With the Indian telecom sector facing several challenges in terms of the 2G scam, an overcrowded operator market and close-to-unsustainable margins, an overhaul of the decade-old telecom policy has become imperative for future growth. In response to this need, telecom minister Kapil Sibal has promised the formulation of the National Telecom Policy (NTP) 2011 by the end of this year. The Ministry of Telecommunications released the draft NTP 2011 earlier this month.

The primary objective of NTP 2011 is providing reliable and secure telecom and broadband services across the country. The aim, according to Sibal, is to ensure a transformational impact of these services on the economy. Direct revenue generation from the industry will be a secondary objective. The policy will recognise the crucial role of private players in sector development and ensure viability of service businesses in a competitive environment.

While moving towards these objectives, NTP 2011 is expected to strike a balance between the interest of users and service providers, as well as ensure government revenues.

Emphasising the key points of the draft, Sibal noted that it is becoming increasingly important to converge telecom, IT broadcast services, networks, platforms and technologies. This will enhance affordability, increase user access, enable the delivery of multiple services and reduce costs.

“The draft policy will facilitate consolidation in the converged telecom service sector while ensuring competition,” the minister noted.

The following are some of the key proposals of the policy:

Broadband

To meet the connectivity requirements associated with sectors like education and health, the draft NTP proposes the “Right to Broadband” plan, under which access to broadband services will be considered a basic right of every citizen.

NTP 2011 is also aimed at enabling citizens to participate in and contribute to e-governance in areas such as health, education and banking.

So far, the country has missed successive broadband targets. The draft NTP 2011 envisages 175 million broadband connections by 2017 and 600 million by 2020. It also proposes to increase India’s broadband download speed to 512 kbps from 256 kbps, and to 2 Mbps by 2020.

Spectrum

Considering the 2G spectrum issue, an overhaul of the spectrum allocation and pricing system was expected. In this regard, the draft has proposed that spectrum allocation should be delinked from licences and radiowaves should be made available at market-determined prices.

“We will ensure adequate availability of spectrum and its allocation in a transparent manner through market-related processes. We will prepare a road map for the availability of additional spectrum every five years,” Sibal said. He also assured regular spectrum audits to track usage patterns.

The draft policy proposes spectrum sharing, pooling and trading, and recommends the formulation of a separate spectrum act, which will, among other things, address issues related to wireless spectrum licences and their terms and conditions including those for refarming/withdrawal of allotted spectrum; and pricing, sharing and trading of spectrum.

The policy aims to make 300 MHz of spectrum available by 2017 and another 200 MHz by 2020.

Manufacturing

In order to provide a fillip to the domestic manufacturing industry, the policy aims to meet 80 per cent of the sector’s demand from these entities with a value addition of 65 per cent to this market by 2020.

It also highlights the government’s intention of making India a global hub for telecom equipment manufacturing and promoting research and development (R&D) and product development. Towards this end, the creation of a corpus to promote indigenous R&D, institution of intellectual property rights, entrepreneurship, manufacturing, and commercialisation and deployment of state-of-the-art telecom products and services during the Twelfth Plan has been recommended.

One nation, one licence

The country currently has 22 telecom circles and subscribers pay roaming fees for using services outside their circle. The policy proposes to change this structure and introduce a single licence for operators. “The draft NTP aims at a one nation, one licence regime,” Sibal said. This will do away with the need for companies to apply for separate licences for every circle/service area as well as roaming charges for users.

The policy also proposes to introduce intercircle mobile number portability across the country in the near future.

Rural connectivity

Though mobile phones have a ubiquitous presence in urban India, rural teledensity continues to lag behind. The latter stands at about 35 per cent as against a teledensity of 100 per cent in several urban pockets.

NTP 2011 aims to increase rural teledensity to 60 per cent by 2017, and to 100 per cent by 2020.

Provision of high speed broadband services through optic fibre networks to rural government bodies by 2014 is another key consideration.

Licences

The draft policy proposes less strict merger and acquisition norms to allow consolidation. Apart from framing an exit policy for non-serious players to surrender their mobile licences and airwaves, the draft envisages clearer rules for the renewal of these licences. It aims to make them technology neutral and divide them into two categories – network service operator and service delivery operator.

Moreover, the policy recommends network sharing and the establishment of a legal, regulatory and licensing framework for convergence of services, networks and devices.

It focuses on a move towards the unified licensing regime, which will allow operators to offer all services. In addition, it aims to address right-of-way issues in telecom infrastructure development.

Finance

The draft policy recommends the institution of a telecom finance corporation to facilitate investments in the sector and aims to rationalise taxes and spur sector growth.

Technology and data

To promote the adoption of new technologies, the policy suggets the review of issues related to encryption, security, taxation and interconnection. It envisages steps to reduce the cost of service delivery and encourages the transition from IPv4 to IPv6. Further, the formulation of a policy on cloud services is one of the important objectives.

Overall, the idea is to adopt the best practices on privacy, network security, law enforcement assistance and prevention of cross-border data flow.

Security

NTP 2011 plans to develop and deploy systems for lawful assistance, which involves building capacity for lawful interception and monitoring the standardisation of telecom equipment.

It assigns service providers the responsibility of ensuring the security of the network as well as that of data flowing through it. The policy advises the government and the private sector to share the cost of implementing security measures.

Regulatory role and changes in legislation

The draft policy recommends the establishment of a strong and independent regulator. It aims to review the Telecom Regulatory Authority of India (TRAI) Act with a view to addressing regulatory inadequacies in effective discharge of TRAI’s functions. NTP 2011 offers to undertake a comprehensive review of the Indian Telegraph Act and other related legislations in order to make them consistent with its objectives.

It also aims to strengthen the Department of Telecommunications (DoT) to monitor and enforce licence conditions. The idea is to make DoT responsible for licensing and spectrum allocation, while the telecom ministry would focus on policymaking.

The policy requires TRAI to provide the details of the exit policy for existing operators, the framework for unified licensing and migration norms for unified licensees and the nationwide free roaming terms. It also requires it to frame non-discriminatory cost-based interconnection terms.

Market views

The overall view of service providers, representative bodies and industry analysts is that the draft NTP 2011 is forward-looking.

“It is a step in the right direction and highlights the government’s focus on future growth areas such as broadband and convergence. We look forward to constructive deliberations on the proposals and hope that the final policy will provide a level playing field; encourage investments in the sector, particularly in rural areas; and ensure long-term sustainability and viability of the sector,” read a statement issued by Bharti Airtel.

On the spectrum proposals contained in the draft NTP 2011, analysts say that given the scarcity of the resource, the policy is on the right track in allowing spectrum trading, sharing and pooling. This will lead to a win-win situation. Companies having excess spectrum can share it with others and earn revenues, while those in need of spectrum can use it to offer services. Moreover, the availability of 500 MHz spectrum over the next decade should help companies introduce the latest applications, facilitate convergence and expand the subscriber base.

NTP 2011 also encourages local manufacturing, new technologies such as cloud and machine-to-machine (M2M) and data services.

According to industry experts, the sector has witnessed strong growth in voice services with over 90 per cent of the revenues still coming from vanilla voice services. However, going forward, technologies such as cloud and M2M and the focus on data could drive growth not only for the Indian IT and IT-enabled sectors but also for businesses that use high-end telecom services.

The one nation, one licence regime is also a welcome move as it will do away with roaming charges and enable intercircle number portability. However, experts feel that this customer-friendly move may impact the operating margins of leading service providers. It could cost the operators Rs 20 billion in revenues, unless they hike tariffs or volumes increase to balance out the revenue loss.

The proposal to delink spectrum from future licences and allocating it at market-linked prices could also result in cost escalations for telecom companies. Pricing will be a problem in this regard as there is no definition of “market-linked prices” and the only available benchmark is the 3G auction prices. Using these prices as the yardstick will have a negative impact on incumbents.

While most industry experts agree that the draft NTP 2011 is a positive policy move for the sector and is strong in intent, the absence of definite timelines for implementation has been highlighted as a key shortcoming by others.

“Though several questions remain unanswered, overall, the policy seems to give a positive signal to investors,” says R.K. Gupta, managing director at Taurus Asset Management.

Moreover, the draft does not provide any detail on how the policies will be implemented and how some of the objectives will be achieved. Besides, the timelines for some of the proposals are too long, which could lead investors to think that the government is not serious.

Therefore, formulation of a comprehensive policy will require a long deliberation process. The good news is that the draft telecom policy is a step in the right direction.