There is an urgent need to strengthen the service-delivery segment from the present UL license, which is a composite license with network layer and service layer under the same license. Moreover, as in the UL regime, spectrum is separated from the earlier license, which used to be bundled along with spectrum. All the UL license holders have already hived off the towers, etc., to the registered IP-license holders. Also, as the 4G and 5G technologies evolve, huge investments in the network are required.
Presently, the service-delivery model is based on one-size-fits-all concept. Consumers have very limited choice, and there is an urgent need that the present model needs to be changed to provide customized services by the service-delivery licensees, the UL-VNO license holders.
A need for separation of network services layer and service-delivery layer to:
- Attract investment and innovation, delivering widespread availability of services;
- Sustainable competition, delivering choice, quality, and affordable prices;
- Empower consumers, able to take advantage of competitive markets; and
- Targeted regulations where necessary, deregulation elsewhere.
Earlier, the spectrum was delinked from the license; passive infrastructure IP-1 is already delinked from core network. Recently, TRAI also recommended certain active elements to be included in the IP-1 licenses. With a long-term foresight, DoT also issued UL-VNO licenses in 2016 with a vision to make service-delivery a separate platform. But unfortunately, the UL-VNO model has not picked up in mobile sector due to absence of any mandate to TSPs, and their non-cooperation resulted in non-starter of the model yet. As 4G technology upgraded to 5G technology, there is a dire need to delink core network from the service-delivery platform. It will not only save cost, it will also efficiently deliver all the services and applications seamlessly without any burden of legacy levies and costs associated with the current combined setups.
All the TSPs are managing their active, core network, and service-delivery and putting huge legacy costs on the system. It needs huge investments and due to the huge legacy licensing AGR dues, both the core networks and service-delivery are suffering. Subscribers have no choice, as one-size-fits-all and they have to buy the services on as-is-where-is basis. Currently, TSPs are not able to provide customised services. If there were multiple service-delivery operators (VNOs), variable packages based on the niche segments of the population could have been provided.
In line with the Prime Minister’s vision of Digital India and Propel India mission, TRAI has recommended, “enabling unbundling of different layers (e.g., infrastructure, network, services, and applications layers) through differential licensing as a means of reforming the licencing and regulatory regime to catalyze investments and innovation, and promote ease of doing business.”
To realize the full potential of futuristic 4G and 5G digital technologies that ride on data services, a revisit of the existing licensing and regulatory regimes of the voice-centric networks, and splitting them into three layers to create the environment conducive for enabling seamless delivery of innovative digital services, is imperative.
There is a need to unbundle the current UL license into three parts:
Network layer (IP-1). The IP-1 has already been hived off by all the TSPs, and all the passive network elements are in the IP-1 category. To facilitate investments, savings of the TSPs, and avoid duplication of the telecom resources, and as 5G has huge requirements of infrastructure, TRAI in March 2020 had recommended enhancement of the scope of the IP-1 service providers,
Core network layer. In this layer, as the technologies are changing very fast and there are huge chances that the ROI on the previous technologies 3G and 4G have not yet materialised, TSPs will need to invest heavily on 5G core technologies. Investment in the core network in 5G will be required to deliver the applications riding on the network.
Service-delivery layer (VNOs). TRAI in its wisdom, had recommended unbundling of the service-delivery layer in the UL-VNO license in 2015, and DoT had accordingly issued guidelines in May 2016. However, due to the surrender of various licenses and consolidation, the private operators were not able to focus on this need of the VNOs. They are continuing to create their own infrastructure, and deliver services to the end customer. Also, the unconducive licencing conditions, at par with existing UL licensees, prescribed by DoT to VNOs, are not viable. There is high cost of licensing, including AGR and bank guarantees that are deterrent for any entity to sustain in such a licensing regime. There are about 18 entities that have acquired UL-VNO licenses in access services authorization. Due to non-cooperation of TSPs, including the loss making BSNL, huge exchequer money is being wasted. The onus is on DoT to ensure that the government’s policies are conducive for VNOs.
It is high time that all the stakeholders rework their business models in line with international practices, where MVNOs play a big role in serving the requirements of each segment in the delivery of their services to the niche market segments. For the incumbent operators, there is a huge cost saving of the subscriber acquisition cost (SAC) and subscriber retention cost (SRC). The MVNO will give cost savings and good EBITA margins of the incumbent MNOs.
Doctrine of essential facilities. The notion of sharing active infrastructure or its service delivery is not unique to the telecommunication sector but usually cuts across sectors that are critical for a given economy, such as railways and roadways. The concept of sharing of infrastructure and the country’s natural resource like spectrum has its origins in the doctrine of essential facilities, which evolved in the United States in the 20th century. This doctrine was shaped by the judiciary in the 1912-decision in United States vs. Terminal Railroad Association of St. Louis case, which was a dispute involving certain railroad companies that owned both the railroad terminal as well as the only bridge link to the terminal.
For a new firm to enter the market, it would necessarily require access to both, the terminal and the bridge linked to the terminal. The incumbent operators denied access to the infrastructure on the ground, with the explanation that it would lead to competition and the new entrant must build its own infrastructure. The court noted that this was a case of monolithic. For the application of the doctrine of essential facilities, the following aspects must be considered:
- The facility should be essential and use the natural resources of the country;
- It would be practically infeasible for the competitor to duplicate the essential facility;
- The denial of access and use of the facility to a competitor by the monopolist is primarily to maintain status quo, and thus would contribute to deadweight loss;
- Providing access to the competitor (VNO) will result in no direct loss to incumbent except possible loss of market share; and,
- Access to the essential facility is in public interest.
Financial benefits to incumbent operator UL licensee in hosting MVNO as service-delivery operator. An obvious benefit for the incumbent operators, the MNOs, is that the sharing of infrastructure is an additional source of revenue that can accrue on account of savings on subscriber acquisition cost and subscriber retention cost. Telecom companies, which had invested heavily in setting up network infrastructure to cope with the increasing subscriber base, have realized that there are benefits to sharing the network infrastructure with other players. As a result, some of these companies have hived off their infrastructure segments into a separate business to IP-1 companies.
Similarly, if the incumbent operators share their service-delivery platform also with an SDO or VNO, they will benefit, both in the short term and the long term.