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Mint Explainer: Why Trai wants to cut the entry fees for various licences

While some telecom service providers have called for entry fees to be abolished, the telecom regulator has suggested a 50% reduction (Photo: Pradeep Gaur/Mint)
While some telecom service providers have called for entry fees to be abolished, the telecom regulator has suggested a 50% reduction (Photo: Pradeep Gaur/Mint)

Summary

  • The telecom regulator has proposed reducing the entry fees for a number of licences and rationalising bank guarantees that service providers give the government

New Delhi: The Telecom Regulatory Authority of India has proposed reducing the entry fee for various licenses and services and rationalising bank guarantees that service providers pay to the government. The entry fee is a one-time payment that companies must pay when entering the Indian telecom market, and varies with the type of service they offer. Bank guarantees act as backups or contingent payments that the government can encash in case a company fails to meet the licence conditions. Mint explains the development.

Why does Trai want to reduce the entry fee?

The entry fee is usually non-refundable and is part of a firm’s startup costs. It varies with the type of service that the company wants to offer. For instance a unified license, which allows all services including mobile telephony, internet broadband and landline services, has a maximum entry fee of 15 crore, while a virtual network operator’s entry fee is 7.5 crore.

While some telecom service providers have called for the entry fee to be abolished, the telecom regulator has suggested a 50% reduction, saying it could cause more companies to enter the market as service providers, enhancing competition. A reasonable entry fee would maintain a balance between deterring non-serious players and ensuring adequate competition.

Why now?

Trai has pointed out that providers of voice, video and data services have declined from around eight players in each licensed service area to five by 2018 and four at present – Reliance Jio, Bharti Airtel, Vodafone Idea and Bharat Sanchar Nigam Limited. Since reducing the entry fee would lower a company’s start-up cost, it would encourage competition and improve the quality of service.

Have entry fees been reduced in the past?

Yes. In 2005 the Department of Telecommunications reduced the entry fee for the national long distance or NLD from 100 crore to 2.5 crore and for international long distance or ILD from 25 crore to 2.5 crore. The government at the time said the reduction would promote growth and enhance competition.

By how much does Trai want to reduce the entry fee and for which licenses?

Trai has suggested the entry fee for UL for access service should be reduced from 1 crore to 50 Lakh for each telecom circle or metro area, and from 50 lakh to 25 lakh for J&K and the North East. It says the fee for NLD and ILD should be reduced from 2.5 crore to 50 lakh. The fee for public mobile radio trunking service, a two-way mobile radio service, should be reduced from 50,000 to 20,000 for each telecom circle.

The fee for an ISP "B" licence or internet service provider for metro areas should be reduced from 2 lakh to 50,000 for each telecom circle and 25,000 for J&K and North-East each.

The fee for an ISP "A" licence, which covers all of India, should be reduced from 30 lakh to 10 lakh, says the regulator.

The fee for UL (VNO) authorizations for access service should be reduced from 50 lakh per telecom circle to 12.5 lakh. Trai has also suggested that there should be no entry fee when renewing licenses.

What kind of bank guarantees exist and how could they be rationalised?

Bank guarantees ensure that telecom service providers pay their dues on time and fulfill their obligations in the licence agreement. Financial bank guarantees cover the liabilities from the licence fee and other dues not otherwise securitised, whale performance bank guarantees cover the violation of license conditions. Trai has suggested merging the two on the grounds that it would encourage ease of doing business and encourage growth in the sector.

How much will licence holders need to pay up under the merged bank guarantees?

For a unified license, a total of 44 crore has been proposed for the first year. For subsequent years, the amount should be higher than in the initial year or 20% of the estimated sum payable. The merger of both types of bank guarantees has been proposed for mobile number portability licences as well. Trai has also recommended using electronic bank guarantees to enhance the ease of doing business.

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