India Mini-Case Study: Dealing with Interconnection and Access Deficit Contributions in a Multi-Carrier Environment
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IInnddiiaa MMiinnii--CCaassee SSttuuddyy 22000033 DDeeaalliinngg wwiitthh IInntteerrccoonnnneeccttiioonn aanndd AAcccceessss DDeeffiicciitt CCoonnttrriibbuuttiioonnss iinn aa MMuullttii--CCaarrrriieerr EEnnvviirroonnmmeenntt International Telecommunication Union This mini case study was conducted by Robert Bruce and Rory Macmillan of Debevoise & Plimpton, London U.K. with the active participation of country collaborators Rajendra Singh and Rakesh Kumar Bhatnagar. The views expressed in this paper are those of the authors, and do not necessarily reflect the views of ITU, its members or the government of India. The authors wish to express their sincere appreciation to the Telecommunication Regulatory Authority of India for its support in the preparation of this mini case study. This is one of five mini case studies on interconnection dispute resolution undertaken by ITU. Further information can be found on the web site at http://www.itu.int/ITU-D/treg. India Mini-Case Study: Dealing with Interconnection and Access Deficit Contributions in a Multi-Carrier Environment I. Introduction: Indian Telecom Sector in Transition to Full Competition With a population of over 1 billion and a GDP of around US$ 500 billion, India has about 40 million fixed lines, about 16 million GSM cellular subscribers and about 4 million mobile CDMA wireless loop (WLL(M)) subscribers. The country’s combined tele -density rate, therefore, is around 6 lines per 100 inhabitants. India’s National Telecom Policy of 1999 calls for attaining a fixed line teledensity rate of 7 by 2005 and 15 by 2010. To help meet this goal, India has actively pursued a competitive multi-operator environment. It has allowed open competition in the fixed, cellular, national long distance and international long distance service sectors. India ’s multi-operator environment has naturally led to the need for effective interconnection between the scores of operators now active in the telecommunications sector. Fierce competition among these players—each fighting for market share in a price-sensitive market—has led to a myriad of interconnection disputes. As discussed below, many of these have arisen in the context of the introduction of WLL-based limited mobility services (i.e., the WLL(M) services) and their competition with mobile cellular operators. This brief mini-case study cannot do justice to the complex and inter-related nature of the current regulatory challenges that are being faced by the Telecommunications Regulatory Authority of India (TRAI) and the Government of India. Nor can it fully and completely describe the current competitive context of the Indian telecom sector. This note does, however, describe and explore briefly one of the country’s most recent interconnection issues relating to cost-based interconnection usage charges (IUCs) and the linkage of this issue with access deficit charges (ADCs) and tariff rebalancing. In addition to discussing interconnection issues, this mini-case study explores the TRAI’s proposal to implement a unified licensing regime which is intended to foster the development of the nation’s telecom sector. This note is intended to highlight some of the difficult transitory issues being faced by India and other countries that are moving from a sector dominated by a state-owned monopoly to one characterized by open competition, convergence and substitutability between wireline and wireless services. II. Market Overview Historically, India maintained one state-owned international long distance monopoly operator (VSNL) and another state-owned local and national lo ng distance monopoly operator (BSNL). Another state owned local operator provided services in Mumbai and Delhi (MTNL). As the country progressively liberalized its market over the last decade, it licensed a series of new entrants to compete in these markets, issuing separate licenses for each of the nation’s telecom licensing areas at “circle” (i.e., defined areas) or state level. India has 21 fixed service licensing areas, in which it now has two to three service providers. In addition to fixed lines, new licenses permit the provision of WLL(M) services the mobility of which is restricted to a short distance charging area or a local area with an average radial coverage of 25 Km. In the GSM cellular segment there are four operators in most of the 25 lic ensing areas. In the national and international long distance segments, there are four active service providers. The government has also sold a majority stake of VSNL to private operator Tata. Despite opening its market, BSNL and MTNL together retain over 98% of the fixed line segment and BSNL continues to be the principal national long distance carrier though new carriers have increased their share of cellular-to-cellular long distance traffic. VSNL likewise remains the dominant international service provider for outgoing international traffic, although it is now facing stiff competition from new market entrants for incoming international traffic. Bharti, Reliance and Tata are very active in most segments of the telecom market. - 1 - 09.09.2003 As a fourth cellular license was being finalized, the government announced its policy on open competition in the fixed market segment, and fixed operators became allowed to provide limited mobility services restricted to local calling areas (SDCA). GSM cellular operators have since argued that the fixed line operators have thereby entered the mobile market through the backdoor without having to pay high license fees. The GSM cellular operators have challenged these WLL(M) services, fighting a series of protracted regulatory and court battles aimed at declaring WLL(M) operators illegal, but they appear to have lost this battle in August 2003. There are about 4 million WLL(M) subscribers. TRAI has been asked to address various issues relating to entry fees and spectrum charges and its consultation paper on the subject is already open for public debate as this paper is being written. III. Interconnection Issues Over the past two years, TRAI has initiated a number of consultative proceedings that cumulatively have covered and are covering many new regulatory issues addressing the needs of the new multi-carrier environment. A list of these is provided at the end of this report. A new IUC regime has been implemented from 1st May 2003 subsequent to the TRAI’s IUC order of 24th January 2003. The new IUC regime also introduced the calling-party-pays (CPP) principle in the GSM cellular market segment. The new regime also had certain anomalies that allowed GSM-to-GSM and WLL-to-WLL long distance calls an advantage over fixed-to-fixed long distance calls. In this regard, an IUC review Consultative Paper was recently issued on 15th May 2003. TRAI has already introduced a scheme of cost based carriage, origination and termination charges. IUC charges for calls originating or terminating on the fixed line network comprise the origination and termination charges and an additional component of ADCs on a per minute basis. ADCs are applied with the intention of addressing the issues raised by a government policy which requires basic service operators (BSOs) to receive subsidized monthly rentals, apply below-cost pricing of local calls, and offer a certain number of free calls to all their subscribers (business and residential). BSOs argue that they have been forced to provide such services below cost. Historically, affordable local service had been cross-subsidized within the integrated state -owned operator, now known as BSNL, by long distance charges and by international revenues generated by the then monopoly international operator, VSNL. Until now, they were able to make up their “losses” by revenue sharing available to them from the national and international long distance call charges. Competition in the long distance market has, however, reduced long distance tariffs by more than 50% since liberalization began as the IUC regime has resulted in a shift of national long distance traffic from the fixed sector to GSM and WLL(M) sectors. With the introduction of GSM services and the pricing attractions of WLL(M), there appears to be a shift from the fixed line network towards the GSM and WLL(M) segment. The result is that there are a declining number of long distance minutes. This could result in higher per minute ADCs for those calls that continue to be placed on fixed line networks, further exacerbating the loss of subscribers and usage. In addition, the fixed line operators’ ability to subsidize local calls through higher international calls has been virtually eliminated as competition and the arrival in 2002 of VoIP have driven down international rates. Thus, with the onset of competition, in India as elsewhere, domestic long distance and international tariffs have rapidly fallen and can no longer subsidize local services through internal subsidies or revenue sharing given the need in a competitive environment to establish a cost-based interconnection regime. The ADC charge, then, represents an effort to establish a transparent mechanism to continue inter-service cross-subsidies within an interconnection regime. However, the implementatio n of the ADC scheme is proving to be problematic in India, as might be expected based on the experience of countries such as the U.K. - 2 - 09.09.2003 The May 15, 2003 IUC Consultation Paper is not merely focused on various anomalies in the implementation of the new IUC regime involving the competitive relationship of fixed and cellular operators. It also invites further comment on the basis for the calculation of the ADC itself. For example, it poses the question whether the ADC should be determined based on long run incremental costs (LRIC), taking into account new cost effective technology options like fiber in the loop, wireless in the loop and switches for high traffic handling capacity. Given the potential concerns about the practical problems of implementing the ADC regime, the TRAI is obviously interested in options for reducing the amount of the ADC through the use of a different cost allocation methodology.