New Telecom Policy to reduce licence period to 10 yrs

Easier merger and acquisition rules on the cards; A uniform licence fee for all segments; Spectrum and licences to be unbundled

The government plans to renew telecom licences every 10 years instead of the 20 years at present. It is also considering easier merger and acquisition (M&A) rules for telecom companies.

Announcing the contours of the New Telecom Policy-2011 (NTP-2011), which will be finalised this year, Communications and IT Minister Kapil Sibal said, “Under NTP-2011, the companies will have to file an application 30 months before their licence is to be renewed, and the licence will be renewed for 10 years.”

Some licences of Bharti Airtel and Vodafone Essar will come up for renewal in 2014. Subsequently, the licences of about 11 companies will come up for renewal between 2014 and 2021.

This may put extra financial burden on the companies.

NTP-2011 would also delink spectrum from licences, said Sibal. This may make spectrum expensive, say experts.

However, these measures may not lead to higher tariffs. “A company has 100 costs. It’s not that one particular cost is suddenly going to have an impact,” said Department of Telecommunications (DoT) Secretary R Chandrashekhar.

The liberalisation of M&A rules is expected to drive consolidation in the industry, which is facing intense pressure on margins due to tough competition and low tariffs.

At present, there are 10-12 operators per circle.

“The M&A guidelines need to be liberal but the number of competitors (including state-run BSNL/MTNL) in a circle should not be allowed to fall below six,” said Sibal.

At present, a telecom service provider cannot hold more than 10 per cent stake in another operator in the circle where it operates. There is also a lock-in period of three years for companies which got licences in 2008. This means they cannot exit the venture before the end of this period.

DoT is formulating NTP-2011 to evolve a transparent mechanism for spectrum allocation and trading and sharing of spectrum. It initiated this under the 100-day agenda announced by Sibal after he took charge in January this year.

The sector has been mired in controversies over allotment of new licences and spectrum in 2008, which forced Sibal’s predecessor, A Raja, to resign.

Among other measures, DoT will consider allowing sharing of spectrum. Also, the rollout conditions would be modified and a uniform licence fee introduced for all segments, Sibal said.

In future, the licences will be issued in four categories, which will replace the existing unified access service licence system.

There will be a unified licence, a class licence, a licence through authorisation and a broadcasting licence.

DoT is still considering a mechanism for pricing 2G spectrum based on the telecom regulator’s recommendations.

Sibal said most of these decisions would be finalised within three-four months.

A committee will also be formed to draft the National Spectrum Act. It will be headed by retired Judge Shivraj V Patil.

“Overall, the NTP-2011 looks good but the devil will be in details such as the amount to be paid for renewal, the fee for excess spectrum, etc. It seems the policy is likely to reduce uncertainty and is forward-looking.The uniformity in licence fee will bring transparency,” said Hemant Joshi, partner, Deloitte Haskins & Sells.

“Spectrum is a complex resource and should be dealt with independently. Operators have paid huge amounts for 3G and briging down the licence period to 10 years will reduce the recovery period,” he said.