Telephone monopoly to competition

Telephone monopoly to competition:

A level playing field without transparency?


FAIR HANDLING OF THE PSE ADVANTAGE IN TELECOM

Despite economic liberalization and privatization of Public Sector Enterprises (PSEs), this latter group still enjoys a dominant position in the market. Due to a lack of transparency in policy implementation and regulation, PSEs thrive based on their greater access to infrastructure and public funds as compared toprivate players.

The government strategy in this respect appears to be to create market access with one hand while creating policy barriers with the other.

The National Telecom Policy of 1994 set two major developments in motion that ultimately spurred rapid growth in telecommunications. These include:

  1. Privatization of telecom services
  2. Introduction of cellular mobile services

 

The Evolution of Modern Telecom Services 

Till 1994, telephone services were a monopoly of MTNL (through DOT), a Public Sector Undertaking (PSU).

To begin with, two private service providers each in Delhi, Mumbai, Kolkata and Chennai were awarded the Cellular Mobile services in November 1994.

This was followed by award of two licenses in each of the 18 Telecom circles, based on a competitive bidding process.

GSM technology (Global Special Mobile) largely prevailed (frequency provided was in the 900 MHz band i.e. 890-915 MHz paired with 935-960 MHz) in the beginning but the introduction of CDMA in 1997 enabled fixed service operators to also provide wireless services (frequency allocation being in the 800 MHz band i.e. 824-844 MHz paired with 869-889 MHz).


Some of the changes proposed or implemented through the National Telecom Policy, 1999 (NTP-99):

  • Introduction of a revenue sharing regime
  • A move from duopoly to multipoly as DOT/MTNL were brought in as third operators in each circle and were required to pay license fees;
  • NTP-99 envisaged that spectrum should be utilized efficiently, economically, rationally and optimally. So, the concept of technology neutrality was introduced and the terms and conditions of licenses were to be applicable to all licensees equally.

Read more :

  • In January 2000, the TRAI Act was amended empowering TRAI to pass directions against all service providers including Department of Govenment. TDSAT, an appellate dispute resolution authority, also came into being.
  • In January 2001, Guidelines were issued for the Fourth Cellular Operator and multi-stage bidding was followed for the fourth license.
  • In November 2003, NTP-99 was amended, introducing two new categories of license — Unified License and Unified Access Services License. Essentially, these licenses brought in technology neutrality and conditions providing that allocation of spectrum would be subject to eligibility, justification and shall be considered a case-by-case basis.

From time to time, the criteria for allocation of both initial as well as additional spectrum were notified, as per order of 29th March,2006.

A Level Playing Field Still Not a Reality

Interestingly, in a spectrum dispute before the TDSAT (COAI Vs.TRAI & Ors) [1], it was alleged that both BSNL and MTNL had been given additional spectrum with no explanation offered to justify this preferential treatment.

As per the statement made by these PSUs before the TDSAT, MTNL admittedly had only 10.25 lakh subscribers with 12.4 MHz.As per the subscriber base criteria fixed by the March 2006 order, the subscriber base required was 10 lakh even for allocation of spectrum of 10 MHz. A similar situation was found with BSNL circles, especially in Kolkata and Chennai, where the subscriber base was below the prescribed limits.

The government’s arguments in this case largely revolved around the contention that PSUs did not have to adhere to a level playing field.To push this through, they relied on SC decisions[2] which ruled that

“… preference shown to government companies cannot be considered to be discriminatory as they stand in a different class altogether and the classification made between government companies and others for the purpose of the Act is a valid one…….”

The TDSAT’s Opinion and More

The TDSAT, while dealing with the matter cited from the NTP-99  –

Availability of adequate frequency spectrum is essential not only for providing optimal bandwidth to every operator but also for entry of additional operators. Based on the immediately available frequency spectrum band, apart from the two private operators already licensed, DOT/MTNL would be licensed to be the third operator in the service area in case they want to enter, in a time bound manner.

In order to ensure a level playing field between different service providers in similar situations, license fee would be payable by DOT also. However, as DOT is the national service provider having immense rural and social obligations, the Government will reimburse full license fee to the DOT”.

In conclusion, the TDSAT ruled that –

“…In thisera of liberalization, there cannot be any discrimination between public and private sector operators. We hold that allocation of additional spectrum to BSNL and MTNL on the basis of the criteria laid down in the order dated 29.3.2006 is a discrimination against the private GSM operators…”

And passed Directions –

  • DOT to immediately review the subscriber base of the two PSUs in all the Circles and withdraw such spectrum that is beyond the criteria laid down by the DOT in their Order dated 17.1.2008.
  • DOT to apply the revised criteria to all the operators would apply to BSNL and MTNL as well.

In addition, TRAI issued directions in May 2010 stating that –

  • Existing firms will be charged for the spectrum they have beyond 6.2 MHZ and that the price charged for 2G will be same as it is for 3G.

The TDSAT profoundly expressed that it is in the nature of business that Companies compete with each other. It is also natural that those who occupy the field would loath to see new entrants coming in and sharing the pie. It is equally natural for new entrants to want to enter into areas which are found to be commercially attractive.

Clearly, spectrum rich PSUs are impacted the most by these rulings.


[1] Decision of 31st March,2009 in Petition No.286 of 2007. (http://tdsat.nic.in/31S.03.2009/P.No286.htm)

[2]  The Hon’ble Supreme Court, in the case of Sarkari Anaj Vikreta Sangh v. State of M.P [(1981) 4 SCC 471] held that “if the government took a policy decision to prefer consumers co-operative societies for appointment as agents to run fair price shops,…. there can be no discrimination.” The Supreme Court also referred to the case of Hindustan Paper Corporation Ltd v. Govt. of Kerala [(1986) 3 SCC 398] wherein the Apex Court held that “preference shown to government companies cannot be considered to be discriminatory as they stand in a different class altogether and the classification made between government companies and others for the purpose of the Act is a valid one.”


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