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Critical Issues in Nepali Telecom Sector Regulation

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Ananda Raj Khanal, a director at NCT, argues on behalf of a strong and independent regulator.

The importance of telecommunications to economic and social development is well established both for developed and developing countries.

Telecommunications/ICT is not only a catalyst for the overall development of the country but also an industry in itself. A monopoly market is invariably regulated by the government. Under such circumstances, the government is a policy maker, the regulator and the operator. In the context of Nepal, before the liberalization and introduction of the private sector players, the telecom sector could not really make significant progress. Rural telecom could not take off despite the fact that the government made some kind of policy level commitments through its successive five-year development plans and annual policies and plans. It has been an international best practice that the governments interested in promoting a vibrant telecoms sector would seek to build a strong and independent regulator to ensure that national development goals are also met.

Through the promulgation of telecommunication Act 1997 and telecommunication regulation 1997, the legal and institutional framework for telecom regulation was established. Pursuant to the provision made in the Telecom Act, Nepal Telecommunications Authority was established in March 1998. The constitution of the Authority shows that it is an autonomous body. Many people even presume it to be independent. It looks like independent for the reasons that the Chairman and the members of the authority are appointed by the government -there is no government representation in the authority.

All are independently selected. They require to possess certain qualifications-academic as well as experience - as prescribed by the Act itself. They are not fired before they complete their 5 years tenure unless under special circumstances. They can create appropriate organizational structure as needed. The terms and conditions and qualifications of the employees are fixed by the Authority-no approval is necessary from the Government. They are independent in formulating their own annual plans and programs and approve the budget-however it should be based on the government's plan and policies- but it has never in its history of more than 13 years of existence ever been questioned by the government regarding its plan and program and budget vis-à-vis the government's five year plan and annual programs. It can appoint advisors and formulate different committees to carry out its special and even regular tasks.

Many people who have some information and little knowledge about the telecom sector feel that Nepal Telecommunications Authority has got some kind of indemnity from its responsibility and accountability even for the sector regulation. During the last 13 years, NTA has grown in its size-organization structure has dramatically changed. During this time many decisions have been made with long term impacts and consequences so far as sector growth as well as organization is concerned. However the media has shown its interest in the activities of the authority recently after the sub-committee of the Public Accounts Committee started its study on spectrum, licensing and VoIP issues.

Functions, Duties and Powers of NTA
As prescribed in the Act, NTA broadly has the following jurisdiction in terms of its functions, duties and power:
• Government advisor on telecom sector
• QoS benchmarking and regulation
• Licensing
• Competition regulation
• Tariff regulation
• Spectrum management and new technology management
• Human Resource Development in telecommunication sector
• Consumer interest protection
• Universal service obligation ( RTDF Management)
• Dispute settlement
• Law enforcement

If an entity does not carry out any work or function, it will hardly make any mistakes. If it works and that too in a technologically fluid and rapidly transforming sector, it is likely to make mistakes due to a number of factors- due to proper lack of information on the subject in which it is making decision, due to lack of the ability to analyze and synthesize the information to arrive at the right decision, lack of its ability to see the future and more dangerous of all when it makes decision to cater to the whims and fancies and vested interest of one player in the sector-sometimes by mere political or other pressure, sometimes due to personal interest of the decision makers.

Critical issues in the telecom sector
Since the main objective of this article is to bring out some of the pressing, urgent and very controversial issues of importance in the telecom sector regulation, the author feels that the following issues need special attention.
• Issuance of the Mobile License through competitive bidding
• Issuance of Limited Mobility License for basic service licensee
• Authorization of Roaming between Limited Mobility Licensees
• Cellular Spectrum Assignment for basic and rural telecom service providers
• Jurisdictional expansion of rural service providers either by the amendment of the license or by the award of limited mobility license
• Development of scientific basis for Spectrum allocation, assignment and pricing • Liberalization of VoIP /IP telephony and control of growing grey market through call bypass
• Development of proper policies and programs for RTDF disbursement and management
• Enforcement of QoS standards -particularly in mobile service
• Enforcement of proper interconnection regime
• Maintaining level playing field

The list continues but the discussion is limited to some of the critical issues that will pose difficulty even when there is a unanimous desire and commitment among the stakeholders to go forward-they will be elaborated one by one.

Issuance of the first Mobile License through competitive bidding
If we look into the historical evidence of the chronology of the entire licensing process-we come to know that the first notice of international tender was published in 7 April 2000.The last date of submission of the Application was 5 June 2000. Out of 21 companies who purchased the Request for Proposal Document , 8 of them submitted the Application. Six of them were technically qualified for financial bidding. Financial bidding was conducted on 1st November 2000. Letter of Intent was given to the Khetan Group Pvt. Ltd. to operate GSM900 MHZ based mobile service on 3rd November 2000. The basis for awarding the LOI was the total amount it quoted to get the license-that included the sum of license fees plus the renewal fees to be paid after 10 years for renewing the license and the royalty for 10 consecutive years. The license fees quoted was 210 million, the renewal fees as 20 Billion and the total royalty in 10 years was 3 Billion 900 million and 700 Thousand. After this date, a number of activities and changes occurred. Khetan Group Pvt. Ltd. entered into joint venture agreement with Spice Cell Pvt. Ltd. India and thus Spice Nepal Pvt. Ltd was registered in 21 June 2001. And finally Spice Nepal Pvt. Ltd got the license to operate mobile service on 1st September,2004. It seems that NTA overlooked certain conditions in the tender document and also during subsequent process- for example, renewal of any license is normally optional but in this process, as the renewal fees is the determining factor in getting the license, license renewal is mandatory for Spice Nepal Pvt. Ltd. Normally Letter of Intent could not be issued on an open ended basis-that is without giving a deadline to award the license. This lapse has been adequately misused by Khetan Group Pvt. Ltd. It took almost 4 years to award the license after LoI was issued.

The negative impact of this delay in the development of mobile telecom is tremendous. More serious issue that this license has created is 20 Billion Rs renewal fees. The issue is not limited to the renewal of now Ncell but that of the government owned incumbent Nepal Doorsanchar Company Ltd. Nepal Telecom was awarded a conditional mobile license on 12 May 1999. It agreed to accept all the terms and conditions regarding the license fees, royalty and the renewal fees that would be quoted by the company through a global tender for the award of the mobile license . Nepal Telecom paid the license fees as quoted and paid by Spice Nepal Pvt. Ltd. However royalty was not paid as quoted and the major issues arose during the payment of the renewal fees. It asked the intervention of the government for a review of the license fees, royalty and renewal fees showing its inability to pay due to its financial health and revenue status. Nepal Telecommunications Authority, in an interesting way, " provisionally" renewed its license by just taking 90% of the license fees as an advance upon the further condition that Nepal Telecom has to pay the remaining dues within 3 months time after the payment of the renewal fees by Ncell. This ad-hoc decision of NTA addressed the demand of the NT employees unions but has raised a number of questions on the regulation and enforcement of license conditions. Another very important thing to be noted in this context is that Nepal Telecom has to renew its mobile license for the second time before the first renewal of the Ncell mobile license. The important questions here from the perspective of effective and efficient regulations are:

• Are the government, regulator and the operator ( Ncell ) aware that Ncell's mobile license renewal is not optional but it is mandatory because that was the only condition which qualified Khetan Group Pvt. Ltd among the applicants to receive the LoI and hence the license to Spice Nepal Pvt. Ltd. This is in general not in agreement with the existing laws. In general, renewal of any license is optional. The obvious question would be-what will happen if Ncell opts not to renew its mobile license?

• Was this 20 Billion Rs as the renewal fees a reasonable amount quoted at the time of financial bidding? Did NTA ever think about the viability of this proposal and still issued the license?

• Is that same 20 Billion Rs is applicable for the subsequent renewal which happens to be every five years after the first renewal or it is just the 90% of the license fees for the subsequent renewals?

• Why not the government and the regulator did entered into discussion and study about Nepal Telecom's request for review of the royalty and the renewal fees? And still provisionally renewed the mobile license without paying the full renewal fees?

Issuance of Limited Mobility License for basic service licensee
United Telecom Ltd was awarded the license to operate Basic Telephone Service based on WLL Technology in September 2002. Upon the recommendation of NTA the government opened Limited Mobility as a new telecommunication service in the gazette on 26 January 2004. A writ petition was filed at the Supreme Court against this gazette notification. Hearing the writ petition, the Supreme Court initially issued an interim order and finally gave its verdict in the favor of the writ petitioner and the gazette notification to open the limited mobility service was quashed. However, upon further recommendation of NTA with more elaborate study and details the government again issued a gazette notification to open the limited mobility service on 6 March 2006 and UTL got the Limited Mobility license for Kathmandu valley on 24 March 2006. Finally UTL was allowed to provide roaming facility among its limited mobility service areas on 24 August 2007. Limited mobility and roaming between the limited mobility service areas made UTL a de facto mobile operator. One important thing to be noted here is that the additional legal facilities given to UTL however did not involve the allocation of additional scarce resources such as spectrum. The major issue that has drawn attention from the perspective of the sector regulation and completion is -

• Level playing field between the mobile operators such as Nepal Telecom and Ncell and the limited mobility operator with roaming facility such as UTL.

Issuance of Rural Telecommunication Service License
Was this 20 Billion Rs as the renewal fees a reasonable amount quoted at the time of financial bidding? Did NTA ever think about the viability of this proposal and still issued the license?

Is that same 20 Billion Rs is applicable for the subsequent renewal which happens to be every five years after the first renewal or it is just the 90% of the license fees for the subsequent renewals?

Why not the government and the regulator did entered into discussion and study about Nepal Telecom's request for review of the royalty and the renewal fees? And still provisionally renewed the mobile license without paying the full renewal fees?

NTA has so far issued two rural telecommunication service licenses -the first one to STM Telecom Sanchar Pvt. Ltd in 2002 and the second one to Smart Telecom Pvt. Ltd. in 2008. They were both given the license to operate basic telecom service in the targeted VDCs of the given geographical areas. In the similar fashion, Nepal Satellite Telecom Pvt. Ltd. was given a nationwide license to provide telecom service in the targeted rural areas and all over the country in a phase wise manner. Unlike UTL and Ncell (the then Spice Nepal Pvt. Ltd.) the licenses to these three operators were issued pursuant to section 23 sub section 2 of the Telecom Act. STM Telecom and Smart Telecom were given license based on the least subsidy amount they quoted from among the qualified applicants whereas Nepal Satellite Telecom was awarded license based on the beauty contest selection criterion. The original geographical jurisdiction of STM Telecom Sanchar was increased by the amendment of its license to cover the rural areas of Central, Western, Mid Western and Far Western development regions. STM Telecom Sanchar and Smart Telecom are also allowed to operate Limited Mobility Service which is naturally not confined to the geographical boundaries of their respective original licenses whereas the Basic Telecommunications service license of Nepal Satellite includes limited mobility service as a built in facility not requiring separate limited mobility service licenses for every district as other operators need. Obviously for operating any kind of limited mobility services, operators need cellular spectrum. Unlike UTL who operates limited mobility service on the same spectrum assigned to it for basic service, rest of the three have been granted cellular spectrum to operate limited mobility service. The issues raised from the perspective of the regulation and competition are-

• Level playing field between the mobile operators such as Nepal Telecom and Ncell and the limited mobility operators
• Same Spectrum assignment criterion for all operators irrespective of whether they are operating mobile service or rural telecom service with limited mobility as separate service or basic telecom service with limited mobility as a built in service

Spectrum Assignment for operating telecom services
Enforced by NTA and later endorsed and approved by the Radio Frequency Policy Determination Committee, the spectrum assignment criteria for telecom service providers treats all the six voice operators as equal. Same subscriber base and/or revenue criteria for getting spectrum are being enforced by NTA. The obvious issue here is -
• Do all the operators stand on the same footing, despite the fact that they are all different licenses having different terms and conditions and brought in the telecom sector with different objectives and priorities?

Conclusion and the Way Forward
Compared to other infrastructure and service sectors, significant progress has been made in the telecom sector in Nepal after Jan Andolan II. Overall teledensity including mobile has crossed 50%. The access to Internet-both fixed and mobile- has increased, the over- all data penetration is more than 13%. Investment has increased and telecom service providers ranked first among the tax payers for many consecutive years. The policy, legal and regulatory as well as institutional frameworks are in place.

These frameworks seem to have been unable to cope up because of the tremendous changes in the technologies and the convergence towards which technology and services have already moved to, and due to very specific development need of the country like ours challenged not only by geography but also by the overall socio-economic indicators. The successive governments tried to address these challenges through certain policy, legal and regulatory interventions. Such interventions produced certain tangible results as well so far as availability and access to services, reduced tariff due to competition etc. and their applications for socio- economic sectors such as education and health, agriculture and government service delivery are concerned. However, along with these seemingly positive consequences such interventions have been proved to be critical challenges in ensuring level playing field among the service providers, enforce effective competition in the sector and moreover ensure a transparent, objective, professional, efficient and independent sector regulation. We cannot afford to delay in addressing these critical issues unless we are heading towards a disastrous future in telecom sector.

This article appeared in the 8th Anniversay Souvenir of Nepal Telecommunication Corporation, during December-January 2011-2012. This was written by the author, a director of NTA, in his personal capacity. The opinions expressed in this article are the author's own and do not reflect the view of the Nepal Telecommunications Authority.


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