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New Policy Architecture: Industry expectations from NTP 2018

December 20, 2017
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The government has set the ball rolling for the release of the new National Telecom Policy (NTP), the draft of which is expected to be issued by end-2017. The policy is being formulated at a time when the sector is witnessing a paradigm shift in the competitive landscape and is reeling under a heavy debt burden. The industry, therefore, expects the new policy to help ensure a financially healthy and sustainable business environment for all players in the telecom value chain. Further, the policy must provide an enabling framework for the proliferation of next-generation technologies such as 5G, internet of things (IoT) and artificial intelligence, to boost domestic manufacturing, promote ease of doing business and strengthen the country’s cybersecurity framework. Industry experts share their views on the key focus areas of NTP 2018 and the major challenges that need to be addressed...(From left to right-  Tilak Raj Dua, Director General, Tower and Infrastructure Providers Association; Hemant Joshi, TMT Leader, Deloitte India; Rajan S. Mathews, Director General, Cellular Operators Association of India; T.V. Ramachandran, President, Broadband India Forum)

Key focus areas of NTP 2018

Tilak Raj Dua

India is currently the second largest telecom market in the world with a 1.19 billion subscriber base. Collaborative efforts by numerous players in the market – telecom service providers, infrastructure providers (IP-1s), regulatory bodies and the government – have nurtured the telecom market, which is expected to account for 8.2 per cent of GDP by 2020.

The NTP is being framed by the government to ensure that the telecom sector emerges as a key driver for socio-economic growth. Sectors such as banking, power, transportation and e-commerce are riding on telecom networks to run their daily operations. The telecom sector plays a critical role in nation building; therefore, there is a need to create policies that would further strengthen the sector.

Given the current financial and technological dynamics of the sector, a revised policy framework needs to be devised. NTP 2018 is anticipated to address the challenges facing the sector and provide an enabling ecosystem for telecom players. Furthermore, the policy may facilitate the deployment of new technologies such as IoT, 5G, machine-to-machine (M2M) and Skynet. It should also focus on strengthening the cybersecurity framework to protect the interests of end consumers.

Hemant Joshi

NTP 2018 should reflect the vision of Digital India, which is to transform the country into a digitally empowered society and a knowledge economy. The telecom industry is transforming from a voice-led market to a data-centric one. Globally,

4 billion people are expected to be connected by 2020, thus generating 50 trillion GB of data annually. Emerging technologies such as IoT, 5G, artificial intelligence, virtual reality, robotics, cryptocurrency, Blockchain and drones are gaining momentum and we are likely to see several use cases in these areas. All these technologies can be supported by a strong and robust fibre backbone and fibre-to-the-home services. To cater to the growing demand for high speed bandwidth by enterprises and consumers, NTP 2018 will need to treat telecom as an infrastructure sector and extend to it all the benefits applicable to infrastructure, in terms of incentives, taxation, tax-free bonds for raising capital, etc. In addition to improving the sustainability and profitability of the industry, the policy should support a liberal merger and acquisition regime.

Rajan S. Mathews

The NTP document is a framework that defines the direction in which the telecom policy must move; it covers all the important aspects of the sector. NTP 2012 had envisaged that the telecom sector would move far beyond voice, and all communication services would become crucial for resolving issues across commerce, governance and education, and impact the overall economy through deeper penetration of high speed data networks across the country.

The new policy presents yet another opportunity for the government to bring in the much-needed fundamental changes in the sector. The new policy must encourage investments and help maintain the financial stability of the sector. There has to be predictability in government policy as well. While working towards 70 per cent broadband penetration by 2020, we have asked the government to put in place a number of enabling policies to ensure that unnecessary hurdles do not impede the country’s progress in technology adoption in the coming years.

T.V. Ramachandran

NTP 2018 assumes far greater importance than even the epoch-making NTP 1999, which catapulted the Indian mobile market from about 1 million connections to about 1,200 million connections at present (the second highest in the world). India today is at a very critical juncture and its socio-economic progress will depend on the crucial measures for the telecom sector, which need to be included in the new telecom policy – NTP 2018.

In my opinion, the key focus areas of NTP 2018 should be as follows:

• Liberalisation of licensing: We need to significantly liberalise the sector through an evolved approach. Such an approach is possible and envisaged under the Indian Telegraph Act, 1885, as Section 4 of the act states that the government “may grant a licence, on such conditions and in consideration of such payments as it thinks fit”. It follows, therefore, that the Department of Telecommunications has powers to decide the appropriate degree of severity or leniency of the licence and whatever payment (including very low or nil) as it deems fit for the particular type of service. Thus, to encourage and grow innovative services in the new era, the new policy should state this as the declared objective.

• Broadband for all: NTP 2018 needs to lay emphasis on providing high quality broadband for all since without this the entire edifice of Digital India would crumble and fall. While NTP 1999 was needed to save the telecom sector, NTP 2018 is crucial today for the success of Digital India. The policy should recognise that broadband is akin to a fundamental right of citizens.

• Rich interactive apps: The app economy is delivering huge socio-economic benefits to citizens. NTP 2018 needs to go beyond the voice-centric mindset of the past and focus not just on data but, more importantly, on data-based services.

• Public Wi-Fi hotspots: The use of broadband and apps requires adequate availability of public Wi-Fi hotspots to enable high speed and cost-effective internet usage. We are deplorably short off the mark in this respect. We have only about 32,000 public Wi-Fi hotspots. In comparison, China has 36 million and the US has 67 million hotspots. The liberalisation of permissions or “licensing” for public Wi-Fi hotspots is, therefore, imperative.

• Fibre connectivity: The new policy should give a major impetus to the creation of adequate fibre infrastructure for transmission and backhaul to support the increase in data traffic. Concurrently, all cell-sites/towers need to be fibre connected to be able to support the exponentially growing data traffic. India is poorly placed as compared to countries like China and the US in this regard. For example, India has only 1.2 million km of optical fibre cable (OFC) against China’s 18 million km. Effectively, therefore, China has 1.34 km of OFC per 100 persons while India has 0.1 km. Without a policy focus on improving our standing here, we would be greatly disadvantaged for 5G.

Moreover, the policy should clarify that giving right-of-way (RoW) permissions for laying fibre should not be used by municipalities and local authorities as a means of levying high charges to augment their tax revenues. The policy must specify that laying more fibre is necessary for increased broadband connectivity.

• Satellite communications: India is a very large and diverse country with many remote locations. Extending terrestrial networks to such areas entails many challenges, including high and unviable costs. The most expeditious way of accessing such locations is through satellite communications. Globally, communication satellites are the primary growth driver for the satellite industry and constitute more than 50 per cent of the entire satellite market, with about 37 per cent for commercial communications and 14 per cent for military purposes. It is a matter of concern that India has less than 3 per cent of the total global satellite population. An open sky policy that encourages private manufacturing and launch of modern satellites to augment the national capacity are urgent requirements. The new policy should also facilitate the introduction of new services like in-flight, maritime and train connectivity.

• Research and development: Although India is the second largest telecom market in the world, it regrettably finds no place in the league of nations in the important fields of innovation, intellectual property creation and standards. The new policy needs to address these lacunae on a priority basis.

• Manufacturing: We cannot achieve a global leadership position without having adequate manufacturing capabilities and facilities. The Make in India initiative needs greater emphasis in telecom and the new policy should sculpt a different approach for customer equipment (for instance, smartphones) and for active network infrastructure equipment. Further, India has the potential to become the global manufacturing hub for OFC, research and development, electronic components for 5G and some other niche areas including satellite terminals, commercial communication satellites, Wi-Fi routers and switches for public Wi-Fi.

Key concerns that the policy needs to address for sector growth and sustainability

Tilak Raj Dua

In order to bring harmony, growth and sustainability in the sector, some key issues and challenges that NTP 2018 needs to address are as follows:

• In order to expedite tower installations, as well as improve the quality of service and the call drop situation, IP-1s must be included in the Indian Telegraph Right of Way Rules, 2016, even if it requires amendments  to the Indian Telegraph Act, 1885. Since IP-1s are at the forefront of installing telecom infrastructure in India, excluding them from the purview of the rules will have a serious impact on the efforts to digitise the country and will slow down the deployment of telecom infrastructure.

• The industry strongly recommends the reclassification of common telecom/digital infrastructure under a common umbrella to include antennas, feeder cables, Node B, radio access networks (RAN), transmission systems, coaxial cables, combiners, splitters, directional couplers and passive antennas.  This will allow IP-1s to deploy and lease the common telecom infrastructure as a part of the infrastructure sharing model under the existing registration certificates.

• The policy must standardise the fee structure for the installation of telecom infrastructure to make it more sustainable and improve the financial viability of the sector. This will further increase the deployment of tower sites leading to a wider coverage area and an enhanced customer experience.

• Since telecom towers are movable structures and not buildings, and are fixed on the ground through nuts and bolts, property tax should not be imposed on them. Further, there is a need to redefine telecom infrastructure assets as plant and machinery rather than buildings. Guidelines should be formulated to ensure uniform property tax rates across various states and regional authorities and reduce complexities in the existing tax framework, thus simplifying the roll-out process of new telecom sites.

• The sector has been accorded “infrastructure status” since 2012; however, the government needs to implement corresponding infrastructure status benefits (such as availability of funds at concessional rates, allowing higher external commercial borrowing limits and extension of viability gap funding) to infrastructure providers.

• The government should consider improving the availability of grid power for telecom towers by prioritising new electricity connections and ensuring continuous supply at par with essential services. In addition, the government should incentivise the production of lithium-ion batteries in the country. This would reduce the reliance on imports, lower carbon emissions and promote the “Make in India” initiative.

• The government should ensure the protection of critical telecom infrastructure by imposing stringent penal actions for causing damage to critical assets. The state governments should have a proper mechanism to impose these protection measures. This will help in reducing vandalism/theft cases, which considerably affects the uptime at sites.

• There are multiple guidelines for tower installations across the states, which creates chaos and confusion on the ground, leading to delays in the installation of telecom infrastructure. The policy uncertainty also dampens investor confidence as it impacts the ease of doing business, besides impeding the roll-out of critical telecom infrastructure. Uniform guidelines for the installation of telecom towers on government premises and a level playing field for IP-1s can facilitate faster deployment of telecom towers.

Hemant Joshi

Telecom is the backbone of the ambitious Digital India initiative and is crucial for economic growth. It should be considered as an infrastructure sector and all the associated benefits should be extended to it in order to increase the spending in this sector.

NTP 2018 needs to address a number of long-standing challenges in the sector. The key among these are:

• Spectrum: Spectrum prices in India are the highest among developing nations and add to the operators’ debt burden. The demand for spectrum is high since emerging technologies demand high bandwidth for better quality services. The policy needs to review the spectrum pricing, refarming and harmonisation aspects.

• Infrastructure: The lack of adequate infrastructure is a major concern for the telecom sector and results in issues like call drops and poor service quality. Further, challenges in infrastructure set-up in terms of RoW and radiation norms should be addressed. Debt burden is another reason behind the weak infrastructure spend.

• Tax: The new telecom policy should bring in a simplified tax regime for operators. The Universal Service Obligation (USO) Fund and spectrum usage charges (SUC) should be rationalised.

• Security: Cybersecurity is a big concern in the industry and linking of Aadhaar with mobile numbers and bank accounts makes user data highly vulnerable. The new policy should review the security aspect of telecom services in terms of privacy and ownership of user data.

• Disruptive technologies: Technologies such as 5G, IoT, artificial intelligence and Blockchain need future-proof policies for better implementation.

Rajan S. Mathews

It is essential that the new policy addresses the long-term health and stability of the sector. The industry is on a downward spiral with cumulative debt amounting to around Rs 5 trillion on revenues of under Rs 2 trillion. For both the success of Digital India and continued infrastructure roll-out and innovation in technology, the sector needs to invest Rs 2 trillion-Rs 3 trillion in the next couple of years or else the country’s rural population will be the most disenfranchised and underserved. Even though India may grow, Bharat will be left out due to the widening digital divide. The BharatNet project is innovative and is supported by the USO Fund, which is further funded by the telecom sector.

The government has to look into reducing the financial burden on the sector. We have suggested a number of options such as reducing spectrum usage charges to a uniform 1 per cent of adjusted gross revenue and creating a telecom finance corporation as a vehicle to mobilise and channelise financing. Another option is to rationalise the USO Fund’s contribution to 3 per cent with the ultimate objective of eliminating the levy in the next two to three years or keeping it in abeyance until the entire amount is disbursed.

The telecom industry should be given access to long-term low-cost debt for infrastructure projects through infrastructure debt funds and the removal of property tax on tower infrastructure should be considered. The industry has also been asking for a GST rate of 5 per cent due to the essential nature of the services, in addition to aligning the payment schedule for spectrum debt with the time period of spectrum usage of 20 years (five years moratorium and 15 years payment).

As far as operational changes are concerned, the industry has been pushing for a number of measures including a single unified licence across the country, where every service provider offering the same service must adhere to the same rules. Spectrum, the raw material of the sector, needs a policy where the nuances and major points of conflict are dealt with conclusively. This will allow the sector to plan, use and execute the national resources efficiently. Moreover, service providers should be given access to satellite spectrum for any application, that is, VSAT, DTH (direct-to-home), teleport or any other form of telecom services.

Apart from these, we have made a number of recommendations regarding the ease of doing business, data privacy, network security, manufacturing and skill development. These would help create an investor-friendly environment and boost foreign investments. The government intends to open NTP 2018 for public consultation next month and finalise it by February 2018. This shows that the government is concerned about including public inputs and undertaking consultations, and that is an encouraging sign. The private sector must also work together to ensure a fully connected and truly empowered India.

T.V. Ramachandran

The key concern areas that the policy must address for the sector’s growth and sustainability are as follows:

• Spectrum pricing: The sector is reeling under a huge debt burden. Even the inter-ministerial group has recognised this and reportedly, a longer payment term for spectrum bought in the auctions is being considered. I strongly feel that this is a mere palliative and will not address the root cause of the problem. Over two-thirds of the industry’s debt is owing to spectrum payments and unless this is addressed, the sector would not improve in terms of viability or sustainability. To this end, the methodology of fixing reserve prices for auctions must be amended so that it is in line with  the market revenue potential and is  reasonable enough to result in the market discovery of the true price of spectrum. In the auctions conducted so far, about 40 per cent of the spectrum remained unsold and most of it went at a very high reserve price. Unsold spectrum is an irreparable loss to the country in terms of missed socio-economic benefits.

• SUC: Currently, the recurring SUC payable are exorbitantly high and anomalous. Once spectrum is paid for through the price discovered in auctions, it is unfair and incorrect to apply a “double whammy” through the levy of high SUC. When spectrum is obtained through auctions, the SUC levied should be just enough to cover the cost of administering and regulating spectrum, which would be around 0.1 per cent in our case.

• Licence fee levies: It is anomalous to levy a high licence fee as a percentage of adjusted gross revenue. Therefore, the policy should state that the fee should be just adequate to cover all costs of regulating and administering the licence. This, like in the case of SUC, would only be a fraction of a per cent (0.2 per cent).

• Ease of doing business in telecom: Both in the case of terrestrial telecom and satellite communications, there are many opportunities with regard to significantly improving the ease of doing business through specific measures. s

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