The structure of the Indian telecom sector is based on a traditional monopoly model wherein the state has assumed responsibility of developing and supporting telecom infrastructure. The Indian Telegraph Act (ITA) 1885 governs the telecom sector. The Government of India embarked on major economic reforms programme in 1991. Telecom sector reforms started with liberalisation of equipment manufacture followed by introduction of private operators for provision of basic and cellular services. The need for private participation had also arisen from the worldwide transition to a competition model for optimising resources and welfare.
At present, most of the domestic long distance (DLD) infrastructure is with DoT, which is also the predominant DLD service provider. However, the fixed and cellular service licensees have also established limited infrastructure, since they are allowed to carry long distance calls of their subscribers within their service areas. Further, there are certain organisations with captive telecommunication networks being used by them, mainly for their operational purposes. Prime amongst these are Railways, Power Grid Corporation of India Ltd and GAIL (India) Ltd.
Currently, public utilities and private sector operators (both basic and cellular) together possess around 3,000 Rkm, which is negligible compared to the current DoT network of over 76,000 Rkm of optic fibre cable. Public utilities have existing transmission networks, which lend them an advantage by access to Right of Way (RoW). This implies that they can roll out facilities faster and at lesser costs than other entities. The other entities will need to either approach them for RoWs or obtain approvals and clearances from multiple authorities.
There is no existing alternate nationwide infrastructure available connecting major metros and important locations, which can provide competition to DoT on maximum revenue yielding routes. Railways, PGCIL and GAIL have spare capacity that is scattered and not easily connectable. In comparison, state-level infrastructure of private operators is tuned to telecom traffic requirements. In a few states, long distance infrastructure connecting major locations exists. In such states spare capacity exists to cater to long distance traffic.
At present, private operators do not have installed spare capacities sufficient to meet the circle's potential needs. For instance, spare OFC capacity is available only in MP circle, while small capacities on DMW are available with the cellular operators in various circles. However, some circles with high potential like Punjab and Maharashtra have little spare capacities. Therefore, the former circles may see early initiation of competition than the latter. This differential will get mitigated once the basic services licensing and policy issues are settled.
There are many routes on which capacities are available with more than one operator, implying possibility of greater competition on these routes. For instance, in Kerala and Gujarat, cellular operators have competing networks.
Planned infrastructure
Infrastructure plans are drawn up by two kinds of entities viz. utilities and private operators. A large number of entities are proposing to build telecom networks either at state or national level. For instance, PGCIL has developed a National Telecom Plan connecting important cities. It is also negotiating with state electricity boards for state-level networks aimed at extensive intra-state coverage.
The Railways' telecom plans include building an OFC network using its RoW. It has identified around 22,000 Rkm of "high density" routes along which OFC will be deployed with an estimated investment of about Rs 1,800 crore. The scheme will operate on BOOL (build-own-operate-lease) principle in five geographical regions. The planned network will have 24 fibres, of which four will be devoted to railways' communication needs. This will be given to the Railways free of cost in consideration of their RoW. The surplus capacity will be available to other agencies for commercial utilisation. RITES and IRCON, associate companies of Railways have already been authorised to lay and operate the optical fibre network in two of the five sectors.
Railways do not plan to invest its own resources and has opted for joint venture approach. PGCIL has developed a telecom plan and has appointed a consultant to look at entry options and financial viability among other things. The decision to invest in telecom infrastructure will be based on the outcome of the study. However PGCIL's initial investment estimates appear to be on the higher side due to planned use of imported cables to be strung on poles. GAIL only plans to build the network on routes where it will be laying the pipeline hence the reach of its network will be limited.
Although different entities have indicated plans of networks over the same routes, an operator may review these plans in case another entity's plans fructify earlier. For instance, the planned networks of GAIL in the south are parallel to the proposed backbone network of cellular operators in these states. Since GAIL's network is likely to come up before the cellular operator's backbone, it may preclude the need for a separate backbone network by the cellular operators.
The plans show that there are a large number of entities interested in building the facilities. Besides GAIL and Bharti Telenet Ltd, none of these plans are under implementation. They are essentially on 'wait and hold' mode. The fructification of these plans is contingent on favourable business environment. Thus, these facilities may or may not materialise. The private operators' plans are stuck due to their inability to raise resources to invest. Hence, the viability of business plans of the existing operators will impact facilities build-out.
Regulatory issues
There are two categories of entities owning or proposing to build infrastructure: service providers and others, including utilities. If utilities remain as pure infrastructure providers, then they are outside the purview of TRAI Act which is applicable only to service providers. Should pure infrastructure owners be regulated? If yes, then what should the regulatory mechanism be, since the TRAI Act only mandates regulation of service providers?
It may happen that a service provider, who is dependent on infrastructure owner for provision of services, is unable to meet the commitments for service delivery. Should pure infrastructure owners be licensed? If yes, what should be the terms and conditions of their license?
The commercial agreement between infrastructure owners and service providers may have implications for interconnection, quality of service and tariff. In such a scenario should the TRAI regulations be made applicable to such entities? If they are not under regulation, will the commercial agreement between pure infrastructure owner and service provider be governed by TRAI? For instance, will the lease charge be subject to TRAI notified ceilings or be governed by forces of demand and supply?
Network obligations
The government should expedite resolving these issues for the betterment of the telecom infrastructure. Further, imposition of network obligations in case of limited competition, where these are linked to the objectives of the overall policy. For instance, in Brazil, a mandatory rollout and achievement of PoPs within the duopoly time frame accompany duopoly. Network obligations could also be linked to universal service goals, where a certain level of expansion is a condition for the license. Although these obligations are described as the conditions of the license in post-licensing period, they often act as entry barriers. New entrants view these obligations in the light of investment commitments entailed by them and, therefore, link it to the cost of the project. Moreover, such obligations are generally accompanied by penalty clauses in case of non-fulfilment.
In case of DLD policy, imposition of network obligations could be mooted in one of the following scenarios:
* Under limited competition, where predetermined number of licenses are issued, so as to ensure network rollout
* In restricted competition scenario,
where entry barriers are imposed to restrict entry.
(Apurva Agarwal is a freelance writer and Partner, Universal Legal, Mumbai)
