Lowering entry barriers

Trai's recommendations are unlikely to bring more operators

The recent recommendation by the Telecom Regulatory Authority of India (Trai) on rationalisation of entry fee and bank guarantees has opened up the duopoly debate once again. The 90-page report seeks to encourage competition through substantial reduction in entry fee for telecom service providers. This is in response to a reference made by the Department of Telecommunications last year. The Trai paper covers several categories, including unified licence access service, internet service providers, satellite broadband services, machine-to-machine entities and virtual network operators. For entry-fee rationalisation, the most important and the biggest category is the access service, which will imply new telcos that could compete with the likes of Bharti Airtel, Reliance Jio, and Vodafone Idea. As an idea, it appears constructive — a lower entry fee is meant to cut down on entry barriers for new entities. Such a move would also prevent a duopoly-like situation — something that the telecom industry has been staring at for some years now.

Despite the soundness of the Trai recommendation to cut entry fee, there is a question mark on whether the telecom industry will be conducive for newcomers at this juncture. Until over a decade ago, India had the highest number of telecom operators in the world and foreign investors found the sector extremely attractive. However, after the 2G spectrum allocation controversy, the Supreme Court in 2012 cancelled 122 telecom licences in one go and many others fell by the wayside. That left the industry in the hands of a few incumbents until Reliance Jio entered the fray in December 2015 and disrupted the market with low tariffs. As for other new entities, the Adani group sprang a surprise during the last round of spectrum auction by participating in the bidding process and acquiring airwaves.

With hardly any significant tariff increases over the years, the monthly average revenue per user (Arpu) in the Indian telecom industry continues to be the lowest in the world. Major players like Bharti Airtel have just about touched the Rs 200 Arpu figure recently. The wireless monthly Arpu for the Indian telecom industry was at Rs 141 as of the end of 2022, against more than approximately Rs 2,500 in the US. While Arpu remains low, telcos require serious money to invest in spectrum auction, network upgrade and other technology areas. Leading telcos are spending at least around Rs 1 trillion each over two years. In such a scenario, a new player, unless it is a company with deep pockets, may find it difficult to compete in the Indian telecom market even if the entry fee is halved for access players, as recommended by Trai. The regulator has suggested reducing the entry fee to Rs 50 lakh from Rs 1 crore for every telecom circle in the unified licence category, and bringing it down to Rs 25 lakh from Rs 50 lakh for Jammu & Kashmir and Northeast circles.

On bank guarantees, Trai has gone with the DoT suggestion of merging the two kinds — financial bank guarantee and performance bank guarantee. To make it a comprehensive package, the regulator should have recommended completely phasing out bank guarantees. The government had in 2021 reduced the bank guarantees by 80 per cent, bringing relief to the industry. Trai should have taken the process to the next level.