Go after International Best Practices
After two decades of liberalization of the telecoms market and establishment of a semi- autonomous body for the regulation of the sector, India still falls behind many other Asian economies in terms of adopting best practice policy measures that can help develop the country’s telecoms infrastructure and services markets. India is the second largest telecoms market in the world, after China, and like many other Asian markets has good potential for growth. After witnessing a period of slower revenue growth, Indian mobile operators collectively generated US$ 7.9bn in the last quarter of 2013 representing quarter-on-quarter (Q-o-Q) growth of 30.5%. While growth has returned to the Indian telecoms market, overpriced spectrum, huge taxes, and other penalties imposed by the Department of Telecommunications (DoT) have left most of the operators under tremendous debt pressure. The country has struggled to establish a strong regulatory regime for telecoms; however, the new government’s emphasis on bringing transparency to the political framework through the introduction of e-governance leaves us with the hope that major policy initiatives will help in establishing long-term, stable, predictable, and investor-friendly system. A more independent regulator will be able to offer predictability to the investors Unlike many regulators in Europe, the Telecom Regulatory Authority of India (TRAI) is dependent on the DoT for framing key sector-specific regulations and policies. The TRAI is only responsible for the implementation of regulatory policies and has a consultative role in policy formulation. Ovum believes, as has been the case in many developed markets, it is essential from a policy perspective that India creates a regulatory body which is completely independent of the government’s political influence in order to foster a regulatory environment which is less vulnerable to political changes and can offer more predictability to investors and operators alike. Also, as seen on many occasions, DoT has been known to override TRAI’s recommendations.
However, the presence of an independent tribunal body, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), where stakeholders can challenge the NRA’s decision, has certainly lent some strength to the overall regulatory framework. TDSAT’s recent ruling on upholding DoT’s decision on 3G intra-circle roaming pacts emphasizes the importance of an independent tribunal body in providing credibility to the NRA’s decisions and guaranteeing a
good degree of certainty and consistency in the regulatory process. We see TDSAT’s ruling as a major pro-industry measure, which will help in improving the adoption of 3G services in India.
Frequent reviews of the relevant telecoms markets will help devise appropriate regulations
Another area where we believe the regulator and DoT have not matched international best practice is the timely review of defined relevant markets. There is no set time frame for the review of certain relevant markets in order to identify players with significant market power (SMP) and impose regulatory remedies. As a result, regulations have failed to keep up with the changing technology in both voice and broadband markets. It is even more essential that TRAI undertakes timely market analysis in order to devise appropriate and proportionate regulation or remove outdated obligations, given the recent progress made by the country towards the development of the next generation network (NGN). The set of services that will become relevant in the NGN context will require more frequent reviews and updates to the country’s interconnection policy.
The TRAI still uses a partially costbased model (fully allocated cost (FAC) model) to calculate mobile termination charges, unlike many other regulators
It is essential from a policy perspective that India creates a regulatory body which is completely independent of the government’s political influence in order to foster a regulatory environment which is less vulnerable to political changes and can offer more predictability to investors and operators alike.
in the region who now have adopted variants of a long-run incremental cost (LRIC) model. The LRIC approach takes into consideration the incremental costs of providing an additional unit of a service over current levels and over a defined future period of time. It, therefore, represents costs that are both forward-looking and incremental, and reflects real economic costs of pro- viding interconnection. While India has among the lowest mobile termination rates (MTRs) in the Asian region, the adoption of LRIC based costing model will further help the regulator in building efficiency, leading to the lowest cost based termination charges.
Public-private collaboration is a must to address the long-standing issue of last mile connectivity
Low penetration of fixed broadband services and a huge rural and urban digital divide are other areas of concern for the TRAI. DSL on copper wire is the most dominant method of Internet access in India. The incumbent’s copper network is a bottleneck facility for proving broadband services in the rural and remote areas. The regulator has not imposed any obligations on the incumbent to unbundle access to its last mile for providing competitive services. While we don’t advocate any such remedies in a market that lacks fixed-line infrastructure, Ovum believes that the main challenge lies with the fact that both the NRA and government policy initiatives still do not recognize the need to invest in the local access required to connect end-users; policy makers have been overlooking this fundamental issue. The DoT’s national optical fiber network (NOFN) plan, which is expected to offset some of the challenges it faced in improving the penetration of broadband in rural parts of the country, does not offer a full proof solution for last mile connectivity. The plan, which focuses on the middle mile fiber layout, will enable delivery of high-speed broadband only to village councils. We believe that large-scale adoption of data services in the rural market will require creating an awareness of availability and encouraging uptake of broadband services as well as extending the last mile. The solution to this would require innovative business models built through stronger collaboration between the government and the private sector entities, and perhaps a greater reliance on wireless infrastructure.
Spectrum liberalization is the way forward in India’s mobile broadband journey
In the present scenario, we also expect broadband growth in India to leverage more from its wireless infrastructure. The TRAI should focus on developing the mobile infrastructure, especially from the point of view of using wireless as an alternative to deliver last mile connectivity. To achieve this, the regulator has recently concluded spectrum auctions in the 900MHz and 1800MHz bands. Moreover, the government is planning to auction additional spectrum in the 800MHz band in 2014, along with the planned release of 700MHz band for mobile communications in 2015. The award of spectrum in sub-1 GHz bands, with better propagation characteristics, can provide the muchneeded impetus for the growth of mobile broadband in rural areas with very low population densities. In urban markets, operators are progressing well towards developing the next generation broadband infrastructure using LTE technology. Mobile operators are using the broadband
It is essential that TRAI undertakes timely market analysis in order to devise appropriate and proportionate regulation or remove outdated obligations, given the recent progress made by the country towards the development of the next generation network.
wireless access (BWA) spectrum awarded in 2010 to launch TD-LTE services. Until now, lack of handsets and network equipment for the TD-LTE standard restrained the companies from offering services using the technology. But this has slowly started to change as the device eco-system has begun to mature.
Despite the fact that government has already indicated the introduction of new policy measures relevant to spectrum sharing, number portability, and further frequency auctions, there are specific issues the regulator needs to address before India sees a substantial growth in the demand for broadband services. The TRAI is yet to confirm its position on the re-farming of the 900/1800MHz bands, which can help it ensure a more level-playing field in allocations and release more spectrum for commercial use. While we understand spectrum refarming or redistribution of the entire 900MHz band will be complex in India, the National Telecom Policy (NTP) 2012 ensures re-farming will be unavoidable for GSM incumbents after the 20-year mobile permits expire. In the long run, we would expect the regulator to establish a policy framework that focuses on more stable licensing terms, clear taxation policies to gain investor confidence, and a roadmap for future spectrum auctions.