Rapid Response - TRAI, October 2004

pmalik

May 3, 2005, 4:32 pm

Are you for infrastructure sharing. As I am proposing this in the USO analysis. I was a little confused by your TRAI response.

Q5. For increasing the percentage population exposure to cellular mobile services, should sharing

of infrastructure such as buildings, tower, etc. be mandated through regulation with

appropriate commercial compensation being provided to owners through regulatory

intervention?

A5. No, in the first instance. It is recommended that the pros and cons of this particular market

intervention be studied while the more fundamental problem of giving all operators,

including the cellular mobile operators, non-discriminatory and cost-based access to the

backbone is solved.

samarajiva

May 3, 2005, 6:52 pm

The task in a newly competitive market is to ensure that the incentives for new investment are maintained/enhanced while also ensuring a level playing field. This is a balancing act. The answer as to what the right balance is changes over time and depends on context.

My central argument is that TRAI and GoI should give priority to the problem of non-discriminatory and cost-based access to the backbone. I do not say an access regime for the towers should not be given; just that it should be (a) studied; and (b) it should be given after the main problem is solved.

Now lets go to the underlying assumption. In a market, the default position must be in favor of private property. That means that all transactions must be based on contracts without government intervention. One deviates from this position only when a strong rationale can be established after looking at the pros and cons of the action.

Now whose private property rights are being affected by the two transactions? In the case of backbone, the incumbents. On balance, taking all factors into consideration, I and most regulatory experts will agree that its okay to violate their property rights in this particular instance. Whose ox gets gored in the second transaction? For the most part, the mobile towers, antenna, etc. are built by private entrepreneurs investing in hostile environments. Also, because they are dealing with rapid growth in demand, in most cases, the towers, etc are at full capacity. So taking away their PP rights must be done with care. To start regulating this is akin to giving priority to cosmetic surgery of a cancer patient. The cancer must be cured; only then will we have time for cosmetic surgery.

The previous para contained part of the final piece of the answer. I have actually dug into the problem of creating an access regime for towers, etc. It looks simple when youre in front of a computer in an air-conditioned room but the reality is different. The upfront costs of building these things are very high. In the face of rapidly increasing demand, these guys make guesses on how much capacity to build in, even if they are not using all of it immediately. Now the regulator comes along and decrees that they should give the capacity that theyve reserved for the expected growth in the next 2-3 years to a rival, at cost (a form of expropriation). Now if the original operator is growing fast, he has to go through the whole rigamarole of approvals, construction, bribes, etc. And as soon as he builds it, it is again expropriated by the govt and given to his rivals. Now, what do you think he will do? He will stop building in extra capacity, making the whole enterprise higher cost. So we have multiple small towers, squabbling operators, etc. Thats why I say we should go into this area with great care.

Divakar

May 3, 2005, 10:40 pm

Rohan, I totally agree with the thrust of your argument–that the playing field is not even between incumbent fixed line operator (also providing mobile services) and mobile operators. But as was the case in some EU countries, the regulators allowed/encouraged (post-auction hemorrhaging)3G operators to share their mast which would lower their costs by sharing the infrastructure. Rights-of-way is costly and why not allow mast sharing if the mobile operators agree? They could probably share the cost of putting up the towers. I am personally not moved by the argument of proliferating towers spoiling the “view” and being an eyesore etc. But many communities take this seriously. (see http://www.nytimes.com/2005/05/01/business/01towers.html?)

My gut feeling is that replicating towers is as wasteful as requiring competing rail companies to replicate the rail infrastructure. It is not as if having more towers is going to increase bandwidth or increase quality of service or any other positive outcome (other than redundancy in case a storm or helicopter taking out a tower but what are the chances of that? And is it worth investing for?).

Divakar

May 3, 2005, 11:05 pm

I am not suggesting that TRAI should force mobile operators to share their masts with each other or with the incumbent. But it could “encourage” sharing and make it clear to the operators that TRAI isnt going to come down on them if they share because of anti-competitive implications –i.e., collusive behavior by the mobile operators sharing a mast.

pmalik

May 4, 2005, 4:30 pm

What about the towers etc of the incumbent, as in a quid pro quo situation, the incumbent BSNL has rejected private operators’ demand of sharing BSNL’s cellular network for roaming facilities. The private operators also complain of not getting points of Interconnection (POIs) from BSNL. Second, are the private operators then justified in seeking cooperation from BSNL to share infrastructure with the private players to roll out services in the rural areas. Non-discriminatory open access to the backbone is key as you point out:
…..
existence of a massive fiber optic network within the country, amounting to 6.7 lakh of route km. This is a good thing. However, the critical questions are whether the geographical coverage is adequate, whether all this fiber is lit and in use, and whether there is an effective, non-discriminatory and cost-based access regime for the use of this capacity by all operators, especially the new entrants. Unless such a regime exists and in enforced, it is extremely difficult for operators without large subscriber bases in the rural areas to enter those markets in a cost-effective way. Indeed, if such an access regime does not exist, it may even be possible to conclude that it constitutes an anticompetitive barrier in the rural markets. Unless the fiber is actually used, we are talking about vanity investments by State Owned Enterprises.

For rural telephony expansion in a most open level playing field manner, I think this is an undeniable right, the access fee can be either market determined or regulated, it might have to be regulated initially since the incumbent’s network is dispropotionately larger.

harsha

May 6, 2005, 10:23 am

all three of you are making valid arguments.

i fully endorse rohan’s private property argument; without which a free and fair market [to the extent possible] cannot develop be it in telecom or in music. there is enough literature on property rights and market failure…

divakar’s argument that sharing need not be mandated but be encouraged by not slapping firms with anticompetitive behaviour suits is a good one. every transaction has a clearing price; so if it is parato beneficial to share they will as long as they will not be charged for wrong doing.

payal argument that the access fee should be an undeniable right and that it should be regulated is a very strong one. i dont know if it an ‘undeniable right’, but what we see is that it works.

samarajiva

May 6, 2005, 12:25 pm

Let’s see whether the issues can be clarified: fiber backbone is one thing (we’re exploring that in depth through the research being undertaken by Harsha V Singh); the access network that includes towers is another.

On the former, we have agreement that there should be an access regime enforced by the regulatory agency.

The debate is about the latter. If it makes economic sense to share towers, operators will do so (not necessarily the incumbents where the old engineering culture dominates, but that’s not an easy problem to solve). I see no harm in them being encouraged to do so by the regulator (in US terminology, jawboning). But that is distinctly different from what Payal appears to be suggesting which is regulation proper.

In my submission to TRAI I did not rule this out, but suggested that the pros and cons be studied. I stand by that. I think it’s inadvisable to mandate sharing and set access charges without a full consideration of the kinds of issues that have been raised in the thread so far.

pmalik

May 9, 2005, 5:13 pm

Thanks to all. Raising the issue brings in some consensus and clarity. Protection of private property rights and investment incentive issues are very important and thus there is a delicate balance between promotion of competition and providing investment incentives, which has to be grappled by the regulator. However,my view is that the intervention is required if there is (a) natural monopoly element(agreed towers do not have that property, while backbone has) (b) when there is a clear case of anti-competitive behaviour. For instance, BSNL provides seamless roaming to its other public counterpart MTNL but not to the private operators.

Experts point out in the US mandatory unbudling UNE-P) did not work as they did “too much”, so entrants could just sit on the incumbent’s network. The European perspective that some unbundling is necessary as otherwise you’ll never be able to create competition, however at some stage entrants must have their own facilities. This sometimes referred to as the “ladder of investments”, so unbundling can help move up the ladder. If we accept the second view for India then as we all agree backbone access is crucial.

Divakar Goswami

July 5, 2006, 1:26 am

Indian mobile operators have decided to share their towers, infrastructure-sharing initiated by the Ministry.
————————————-

Telecom firms agree to share infrastructure: GSM and CDMA operators will share towers for the first time

RISHI RAJ
Posted online: Wednesday, July 05, 2006 at 0000 hours IST

NEW DELHI, JULY 4: Mobile phone operators have agreed to share seven transmission towers in Delhi and two in Mumbai as part of project MOST (mobile operators shared towers initiative), which will bring down costs of setting up new towers by 50%, de-clutter the city’s skyline and reduce call drops.

Communications and IT minister Dayanidhi Maran will announce this on Wednesday.

Delhi alone has nearly 6,000 cell towers, each costing nearly Rs 30 lakh. Rapid growth in subscriber base requires expansion of telecom infrastructure, particularly towers, which are being replicated by nearly every operator. Sharing of towers will bring down infrastructure costs for all operators.

This will be the first time that GSM and CDMA operators will share the towers. In Delhi, seven towers will be shared by six service providers—Bharti Airtel, Hutch Essar, Idea Cellular, Reliance Communications, Tata Teleservices and Mahanagar Telephone Nigam Ltd.

Dare To Share

• Telcos to share seven transmission towers in Delhi and two in Mumbai
• Move will cut costs of new towers by 50%, de-clutter skyline & reduce call drops
• Communications minister Dayanidhi Maran will announce it today
• Earlier a panel was formed after the minister had proposed the move in Feb
The operators under the aegis of Cellular Operators’ Association of India and Association of Unified Service Providers of India will also announce plans of sharing infrastructure for the rest of the country.

Maran had proposed the infrastructure-sharing initiative in February this year. Subsequently, a committee was formed under a joint secretary in the department of telecommunications with telecom industry representatives.

From the Financial Express.

Divakar Goswami

December 3, 2006, 11:58 am

DoT is considering making infrastructure-sharing mandatory by including it as a requirement in the operator’s license. Towards that end it has asked TRAI for its recommendations. TRAI wants to go beyond “passive” infrastructure sharing of masts etc and towards “active” infrastructure sharing. From my reading it involves allowing MVNOs who don’t own any infrastructure to resell airtime from operators under their own brand. In the US and parts of EU MVNOs are quite common. However, I don’t understand how MVNOs will help reduce network rollout costs, as TRAI seems to suggest, except in a very indirect way. What is interesting for LIRNEasia considering our consistent push towards developing access regimes for backbone infrastructure, is TRAI’s recommendation for sharing backhaul infrastructure in rural areas. This would probably lower the barrier of entry so more operators can venture into rural areas by having to only build the access network.

“TRAI favors active infrastructure sharing” http://www.blonnet.com/2006/11/30/stories/2006113005190400.htm

Mahinda Herath in a chapter for a forthcoming book argues, in the context of local loop unbundling, that for developing countries with insufficient network infrastructure it does not help the cause of network development if regulator mandates infrastructure sharing. He argues that new operators and the incumbent wont have any incentives to invest in developing the network. This argument could also be applied for the above where DoT wants mandated infrastructure sharing in a country like India with inadequate network coverage. One can also make the case that greater price competition from MVNOs would squeeze the margins of existing operators who would then be reluctant to deploy in high cost areas.

Any comments?

Divakar Goswami

January 8, 2007, 9:05 am

Cellular cos against mandatory sharing

Thomas K. Thomas
The Hindu Businessline
Oppose TRAI proposal on passive infrastructure

New Delhi , Jan. 7

Cellular service providers have opposed a proposal from the Telecom Regulatory Authority of India (TRAI) to make infrastructure-sharing mandatory as part of the licence agreement. Mobile operators have also said that India was not ready for the introduction of mobile virtual network operators (MVNO) who buys airtime from operators and then resells it to users.

consultation paper

TRAI had floated a consultation paper seeking the industry’s views on whether sharing of infrastructure should be made mandatory since most operators were currently doing it on an ad-hoc basis. TRAI had said that sharing infrastructure would not only reduce costs but also enable operators to roll out network in order to meet Government’s teledensity targets.

In its response, the Cellular Operators Association of India said, “There is a need to encourage and promote infrastructure-sharing through policy intervention and through suitable financial and other incentives. However, infrastructure-sharing should not be mandated.”

policy intervention

The Association of Unified Service Providers of India said, “We feel there is no necessity of mandating or any policy intervention with respect to the infrastructure in urban areas. However, in rural areas there would be a need for mandating. In view of the restrictive features of infrastructure sharing, it should be left to the operators to work out among themselves the arrangements for sharing the passive infrastructure.”

State-owned BSNL said, “As far as policy intervention for the passive infrastructure sharing is concerned, it is already in place and almost every operator has taken it in a positive way. A policy paper, which defines and explains the possibility of sharing and the resulting win-win situation for all namely operators, consumers, industry and Government should be brought in. There is no need to mandate the passive infrastructure sharing but it should be promoted.”

Reliance Communications, on the other hand, has supported the TRAI move. “The authority has correctly noted that mutual sharing of infrastructure is not getting popular. Hence we feel that passive infrastructure sharing should be mandated at least for three service providers. However, the commercial arrangements for sharing may be left to mutual agreements between the service providers.”

More here:
http://www.thehindubusinessline.com/2007/01/08/stories/2007010801560200.htm

Divakar Goswami

April 12, 2007, 10:38 am

TRAI again pushing for passive and active infrastructure sharing. Idea seems to be gaining traction with passive infrastructure sharing where Bharti has said it has a sharing agreement with Vodafone and is open to sharing with others. Sharing of passive infrastructure will take place for towers and other infrastructure deployed with USO funds. Requiring operators to share in other areas is a bit over the top, something that DoT (ministry) has proposed and TRAI isn’t in agreement of. It should be a commercial decision left to the operators themselves. I understand that there is some apprehension about meeting the rollout targets but other strategies should also be considered.

TRAI recommendation is here: http://www.trai.gov.in/trai/upload/PressReleases/447/recom11apr07.pdf
———
TRAI proposes sharing of passive, active, back haul networks

New Delhi, April 12 (PTI): Acknowledging the need of vast infrastructure requirement in the mobile telephony in the country, TRAI on Wednesday proposed sharing of passive, active and back haul networks for faster roll outs of networks in urban and rural areas and at less cost.

The exponential growth in wireless telecom services calls for massive investment in infrastructure particularly passive, active and back haul components. The country would require about 3.3 lakh towers by 2010 against the present 1 lakh towers.

Apart from huge investments needed the time taken to roll out could be a major bottleneck in the achievement of 500 million subscribers by 2010.

Even if the target is achieved it will only be about 50 per cent of the tele-density with major gaps in the rural areas, TRAI said in its proposals to Department of Telecom.

Given the significance TRAI not only considered the issue of passive infrastructure sharing, but has recommended active infrastructure sharing and back haul on a suo-motu basis.

Passive infrastructure sharing means sharing of physical sites, buildings, shelters, towers, power supply and battery backup and is permitted under the licenses. TRAI has, however, not favoured any policy intervention for this.

More importantly, TRAI has proposed active infrastructure sharing which is currently not permitted in the licenses.

“Considering the importance of back haul sharing for mobile services in rural and far flung areas, licensing conditions should be amended to allow operators to share their back haul in a limited way on optical fibre. No sharing of spectrum at access network side is permitted”, it said.

Active Infrastructure sharing means sharing of active equipments such as antenna systems, cables, filters, node B, spectrum, transmission system by more than one operator.

It is a complex mode of sharing and needs thorough technical skills with the operators favouring it. Service-providers will be interdependent while sharing such infrastructure.

However, the advantages overweigh the interdependence factor as it reduces roll out cost and roll out time. The market is also competitive. Therefore, active infrastructure sharing for mobile networks needs a re-look in the existing scenario, TRAI said.

The total number of telephone subscribers is 200 million by the end of February, which includes 160 million wireless subscribers. Approximately, 6 million wireless subscribers are getting added per month.