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Licensed to crawl

The mal-effects are made all the more certain by the fact that bunches of licences have, necessarily, been given over time — one appurt...

The mal-effects are made all the more certain by the fact that bunches of licences have, necessarily, been given over time — one appurtenant after another pertaining to each vintage differs, as it invariably will, for in the meantime requirements, technologies, perceptions are bound to change — specially in a sector in which products replace each other by the week, technologies by the year.

If you got your licence before the New Telecom Policy of 1999 to provide a basic service, and you shifted to the NTP-99 regime, till the shift you would have paid a licence fee between Rs 29 crore and Rs 532 crore depending on the service area. The amount was determined by competitive bidding, and it was for a period of up to 22 months.

If, on the other hand, you had bid for a cellular mobile service, you would have paid a licence fee between Rs 38 lakh and Rs 512 crore depending on the service area — this too by a bidding process for a period of up to 43 months.

Those were the licence fees you would have paid if you had got your licence before NTP-1999. If you got it after NTP-1999 was announced, for the basic service you would have paid an entry licence fee ranging between Rs 2 crore and Rs 115 crore, depending on the service area. And this fee was fixed, not by bidding but by the government. For the cellular service the entry fee was between Rs 1.1 crore and Rs 207 crore. And this fee was not fixed by government but by bidding.

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HFCL paid Rs 177 crore to provide the basic service in Punjab. Reliance got the licence for Rs 20 crore. A gain for Reliance. In Gujarat, Reliance paid Rs. 179 crore for providing the basic service. Tatas got the licence after 1999 for Rs 40 crore. Everyone is therefore able to produce ‘‘proof’’ that he has paid more, and that the government must ‘‘compensate’’ him before he will allow it to take the next step.

But in addition to the licence fees, there is an annual fee. If you were providing the basic service, you would have to pay eight per cent, 10 per cent or 12 per cent of your ‘‘adjusted gross revenue’’ — there are points of high scholarship regarding that chimera too, but we will ignore them for the moment — depending on whether your circle was category A, B or C. If you were providing a cellular service, however, you would have to pay an annual fee of 15 per cent of the ‘‘adjusted gross revenue’’.

But soon enough the basic operators were allowed ‘‘limited mobility’’; that is, their cordless phones, so to say, could operate beyond houses — hence, ‘‘mobility’’ — but within that construct, the SDCA — hence, ‘‘mobility’’ albeit ‘‘limited’’.

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As a compensation that annual fee for cellular operators was reduced from 15 per cent to the eight, 10, 12 per cent levels as in the case of basic operators. As a basic operator, before NTP-1999 you would have to contend in a circle with competition from just one more operator. NTP-1999 and the ‘‘migration’’ package lifted the limit: henceforth you would have to contend with as many operators as chose to set up operations in that circle.

In the case of cellular operators too the earlier limit of two operators in a service area was lifted — but it was decreed that there would be no more than four operators in a circle.

If you intend to provide Internet service, or a radio taxi service, or any other service connected with telecom, you just have to pay the entry fee, and begin. If, as we just saw, you want to set yourself up as a basic operator, even then all you have to do is pay an entry fee, and begin. But even if you pay the fee, you cannot begin a cellular service — not unless in a particular telecom circle there are fewer than four operators.

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Why is there a limit on competition in cellular services, but none for other services? The reason given is that cellular operators use spectrum, and spectrum is a limited resource and therefore the number of providers has to be limited.

Now consider what has happened to that rationale. Every basic operator has been allowed to commence a ‘‘limited mobility’’, WLL service. But that too uses spectrum! So if more entities come in and set themselves up as basic operators, our licensing regime shall allow them to commence service, but if more want to enter the cellular field and provide competition to existing operators, they shall not be allowed, even though now both sets — basic as well as cellular — make demands on the same scarce resource, the spectrum!

The original old basic operators were allowed to use spectrum up to 8+8 megahertz, while the old cellular operators were allowed 4.4+4.4 megahertz. When the old basic operators were allowed ‘‘limited mobility’’, their allowance was cut to 5+5 megahertz. The old cellular operators were allowed to raise their usage to 10+10 megahertz.

But that was the difference between the ‘‘old basic’’ and the ‘‘old cellular’’. The new basic licensees were allowed a maximum of 5+5 megahertz, to be released in steps beginning with 2.5+2.5 megahertz. The new cellular operators were allowed 6.2+6.2 megahertz. This latter allowance was later raised as in the case of ‘‘old cellular’’ to 10+10 megahertz.

Then there are obligations that go with the license. These too are of two types: a ‘‘roll-out plan’’, that is the pace at which you will extend your network; and a separate ‘‘universal service obligation’’, that is the pace at which you will cover areas like villages that are liable to be unprofitable.

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The precise content of each of the two categories of obligations differs depending on whether you are an old licensee or a new one, and whether you are a basic operator or a cellular one.

If you are a basic operator and you got your licence before NTP-1999, the government would have specified the number of villages in which you must set up public telephones as well as the number of ‘‘DELs’’ — direct telephone lines — you must install. If you are a basic operator but you got your licence after NTP-1999, your obligation has been specified as the percentage of rural, semi-urban and urban SDCAs you must cover.

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If you are a cellular operator, the obligation is of yet another calibre: for operations in a metro, you must cover 90 per cent of the service area within one year; at least 10 per cent of the district HQ within one year and 50 per cent of the district HQ within three years. The latter was subsequently amended to ‘‘cover any other city/town in a district in lieu of district HQ’’. Unlike the basic operators, in this case whether you are an old or new cellular operator does not make a difference.

Such discrepancies are inevitable: technologies change, priorities change, governments learn what is possible, what will shoo-away investors …

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Inevitable, but not without consequences. In attempting to freeze time, so to say, at what it was when the licences were issued, they hamper the adoption of new technologies. They foment a sense of having been wronged — in all participants. Each side believes that the other fellow has been given undue favours — favours in lieu of which it must be given yet another concession.

And each can produce ‘‘proof’’: the cellular operators argue they were made to pay higher licence fees than the basic operators — and they have the figures to show that; the basic operators argue they have been made to pay more by the yardstick that matters, namely the fee per unit of spectrum they have been allowed — and they have the figures to show that.

Grievance leads to litigation — of course, given our creativity we do not necessarily need a grievance to litigate.

A temptation? A compulsion? A compelling temptation!

There is another, an even deeper consequence. As much turns on the precise wording of the licence, entrepreneurs are under the greatest temptation — they would say, under the greatest compulsion — to induce, cajole, bend functionaries of the state who are writing the licences.

In the alternate, after the licence has been written, the entrepreneur tasks his lawyers and engineers: technology allows me to provide a seamless, boundless service, he tells them; now, read this licence and devise a method by which I can provide the maximum that technology enables me to furnish, without violating any specific provision of the licence.

A hardy perennial of this sector, and an aspect that is currently in the news will illustrate what happens. Each time a session of Parliament begins questions stream in about telephones in rural areas, and the ‘‘failure’’ of the government to compel private basic operators to establish these.

Now if you see the licences that were issued originally, they do impose an obligation that required the operators to establish the phones — the obligation, as I noted earlier, was in terms of both: each basic, fixed line operator had to install a certain number of direct connections, and a certain number of public phones in the villages.

And if you see the record, not one operator has installed what he had committed he would: together they had committed to establish public phones in about 98,000 villages; they have in fact covered only about 12,000 villages.

What comes in the way of imposing penalties so severe that the operators would just have to live up to their commitments?

One impediment is a sentence that made its way into the licences: after saying the operator would have to provide those village public phones, the clause recorded, ‘‘If all the villages in the service area have been provided with at least one public telephone by the DoT (the Department of Telecommunications) or the private operator, in such cases this obligation will cease to be applicable.’’

The result? If you could get the government department — or its successor, BSNL — to take up your area, you would be liberated from the obligation.

That is the argument of the operator who has not installed public phones in Punjab: all the villages there have already been covered by BSNL! That is also the grievance of the operator who has not provided the public phones he was to in Madhya Pradesh: we have gone out of our way to provide service in God-forsaken places, he says; just because BSNL has been concentrating on Punjab and has neglected Madhya Pradesh, why should we be penalised?

And both have another grievance together! Look at the basic operators who were given licences later to provide the ‘‘limited mobility’’ service, they say. These Johnnies were not required to install any direct lines into private homes, nor were they required to establish any public phones in the villages.

They were asked to establish only ‘‘points of presence’’ in district and tehsil headquarters. The WLL(M) people argue that they can’t go about forcing mobile phones on individual customers. Theirs is a service over the air, so to say. All they can do is install transmission stations to cover the area, and offer the service to such of those who subscribe for it …

Of course, penalties were listed in the licences: for instance, if your circle is of ‘‘B’’ category, you have to pay Rs 4 crore if you don’t install that many direct connections, another Rs 4 crore if you don’t install that many public telephones. It was so much easier for the basic operators to pay the amounts — a mere Rs 53 crore in all — rather than install the connections and public phones.

Notices for non-compliance … Stay orders by courts … Assertions by each side that the other has been favoured … Demands for compensation to make up for concessions given to the other …

To freeze time

Our industrial progress was set back a generation, perhaps by more because of the industrial and import-export licensing systems. The licences used to be user specific, they were use specific, they were technology specific, they used to be product and input specific.

An entrepreneur was allowed to produce commodity ‘‘A’’ at a factory located in place ‘‘B’’ by using process ‘‘C’’ deploying machine ‘‘D’’ imported from country ‘‘E’’ by inserting raw material ‘‘F’’.

Often the price at which he could sell the resulting product too was specified. If he departed from any one of these conditions in the slightest, he was guilty of violating the law, and was thereby liable to be prosecuted.

And who was to determine what the entrepreneur was to produce, where, how, etc? Personages ensconced in government offices: the Comptroller General of Imports and Exports, the Directorate General of Technical Development, the Planning Commission … The premise was the licensing authorities were better judges of what should be produced, by whom with what equipment, etc than the entrepreneur who was putting in his money.

The authorities surrounded their work and processes in much mystery. But when at the height of their power and reputation in the mid-1960s I examined the record — including their internal worksheets! — I had little difficulty in showing that nothing more than rules of thumb formed the basis of their decisions.

That system has been dismantled in most sectors of the economy. But ironically, the telecom sector — one of sectors in which technological change is the fastest — is one of the remaining bastions. And of both — the service/user/technology specific licensing regime as well as the mindsets that go with it — among private entrepreneurs even more than in the governmental set up!

Changes in technology strain this regime at every turn. On the other side, as those who got licences used to do in the 1960s and 1970s, entrepreneurs try everything to use the licensing regime to ensure that new technologies do not affect their turf for as long as possible.

But today new technologies are born every two years, new products are born every three months.

To be continued

(The article is based on the author’s valedictory address at the seminar on dispute resolution mechanism in the telecom sector organised by TDSAT in Sept 2003)

READ PART I, II, III & IV
Dial Reform
Licensed to crawl
Eyes Wired Shut
Who’ll take the call?

First published on: 16-10-2003 at 12:00:00 am
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