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To ensure more competition and to further liberalise the long distance sector, the Department of Telecommunications (DoT) has taken a bold initiative to lower entry barriers, despite its differences with existing long distance operators.

DoT has reduced the annual licence fee payable by telecom operators from 15 per cent of the revenue to 6 per cent. The reduction will be applicable to all national and international long distance operators (NLDOs and ILDOs), existing and new.

Further, it has slashed the entry fee for both NLD and ILD services from Rs 1 billion (for NLD) and Rs 250 million (for ILD) to a uniform Rs 25 million. It has also done away with the rollout obligations necessary for acquiring NLD and ILD licences.

Once the new policy takes effect on January 1, 2006, long distance calls within and outside the country are likely to become cheaper by at least 9 per cent.

DoT's move is directed at increasing competition in the segment, attracting a larger number of players, increasing long distance traffic and bringing down prices. The move is also in line with the communications ministry's OneIndia plan, which aims to remove differential tariffs within the country.

Although existing players such as Bharti, Reliance Infocomm, Videsh Sanchar Nigam Limited (VSNL) and Bharat Sanchar Nigam Limited (BSNL) have some reservations about the reduction in licence fees, new players who are likely to join the fray, such as Hutch and Idea, have welcomed the move as it will bring down the cost of providing services as well as entry-level costs.

According to T.V. Ramachandran, director-general of the Cellular Operators Association of India (COAI): "Lowering the entry barrier for long distance services to Rs 25 million and bringing down the annual licence fees to 6 per cent of revenues (including 5 per cent contribution to the USO Fund) for all telecom services is a laudable initiative and is in line with international practices".

The new policy also opens up the long distance sector for a number of different players. For instance, the government has now allowed infrastructure service providers with only fibre optic networks (IP-II) like GAIL, RailTel and Power Grid, and IP-VPN licence holders to migrate to the ILD and NLD business on payment of the entry fee. In addition, telecom service licences will now be issued to companies with or without prior experience in the sector.

The net worth and paid-up capital requirement has been brought down to Rs 25 million and Rs 2.5 billion respectively for both NLD and ILD licences. IP-II and IP-VPN licences have also been done away with and existing operators in these segments can acquire NLD and ILD licences.

Also, what has brought cheer to the industry is that fixed line telecom operators can now provide internet telephony. Till now, telecom operators could only offer PC-to-PC internet telephony for NLD calls, while for ILD, users could make PCto-phone calls. With the new policy, ILD subscribers will be able to make internet telephony calls from handset to handset. Access providers have also been allowed to use the networks of ILD and NLD licensees to provide long distance services.

Further, DoT has announced a reduCtion in the annual licence fees for VSAT services from 15 per cent to 6 per cent.

The existing players are not entirely satisfied with the new policy. In fact, initially, when DoT had announced changes to the NLD policy in order to facilitate the entry of new players, they were up in arms. They pointed out that the new players would not have to make the huge investments they had made in paying high licence fees and meeting the rollout obligations. For instance, they argued, if Hutch was to enter the NLD field now (which it has been planning to do), it would have an unfair advantage. It would be able to carry domestic long distance calls in heavy traffic areas like big cities with minimum investment as the required infrastructure is already in place. This, according to the existing NLDOs, would deter extension of the telecom network and go against the interests of the existing operators.

Private NLDOs, including VSNL, Bharti Tele Ventures and Reliance Infocomm, joined hands in demanding a compensation of over Rs 28 billion in order to have an equal footing with the new entrants. The communication and IT minister Dayanidhi Maran accused them of forming a cartel. To prevent the existing NLDOs from taking legal recourse, DoT reportedly stated that it would consider including the existing players in the purview of the revenue share licence fee reduction.

Further, it added that the proposed waiver of rollout obligations could be applied to all long distance players, existing and new. However, a compensation or refund to the existing long distance operators was out of the question.

The existing players are still reviewing their options, especially as far as rural rollout is concerned. But, as Ramachandran points out, "The waiver of rollout obligations represents a recognition that the telecom market has now got the depth and the maturity to drive rollout of networks and connectivity across the length and breadth of the country, without it being mandated to do so. Rollout will now be driven by the demands of the market and the needs of the consumers".