The Hindu Business Line : Patchwork did it

The current face-off between the GSM and CDMA technology camps can be traced to piece-meal moves in the telecom sector. Here are the whys and wherefores.

REGULATORY reform and controversy have been inextricably linked in the turbulent world of telecom in India. Strangely, every regulatory move proposed by the Telecom Regulatory Authority of India (TRAI) has been getting enmeshed in some controversy or the other.

Controversial proposals...

Over the past couple of months, there are at least three areas where recommendations by TRAI have kicked up a controversy once again:

Unified licensing policy: In the latest recommendations on Unified Licensing Policy (integrating all telecom services — basic, mobile, long distance and value-added services), TRAI has sought to maintain a level playing field in national long distance (NLD) services. In ensuring that no operator category is left in a `worse off' situation than before, TRAI has argued that if a new unified licence operator is allowed to carry inter-circle area long distance traffic (say calls from Mumbai to Delhi or Chennai to Bangalore), without going through an NLD operator, it will adversely affect the business case of the existing NLD operator. Bowing to protests from integrated operators such as Bharat Sanchar Nigam (BSNL), Reliance and Bharti offering long distance services, TRAI has recommended imposition of an entry fee of Rs 107 crore for all unified operators interested in offering long distance services.

In making these recommendations, TRAI has conveniently set aside the long-standing and sensible demand of the mobile operators for `direct inter-circle connectivity'. In sticking to the stereotype, TRAI has ensured that artificial regulatory barriers remain in place. Had TRAI recommended the removal of these barriers, mobile operators whose footprint already spans several circles will be able to carry the calls between adjacent circles (typically, between two States) using their own infrastructure. For consumers, this will automatically translate into increased choice and more affordable long distance services.

Access deficit charge (ADC): While the controversy over limited mobility services was raging, in October last year, TRAI introduced the ADC, as a levy payable by basic, cellular and long distance operators on a per minute basis primarily to BSNL (and some select basic operators). This levy has been intended largely to fund the low paying or uneconomic urban subscribers of BSNL, as it has failed to bring its tariffs/rentals in line with costs on account of political pressures. Instead of using a more scientific basis for arriving at this levy, TRAI used a normative approach to arrive at an Access Deficit estimate of Rs 5,340 crore payable to BSNL. Since both the GSM and CDMA operators were preoccupied with the tussle over limited mobility, the Government was able to push this proposal through without much of a debate.

When the Revised Interconnect Usage Charges (including ADC) came into effect in February this year, citing the ADC, the private mobile operators immediately hiked the tariffs across-the-board. At that point, TRAI only cautioned the private operators that the hike was unwarranted. But did little to review the ADC at that stage. Over the past fortnight, once the private mobile operators (both GSM and CDMA) threatened to stop making ADC payments to BSNL, TRAI has started mediating and proposes a review of the ADC, with a possible switch to revenue sharing basis.

Frequency spectrum: In a Consultation Paper issued by TRAI in May on `Spectrum allocation and pricing', the regulator opened Pandora's box by suggesting the possible introduction of 1900 MHz PCS band for CDMA operators. Since 1900 MHz has been earmarked for migration by GSM operators to 3G (third generation mobile technology offering high-speed data services), the GSM operators have been up in arms against this move by TRAI. As adequate availability of scarce spectrum lies at the heart of mobile telephony, this is likely to be a no-holds barred battle for attrition between the two warring camps.

......Haunting the regulator

If we dig a little deeper, we find that the root cause for all these problems can be traced to the short-sighted agenda and the piece-meal approach of the Government /regulator in solving the limited mobility controversy last year. Since there were contrasting pulls and pressures at play in that controversy, the three key constituents of that drama — CDMA, GSM operators and the Government (acting on behalf of BSNL) — opted for the quick-fix, each in their own way.

CDMA operators: In October last year, TRAI recommended the creation of a unified access licence between basic and mobile services, as the first stage of a two-staged process of migration to a unified licence regime. This proposal, accepted by the Government in November, helped pave the way for the two operators, Reliance and Tata Teleservices, holding basic services licence to become full-fledged mobile operators.

BSNL/Government: While the controversy over limited mobility was at its peak, the Government managed to push through the ADC levy of over Rs 5,000 crore payable to BSNL without much of a debate among all the telecom constituents.

GSM operators: In a move coinciding with the decision by the Cellular Operators Association of India (COAI) to withdraw its case against limited mobility operators in the Supreme Court, the Government announced concessions on revenue share to existing mobile operators. It reduced the revenue share by two percentage points across-the-board from 12, 10 and 8 per cent for all basic and mobile operators. In addition, it offered an additional benefit of two-percentage point reduction in revenue share for first and second circle mobile licensees (except metro) for a period of four years. In another move, it had also proposed a hike in foreign investment in telecom to 74 per cent from 49 per cent. But this was, however, stalled later.

These constituents not only opted for a piece-meal solution, they also failed to outline a detailed framework within which they will work on all unresolved issues. These issues straddled a vast gamut from a fully unified licence (including long distance services), frequency spectrum, intra-circle mergers and FDI curbs to Access Deficit. As these unresolved issues are coming back to haunt the regulator and the Government, they are being forced to soft-pedal it in every way. Having allowed unified access licence to basic and mobile services; TRAI is being forced to maintain the level playing field for long distance services. Since TRAI had offered an ADC levy to BSNL of over Rs 5,000 crore for 2003-04, it is now struggling to reason out a case for either reducing or scrapping the ADC.

In frequency spectrum, the failure of TRAI to spell out a clear migration path for both GSM and CDMA operators from 2G to 3G services has set the stage for the latest fracas over spectrum allocation. All this could have been avoided if the regulator and the Government had taken a holistic and long-term view of resolving all these issues together in a time-bound manner.

Picture by G.P. Sampath Kumar

maverick@thehindu.co.in

For ground already covered on the issue, please look up these URLs: http://www.thehindubusinessline.com/ bline/2003/10/29/stories/2003102900190800.htm

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