Even as Vodafone Idea’s precarious situation threatens to push the telecom market into a duopoly, the latest proposal from the telecom regulator to unbundle services and network layers is expected to bring in new players.
However, experts say that this can happen only if existing issues around telecom licensing, including the controversy around adjusted gross revenue (AGR), are resolved.
RK Upadhyay, former Chairman of BSNL said, “The job of an access service provider and the service delivery portion is driven by two different types of skill, therefore it will be great if different players enter into different portions of the network. We are optimistic that if the recommendations of the TRAI are implemented, consumers will get a true choice of services.”
The Telecom Regulatory Authority of India (TRAI) has proposed to split the network and services into separate licence categories. This means that one set of players will manage the network infrastructure including acquiring spectrum and tower sites and a different set of players will focus on providing services on top of this network.
Existing operators own both the network part and also offer services. While the regulator has allowed incumbent operators to continue with their existing model, it reckons that unbundling licences will help bring in new players.
TV Ramachandran, President, Broadband India Forum, said, “Besides significant cost-efficiencies, the recommendations when implemented, would also act as a catalyst in enhancing investments in the sector. Possibly the first such measure in 26 years to reform the legacy structure of bundled licensing into segregated network layers.”
Industry experts argue that this separate authorisation will find takers only if the issue of AGR is resolved, otherwise this could lead to the double payment of revenue share.
One expert showed this illustration to prove the point. Assume operator A (Virtual Network Operator) is having a business arrangement with operator B (Access Network Provider). Operator A collects ₹100 as revenue by selling services to the end consumer. Hence, A is now liable to pay ₹8 (8 per cent of ₹100) as license fees to DoT. Also, assume that B incurs a cost of ₹80 to generate ₹100 of revenue.
As per DoT’s definition of “revenue”, B is not allowed to deduct this cost for calculating license fees obligation to the government. Hence, the cost of B (₹80 ) is the revenue of A. Hence, A (which owns the spectrum and network) is liable to pay ₹8.8 as license fees to the government. Therefore, the total license fee paid to the government in this business arrangement is ₹16.8 versus only ₹11 if the services were offered directly by a unified licensee.
One of the stakeholders had suggested to TRAI that payment made by one telecom operator to another telecom operator for active infrastructure sharing be allowed as a pass-through for calculation of AGR. But the regulator declined to accept this suggestion.
BK Syngal, former Chairman and Managing Director of VSNL said “Dangers of the AGR regime are there, now that the TRAI has made these recommendations, they should also look at the AGR regime rationally so that such fears are assuaged.”