Right Policy Mix is Key
There is an urgent need to rationalize the taxes and levies in the sector, which aggregate presently to 30 percent of the revenues earned by telecom companies as compared to about 5% in other Asia-Pacific (APAC) countries
The last year was a mixed bag for the Indian Telecom Industry. The year saw movement towards greater stability in policy making as well as an even-handed approach in the regulatory environment. On the regulatory front, the industry felt heartened by the willingness of TRAI to address the financial condition of the sector, most particularly in its directive on VAS, national roaming and its recommendations on spectrum pricing, SUC and spectrum trading. The government’s decisions to enable 100 percent FDI in the sector, provide directions for M&A and support spectrum trading were welcome steps. However, there are still many issues that the government needs to consider and resolve for the smooth development of this vital sector. A long term clear, stable, predictable, development oriented and investor friendly policy regime which recognizes the long term nature of the investments and project maturity requirements of the telecom sector are still to be addressed by the government and regulators.
The most significant activity for the industry last year was the spectrum auctions. After the last two auctions failed, mainly owing to the unreasonably high reserve prices set by the government, the beginning of 2014 witnessed successful auction of spectrum. The DoT auctioned spectrum in 900 MHz and 1800 MHz bands based on the revised reserve price, which garnered a total amount of 612 billion (US$10billion). However, going forward there is a need for a clear roadmap for future auctions/further release of spectrum in various bands. In India, contiguous spectrum is not available with the operators today because spectrum has been allocated at various times in small chunks to the existing operators and hence the current allocation is non-contiguous. It would be absolutely essential that rearrangement of frequency spots is carried out between the DoT/WPC and the operators to ensure contiguity of spectrum. Without this, roll out of 3G, 4G/LTE networks and services will be impaired.
To boost investments into the financially ailing sector, a series of steps were taken last year.
The much awaited M&A guidelines were issued in February 2014 which said that the merged entity’s market share should not exceed 50 percent. The guidelines are welcome in that they afford additional clarity on the subject. Such clarity will enhance the ability to undertake M&A activity for the industry. However, the step up in spectrum acquired outside of the auction process to market price is an area of concern that needs to be addressed.
The government’s decisions to enable 100 percent FDI in the sector provided a much-needed boost to investor sentiment of the fund-starved industry. We also expect that reasonable and practical guidelines on spectrum trading and spectrum sharing will be operationalized this year.
The year also saw heightened activity from some vested interest groups/individuals around misleading claims on EMF emissions from mobile tower antennae and handsets. This resulted in increasing fear and concern among citizens. To counter this, COAI and DoT worked to address these factual inaccuracies on EMF. In August 2013, the DoT issued Advisory Guidelines for state governments on clearance for installation of mobile towers. The DoT was in discussions with the industry and the state governments for finalization of these guidelines. The document advised all the state governments to follow these norms so that there is a uniform approach on the issue, and which should be adopted by all the state government across the country.
Additionally, 25 leading academicians from the prestigious IITs and IISc in India, in a submission to the DoT, urged the government to exercise caution to avoid ad-hoc decisions regarding restrictions of mobile tower locations and avoid unnecessary panic and fear among citizens. The academicians laid emphasis on the fact that the World Health Organization (WHO) itself has stated –“... considering the very low exposure levels and research results collected; there is no convincing scientific evidence which shows weak EMF emissions from mobile phone towers cause any health effect.” The expert committee report submitted in January 2014, constituted by the Lucknow bench of Allahabad High Court too found no substance in the noise about the effects of EMF emissions.
The matter of what the industry perceived as “erroneous and inappropriately high level of penalties” imposed by the TERM Cells for what they interpreted as non-compliance to the DoT/ EMF norms, was taken up with the government and as a result of several substantiated representations by the industry, the DoT issued a new penalty regime for EMF. This circular of DoT brought much desired clarity in terms of the various dates for compliance and on many of the filed issues.
The International Common Criteria Conference (ICCC) 2013 was held at Orlando, Florida in September 2013. CC Administration had announced the recognition of “Common Criteria - Recognition Arrangement” (CC-RA) to India at this event. This was done after the completion of the CCRA audit of the Indian
The concern is regarding the multiple audits by multiple agencies (DoT, TRAI, SEBI and now CAG), increasing the costs and time to operators and also increasing the scope of CAG to private entities. This ruling will become a larger issue for Corporate India and not just for mobile operators.
Scheme and India has now become an “authorizing” nation from a “consuming” nation. This will enable India to join the league of a select group of nations that have been accorded the CCRA status of this internationally recognized security regime under the CC programme. This means that India, through STQC, has now been authorized to certify independent Testing labs in India that wish to certify IT Equipment for compliance with global “common criteria” standards.
In order to ensure that India developed and registered IPR are properly monetized and included in global standards, it was imperative to set up an Indian Standards body to represent India’s interests in various international standards bodies such as ITU, 3GPP, IEEE, ETSI, etc. COAI led the Standards Initiatives along with TCOEs, 23 Indian Industries, 20 MNCs, 3 Industry Associations, 10 premier Academic Institutes and R&D organizations that are actively working towards the telecom standardization activities. Thus, the Telecom Standards Development Society, India (TSDSI)was formed on 7th January 2014. The TSDSI comprises representatives from the govt., telcos, manufacturing companies, technical services companies R&D organizations and academic institutions on a common platform. TSDSI strives to follow the best practices of knowledge sharing, consultations and consensus building to make standards which address special needs of the Indian consumers and help equipment manufacturers and operators fulfil those needs in ways that are beneficial to both.
At the same time, in a setback for the industry, the Hon’ble Supreme Court allowed the Comptroller and Auditor General (CAG) of India to audit the receipts of telecom operators that share revenue with the government for use of spectrum. Although the SC has also upheld the limitation on the audit imposed by the Delhi HC order, i.e., CAG has limited scope to audit only that revenue on which government fees is computed, yet, we believe that the order is far-reaching and will slow down the working of the sector.
The concern is regarding the multiple audits by multiple agencies (DoT, TRAI, SEBI and now CAG), increasing the costs and time to operators and also increasing the scope of CAG to private entities. This ruling will become a larger issue for Corporate India and not just for mobile operators. We hope that the CAG will undertake its audits in the light of these concerns.
With the new Government taking charge, we are hopeful of getting the much required policy and regulatory support to help maintain a long term clear, stable, predictable, developmentoriented and investor friendly policy regime, which recognizes the long term nature of the investments and long project maturity requirements of the telecom sector.
On priority, the government should make available to the industry, all spectrum in all the bands (e.g. 2100 MHz, 1800 MHz, 800 MHz and 700 MHz) presently lying unutilized by various government agencies in conformity with globally harmonized bands and should provide a clear road-map for spectrum availability in the future.
Also, the government will have to realise that there is an urgent need to rationalize the taxes and levies in the sector, which aggregate presently to 30 percent of the revenues earned by telecom companies as compared to about 5% in other Asia-Pacific (APAC) countries. License fees and spectrum usage charge (SUC) account for about 12% of adjusted gross revenue (AGR). Introducing a flat SUC (Spectrum Usage Charge) of 1% should provide some relief to the operators. The USO Fund levy (Universal Service Obligation Fund) of 5% should also be gradually reduced to 1% as operators meet the revised contractual roll out obligations which now covers the rural areas.
The government should also facilitate faster infrastructure rollouts through uniform procedures/approvals and low cost Right of Way charges on telecom towers, OFCs etc. which make real the benefits of the “Infrastructure” status provided to the industry.
We believe that with positive changes, the telecom industry will see a significant growth from 3G to 4G, along with increase in network coverage and competition in coming years. Operators are also exploring new business model like mobile money, M2M, surveillance, cloud storage, OTT messaging, authentication services and mobile advertising. The key areas of long term policy focus would be stable license terms & conditions, effective M&A, reasonable security arrangements, Carbon Footprint oriented Green Telecom targets, taxation and roadmap for future technologies, etc.
We hope to see much better times this year with such Policy and Regulatory initiatives by the government and TRAI which will have long term benefits for the industry. COAI is committed to working closely with the government to ensure that the interests of the customers and the investors in the industry are developed, protected and enhanced.