that is, within the SDCA –­ and were not being confined to the subscriber premises, they were clearly limited mobility services. This view has also been upheld by the Telecom Disputes Settlement Appellate Tribunal (TDSAT) in its order on Tata Walky, wherein it has stated: "We are, however, left in no manner of doubt that the `Walky' service of the petitioners could not be regarded as anything else than WLL(M)." The DoT decision has been taken after giving fixed operators enough time to conform to the definition of fixed services. It was the continuing non-compliance of these operators that resulted in DoT proclaiming that wireless phones such as Walky should be treated as WLL(M) services.

Rajat Sharma: This classification by DoT should have been done much earlier. Technology is now correctly segregated into two categories, wireline and wireless. Classifying FWPs as a limited mobile services has created a level playing field for all operators.

Prashant Singhal: The mobility services offered by FWPs are restricted to a specific geography and do not allow roaming over a large area of operation, either domestic or international.

Mahesh Uppal: This classification is incorrect. The vast majority of FWPs are large unwieldy desktop phones that cannot be carried conveniently like a cellphone or even a portable WLL phone. Treating them alike is akin to treating a clock and wristwatch in the same way just because both can be used to tell the time. While some people are known to carry their FWPs with them and some abuse does occur, this should not be an excuse to punish all FWPs. The two products are quite different and are not generally substitutes for each other. In regulatory terms, the "relevant market" for the mobile phone that one carries in the pocket and the one that sits on the desktop, is different.

We should also appreciate that many of the difficulties and anomalies relating to FWP are to do with the rather unorthodox way the access deficit charge (ADC) regime is being implemented. The current problems would not have occurred if the ADC was not levied on a call-by-call basis and instead, the subsidy was given in a targeted fashion to phones that were provided below cost to rural and other disadvantaged groups.

Given that FWP services have been the main driver of fixed line growth, what will be the implications of this move on future growth in this segment?

S.C. Khanna: This move will result in negative growth in the fixed line segment as FWPs have been the main driver of the growth. Currently, we have over 47 million fixed wireline and wireless phones and we hope to achieve 70 million phones (wireless and wireline) by end 2007 as part of the government's target of 250 million phones by end 2007. By imposing ADC on FWPs at par with limited mobility phones, we are stopping healthy growth of telephony in the country.

Ever since the basic telecom sector was opened up for private competition in 1994, the government has been encouraging the deployment of wireless technology for providing basic services. Basic telecom operators adopted wireless as the quickest means of increasing the teledensity. FWPbased fixed line services are filling the gap for both rural and urban connectivity. TRAI statistics show this clearly. Private service providers have installed over 5 million FWPs in the last two years. Currently, they are adding 250,000 to 300,000 phones every month. If we depend only on wireline rollout, it will take years to achieve the target. Rural networks can be rolled out very fast through fixed wireless as compared to wireline.

T.V. Ramachandran: The primary driver of growth in the last several years has been the mobile industry, which has been growing at a CAGR of around 92 per cent per annum since 1999. For the past several months, however, mobile growth has been hampered due to the unfair competition from these mobile services pretending to be fixed services. They were incorrectly increasing the price of regular mobile services, thus unfairly penalising 60 million cellular subscribers.

In any event, as these so-called FWPs were being advertised, offered and used as mobile services, their growth was also actually taking place in the mobile wireless segment only; it was only wrongly being reported as fixed line growth. The DoT decision correctly classifies these services as limited mobility services and will restore a level playing field among all mobile services. It will also remove the incentive for operators to masquerade their limited mobile services as fixed services in order to evade payment of ADC.

Rajat Sharma: It will certainly impact the growth of the fixed line segment in which FWP was a driver of growth. However, one will have to wait and see how the cost increase deters growth in this segment.

Prashant Singhal: With approximately 6 million FWP subscribers in India, who account for over 90 per cent of the basic connections during the last two years, this move is bound to have positive and negative impacts on the players. The ruling could result in FWP services being subjected to an additional ADC, which would result in a hike in call tariffs, thus leading to a setback in the expansion of such services. However, it could also benefit CDMA players since it implies that fixed wireless services can now lawfully pitch themselves as providing 100 kbps plus wireless service on the move, which should encourage the use of FWPs for car and internet connectivity at a much cheaper cost than the GSM EDGE services. Even as they battle with additional financial costs, CDMA players could actually offset these with a wide array of new service offerings.

Mahesh Uppal: The chief implication is the continued absence of competition in the so-called basic service market, of which BSNL/ MTNL have over 90 per cent share. There is no way that competition can occur in the fixed line segment if fixed wireless and mobile are treated as synonymous. The vast majority of new phones –­ whether on our desks or in our pockets –­ will be wireless. However, while a mobile phone stays in the pocket, fixed phones have the advantage that they can be shared by multiple users in a home, office or community. So, support to FWP is desirable from a public policy perspective.

What will be the likely impact of the DoT decision on existing subscribers, who could face a tariff increase of over 70 per cent on account of the ADC levy?

S.C. Khanna: The payment of ADC for FWP services will add Re 0.30 per minute. Subscribers will be affected by this escalation in tariffs. The decision is against the interest of the common man. Unified access service providers have shown remarkable success with FWP/FWT as well as public PCO applications. There are approximately 800,000 PCOs being run by wireless terminals, which have been providing direct and indirect employment to lakhs of people. The payment of ADC will be the death knell of this segment, affecting employment and leaving large sections of the country without access to communication.

T.V. Ramachandran: The decision will benefit 60 million cellular consumers who were hitherto being unfairly penalised as they were being forced to pay higher tariffs because of the subterfuge by fixed operators. These consumers will benefit as their tariffs will now become more affordable. As regards consumers of mobile (pretending to be fixed) services, they have unfortunately been lured into subscribing to these services under false pretences. However, as tariffs are under forbearance, the fixed operators can continue to offer affordable tariffs to their customers. But they cannot be allowed to violate the law of the land in the name of consumer interest.

Rajat Sharma: The market is already witnessing stiff competition. One will not see a directincrease in tariff structures. Margins will get squeezed due to this large competition, though one can expect a 20-40 per cent increase in tariffs.

Prashant Singhal: As per public reports, FWP subscribers account for over 90 per cent of the basic connections. Hence, the TDSAT order could lead to a setback in the expansion of basic connections in India. Moreover, with companies passing on the additional ADC costs to subscribers, it could also lead to a sharp increase in call charges and the possibility of an overhaul of the array of WLL services they currently offer.

Mahesh Uppal: FWP tariffs will have to increase if the ADC subsidy is withdrawn. It does not have to be so drastic a rise though.

Given that FWPs were expected to be a tool to enhance rural connectivity, what effect will this have on rural telephony?

S.C. Khanna: It will adversely affect the development of rural telephone services as it is very difficult and expensive to roll out wireline connections in this sector. In fact, the licensing conditions had categorically stated that wireless and fibre would be the "preferred" technologies. The deployment of fixed wireless technology has enabled the most incredible uptake of fixed telephony services, even in the remotest and most inaccessible areas where wireline would have never reached. By imposing ADC on FWPs, the government is discouraging the growth of fixed telephone services.

T.V. Ramachandran: This development will, in fact, lead to further enhancement in rural connectivity. This is because the ADC funds go predominantly to BSNL, which has been the primary driver of rural teledensity growth. By plugging this loophole which was being exploited by some private players, the government has ensured that BSNL gets its legitimate ADC funding. Further, it may be noted that the spread of access services in rural areas comes under the ambit of the USO Fund and this USO subsidy is made available to operators in a transparent fashion, based on a net cost-to-serve principle. Fixed operators interested in rolling out services in rural areas through wireline or wireless would be able to access USO funding to achieve this objective.

Rajat Sharma: For private operators to provide FWP service, point of interconnection at every SDCA is needed, which adds immensely to capex and opex costs. Migration to limited mobility will see the elimination of these costs on interconnection, thus offsetting the impact of ADC levied on calls. Hence, this step does not really diminish the potential to attract customers in rural areas.

Prashant Singhal: Considering the TDSAT judgment, BSNL could easily hope to recover nearly Rs 5 billion as ADC. If complied with, there would be an additional bursary of revenues for development of rural connectivity infrastructure. At the same time, it should mean that FWPs be used as basic and not WLL(M) sets. Service providers offering full mobility could thus capitalise on the full mobility, cellular craze as a moot point for entering the rural market.

Mahesh Uppal: Dropping of support to FWP can hurt those users in rural areas who do not expect to have early access to their own personal mobile phones.

Is this development in any way similar to the backdoor entry of WLL services into the mobile segment?

S.C. Khanna: The question of a backdoor entry by WLL services into the mobile segment does not arise. It is not possible or convenient to carry FWPs while moving about as the instrument is quite bulky, unlike mobile phones which can be carried about. I would like to draw attention to the TRAI regulation of January 6, 2005, specifically allowed FWPs to retain ADC. Charging of ADC on FWPs would mean an undue enrichment of the incumbent by Rs 10 billion per annum. TRAI has stated that it would review the ADC on FWPs through an open public consultation process. Its order is still awaited.

T.V. Ramachandran: The deception by fixed operators in trying to pass off their mobile services as fixed services is an exact replay of the WLL(M) strategy. However, in the case of WLL(M), the fixed operators were pretending that their fixed services were actually mobile services; in the present instance, they are pretending that mobile services are actually fixed services. The first case was a backdoor entry into mobility, now it is a case of a backdoor entry into fixed services.

Rajat Sharma: Not exactly. There were many grey areas that have now been eliminated; for example, some operators used FWP services to provide citywide mobility, thus eating into the cellular operators' space. Moreover, there was no ADC on international calls originating and terminating on FWPs. Thus, this correction in defining the technology has only created clear visibility in terms of which services are under wireline and which under wireless. The more important issue now is to rationalise ADC, which should be slowly eliminated altogether.

Prashant Singhal: As per the licensing conditions, FWP service has to be provided within the subscriber premises; wherever it is not, it has to be treated as WLL(M). However, it must also be understood that the desktop handset is not something a user can carry as a replacement of the mobile phone. That is an additional benefit for the FWP user, but it may not be appropriate to treat it as a mobility product even though it has the features of a cordless phone and subscribers could carry it up to a few metres.

Mahesh Uppal: No, this is quite different. There is a real difference between an FWP and a pocket phone. It must be recognised though that regulatory anomalies have created some perverse incentives. There is need for a quick move from the current ADC regime to one where subsidy is targeted at those phones that are provided below cost to serve specified categories of users, especially the rural poor, irrespective of who serves them, BSNL or anyone else.