Improving Ease of Doing Business in telecom sector: Addressing legacy challenges is a must

Streamlining spectrum allocation, harmonising RoW implementation across states, ensuring fair competition, and reducing regulatory arbitrage are all critical steps toward building a robust and inclusive telecom ecosystem

Ankeetaa Mahesshwari and Abhishek Jha | November 21, 2024


#Telecom   #Law   #Policy   #Business  
(Illustration: Ashish Asthana)
(Illustration: Ashish Asthana)

India's telecom industry stands as a global powerhouse, ranking second in size with a subscriber base of 1.095 billion as of July 2024, including wireline and wireless. With the rapid expansion of 5G services, the country's 5G subscriptions are projected to reach 350 million by 2026, accounting for 27% of all mobile connections. Further, the FY24 annual report from the Telecom Regulatory Authority of India (TRAI) indicates an upward trend in key telecom industry metrics, including telephone subscribers, teledensity, average minutes of usage per subscriber and adjusted gross revenues. This progress marks a significant step forward in modernising India’s telecom regulations. However, as the sector evolves, persistent legacy issues cast a shadow over progress, circumventing it reaching its full potential. Legacy issues in the telecom sector are long-standing challenges that hinder operational efficiency and industry growth.

First and foremost, a critical legacy issue had been the Right of Way (RoW) framework. It is the legal right granted to telecom operators to install infrastructure, such as fibre optic cables or towers, on public or private property. This is crucial for expanding telecom networks and improving connectivity. For years, RoW remained a central government “guideline”, leaving the states free to choose whether or not to implement it. This inconsistency in implementation across states created significant barriers to the development of telecom infrastructure.

The Telecommunication Act of 2023 aims to address this by making the implementation of central RoW rules mandatory for all states. Of the 29 states and union territories, more than half have already issued state-level RoW rules in alignment with central guidelines. However, the challenge remains: infrastructure development is still hampered by a lack of uniform implementation, cooperation from local authorities, and the need for better state-level action.

Another pressing legacy concern is spectrum allocation. India's telecom industry faces a shortage of unlicensed spectrum, which is crucial for innovations like Wi-Fi and Short-Range Devices (SRDs). Compared to developed economies, India offers only a fraction of the unlicensed spectrum available elsewhere. This bottleneck stifles the growth of new entrants and limits innovation. While spectrum allocation to enterprises for private 5G networks could be a solution, concerns about safety, regulation, and potential losses to telecom service providers (TSPs) remain. Moreover, acquiring spectrum through auctions is costly, further burdening TSPs and contributing to the sector's low return on investment (RoI).

The financial strain on TSPs is exacerbated by the competitive and price-sensitive nature of India's telecom market. Despite telecom tariffs being under forbearance – allowing operators to freely raise prices – returns on investment remain low. To counterbalance the low RoI, operators are increasingly bundling content with connectivity to enhance customer loyalty and value for money.

Licensing is another area where challenges persist. Traditional telecom services have long required licences, often accompanied by high fees. The new Telecom Act 2023 seeks to liberalise this regime, replacing the cumbersome licensing system with an authorisation process. However, this shift must go beyond mere semantics. A streamlined, concise authorisation process can spur competition, foster innovation, and help build a more inclusive digital ecosystem in India, in line with the government's vision of ‘Viksit Bharat’. Though the Department of Telecom (DoT) has made strides in simplifying procedural aspects, much more needs to be done to ease the regulatory burden on the industry.

India’s TSPs are struggling to match the quality of service offered by their international counterparts, primarily due to high costs and regulatory obligations. While operators abroad charge significantly higher tariffs, Indian TSPs are bound by market-driven factors that limit their profitability. Greater profits would enable these companies to invest more in improving service quality.

The next legacy issue is the heavy reliance on bank guarantees, which play a crucial role in ensuring compliance and financial security. TSPs are often required by the government and regulatory bodies to provide these guarantees, tying up significant amounts of capital. This requirement creates a financial burden, especially given that only three major players dominate the market. As a gesture of confidence in these established companies, the government could consider allowing them to encash their bank guarantees, easing the financial strain and promoting smoother operations.

Spectrum allocation, mergers and interconnection agreements are all areas where regulatory arbitrage can occur. For instance, mergers in the telecom sector, which are subject to competition law, may also raise regulatory concerns regarding market dominance or unfair practices. Similarly, interconnection issues – where one operator connects its network to another – are crucial for maintaining service quality but can also be subject to inconsistent regulatory approaches.

Looking ahead, India’s telecom sector holds immense potential for growth and innovation, particularly with the rollout of 5G. However, addressing these legacy issues is essential for the industry to realise its full potential. Streamlining spectrum allocation, harmonising RoW implementation across states, ensuring fair competition, and reducing regulatory arbitrage are all critical steps toward building a robust and inclusive telecom ecosystem.

The Telecommunication Act of 2023 is a step in the right direction, but its success will depend on effective implementation at both the central and state levels. Policymakers must continue to refine the regulatory framework to foster innovation, protect consumer interests, and support the growth of the telecom sector as a cornerstone of India’s digital economy. As the country moves towards becoming a digital superpower, the telecom industry must beequipped with the right tools and policies to drive this transformation.

Ankeetaa and Abhishek are Associate Fellow and Fellow, respectively, at Pahle India Foundation, a Delhi-based think tank.

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