Last Wednesday, the Union cabinet approved the National Digital Communication Policy (NDCP). Its primary author, the Department of Telecommunications (DoT), undertook impressively wide consultations before and after the preparation of the draft NDCP. The final document reflects many inputs provided by stakeholders. However, to arrive at an “acceptable” document, the DoT sidestepped critical issues, thus compromising the NDCP exercise.
According to the NDCP, “The objective of this document is to lay out a consistent policy and principles framework, that will enable creation of a vibrant competitive telecom market to strengthen India’s long-term competitiveness and serve the needs of our aspiring nation”.
Big On Ambition
The NDCP projects that by 2022, the sector could deliver universal broadband at speeds of 50 Mbps. It could attract $100 billion in investments, add an additional 2 percent to India’s GDP and create 4 million jobs.
The policy proposals include a push to improve the investment climate in the sector by reducing operator costs. It proposes rationalisation of a host of levies and charges such as licence fees, spectrum usage charges, operator contributions to the Universal Service Obligation Fund. These levies, equivalent of roughly 11 percent of operator revenues are in addition to the 18 percent GST that telecom operators currently pay to the government.
It also proposes a renewed focus on expanding fixed networks by expanding fibre coverage. It proposes to reform allocation of spectrum by encouraging shared usage through, if necessary; delicensing of V band spectrum. It seeks to expand wireless coverage by incentivising use of satellites. Importantly, it promises a more liberal treatment to emerging technologies. These steps are urgently needed as they will greatly expand consumers’ choice of technology solutions and ease the burden of cost and compliance faced by private players in the telecom sector.
However, these and the other steps proposed in the policy may not deliver the ambitious goals of the policy. The telecom sector faces an unprecedented crisis. It has a debt of over 7 trillion rupees. Several large players including Tatas, the Russian MTS, Norwegian Telenor and others have exited the sector in the last two years. Around 100,000 people have lost jobs. The policy fails to address this. Where will the projected growth and jobs come from?
The NDCP rightly highlights the need for universal Wi-Fi hotspots. However, it provides no basis for the proposed 1 million and 2 million Wi-Fi hotspots in urban and rural areas respectively, given the large-scale failure to expand Wi-Fi coverage in India.
The Licensing Bugbear
The biggest challenge to the policy targets comes from the licensing regime. India Telegraph Act 1885, the sector’s primary legislation, requires every telecommunications services provider to possess a licence. Each licensee typically shares a significant part of revenues with government.
The impact of the NDCP — which does not advocate abolition of licences — will be considerably diminished if the new players need licences and are expected to share revenues. This is borne out by the fact that why there are no takers for the licence for Mobile Virtual Network Operators leaving an important and innovative service stillborn.
What if a player had a revolutionary technology to connect mountainous, coastal, remote or rural areas? The licensing regime would be a serious barrier. The levies would add to the cost of trying alternative solutions. The policy does, admittedly, speak of prioritizing coverage over revenue maximization. However, gives no hint that the government is willing to a short-term hit in its revenues. Indeed, there are indications that it seeks revenue neutrality. The scope of its proposals on fees and levies may therefore be limited.
Even if the government was willing to waive its licence fees, spectrum usage charges etc, it would have to reckon with the claims of incumbent players who have sometimes paid billions of rupees to acquire their licences to serve the same service areas.
The fate of other innovative services will undoubtedly be similar, unless, of course, the government was to recognise that its existing licensing regime poses a major challenge to the provision of innovative technologies and services. The fact that the policy largely ignores this point, is perhaps the policy’s its glaring weakness.
A Question of Impact
The NDCP is well meaning and many of its proposals are on the right lines. However, they will have marginal impact. They could have done much more to improve the long-term health of the sector at a critical time when it faces an existential challenge. Unfortunately, the proposals are seriously compromised by the constraints of the current licensing regime.
A clean break from the licensing regime will require a one-time settlement with existing players and a move towards a truly liberal entry and exit of players and technologies. Except for measures for national security, consumer protection and efficient use of scarce resources like spectrum, the sector could be left to market forces. The regulator could be tasked to promote and ensure fair and robust competition between market players.
This would bring the sector in line with international best practices and set it on a path of growth and innovation. Yet, while the policy talks about international best practices in several contexts, it omits to invoke them when it comes to market entry and exit. That could be its undoing.
Mahesh Uppal is the Director of Com First (India) Private Ltd, a niche consulting company that specialises in policy and regulation aspects of telecommunications and internet.
First Published: IST