Competitive implications for an incumbent operator in unified license regime

Abstract

The present study is an effort to map the effect of the changing scenario in the telecom sector in India on the public sector incumbent operators and to suggest ways and means available to these incumbent operators to adapt to the changed scenario. Telecom sector in India had been a Government monopoly till the opening up of the sector for private sector participation by the introduction of the New Telecom Policy in 1994. It was followed up with another policy in 1999, which tried to plug the gaps that were left in the earlier one. Opening of telecom sector to private sector participation resulted in a multi-service and multi-operator environment. This in turn led to emergence of many tariff and regulatory issues. In order to expand the telecom network to areas not accessible earlier and less attractive to profit motivated private sector operators, a concept of "Limited Mobility" was introduced in which Basic Service Operators were allowed to provide an attractive feature of mobility within the service area using wireless in Local Loop (WLL) technology. The purpose of NTP' 94 of providing telephones to all, at affordable price was defeated with the private operators in mobile sector catering only to the richer sections of society and providing no connectivity to rural and backward areas. The tariffs were so high that it became a service that could be afforded only by the topmost layer of society. The idea was to provide incentive to new operators to complement the efforts of existing government operators in spreading the reach of telephony to areas where it was not being done earlier and by providing a limited mobility so that their product could be different and hence make it viable for them to provide such services. The idea of rollout obligation was mooted in view of the fact that the operators may not otherwise offer these services in less lucrative areas. But the policy makers failed here in one respect. The amount of penalty that was fixed for not meeting rollout obligations was so low that the operators preferred to pay up penalty rather than providing and maintaining these services in less profitable areas. The performance of private operators in providing the connectivity in less viable areas was dismal The WLL operators further created problems by converting limited mobility to full mobility using methods that were not anticipated by the policy makers. The cellular industry stiffly opposed this 'illegal and unlicensed entry of fixed operators into mobile services through the backdoor'. Further, the upheaval that followed in the industry on account of the battle between cellular and limited mobility service providers wherein, cellular operators refused to provide interconnection to limited mobility operators added fuel to fire. The refusal of cellular operators to interconnect with limited mobility operators was followed by their making a public appeal to the regulator for fair and indiscriminatory terms and conditions of operation. All this led to review of the existing policy and thus the Unified License Regime .was born wherein the existing service providers could migrate to the new regime by paying difference in license fee and provide all types of services with a single license. In the present study MTNL Delhi has been taken as the incumbent operator for studying the effect of the new license regime. The network of MTNL Delhi has been divided into three sub networks namely, Landline, CDMA (Garuda) and GSM (Dolphin) and traffic pattern for a fixed period in all three sub networks has been studied along with the change in the subscriber base in these sub networks over the same period. An effort has been made to calculate the ratio of change in revenue to change in cost of adding a customer to the sub network that provides the evidence from where the money is coming and which investments are not yielding desired revenues. From this ratio and the traffic pattern one can decide which sub network would be advisable for investing in future for the incumbent operator and whether the advantage of larger numbers in case of fixed lines is actually being converted into revenue advantage for the incumbent operator or not. Finally the study makes recommendations for incumbent operator based on these findings.