Department of Telecommunications (DoT) has released (pdf) the final license agreement for unified licenses, which will allow telcos to offer any form of communication (telephone, Internet, broadband and others) through a single license. It also delinks spectrum from future licenses. This license was introduced as part of the new telecom policy that was launched in June 2012 and is valid for 20 years from the effective date of this license, with an option to renew it for 10 years at one time later.

Highlights from the Unified License agreement

FDI: Licensees should ensure that the foreign equity in the company does not exceed 74% stake during the entire license period. FDI up to 49% will be allowed through automatic route and up to 74% through prior approval of the Foreign Investment Promotion Board (FIPB). Its however worth noting that Indian government had approved 100% FDI in telecom last month.

– Licensees should not hold any other licenses for the services covered under Unified licenses. In case the licensees obtains any other license through acquisition or merger, it should merge these licenses to unified licenses.

Cross Ownership Prohibited: No Licensees or its promoters can directly or indirectly have stake in another licensee having access spectrum in the same service area. The exception granted in the previous unified access service license regime will end on the expiry of service license and licensees should comply with this condition within one year of migrating to unified license. This essentially means that cross ownership between telcos is now prohibited which might affect companies like Vodafone which owns 4.4% stake in Airtel and Reliance Communications which might have to close down its GSM arm Reliance Telecom.

Our Take: Licenses should be technology agnostic. If a telecom operator wants to offer GSM or CDMA services through different companies, it should be their choice. Else, what is a unified license for? While we agree that cross-ownership should not be allowed, to prevent the creation of a monopoly in the market, an opportunity must be given for companies to amalgamate under a single license. In that sense, Reliance Communications should be allowed to bring Reliance Telecom under the same unified license.

Broadcasting: Licensees should not provide broadcasting or DTH service under this license and should apply for a separate license to offer the same. IPTV is however permitted.

Our Take: we see this as a lost opportunity for the unified license to be meaningful. DTH is a carriage service, not a content service (unlike a channel), and is not very different from IPTV. This appears to be a turf-issue, between the Ministry of IT and the I&B Ministry. In our opinion, there needs to be a clear separation of content from carriage, and hence DTH and IPTV, as well as Mobile TV should be governed by the Ministry of IT.

Paid Up Capital: Licensees should have a minimum paid up capital of Rs 25 crore and a combined minimum net worth of Rs 25 crore. Licensees should provide only those services for which it has received authorization.

Entry Fee: A one time non-refundable entry fee of Rs 15 crore should be paid to provide all the services, although licensees can also opt to pay entry fee for only specific services.

Unified License Fees

Licensee Fee: In addition to Entry fee, Licensees should pay 8% of its adjusted gross revenue as an annual license fee, provided that the license fee will be a minimum 10% of the entry fee of the respective service and service area from the second year of authorization. They should also pay spectrum related charges in case the licensees obtains spectrum and space segment charges to the Department of Space in case of any satellite based service.

Roaming Pacts Allowed But Customer Acquisition Not Allowed: Licensees can enter into roaming agreements with other service providers irrespective of the spectrum band and the technology used. However, this agreement will not entitle licensees to acquire customers for services where they do not hold licenses in the spectrum band or they do not offer the service in its network. While roaming on other networks, subscribers can only access services to which they have subscribed in their home networks. Besides this, licensees can also enter into agreements with foreign telcos to provide roaming facility to its subscribers. These guidelines will also apply for Internet telephony, Internet services and broadband services.

This measure is expected to impact the ongoing tussle between the government and telcos over the 3G intra-circle roaming pacts. Interestingly though, TRAI chief Rahul Khullar has apparently supported these 3G intra-circle roaming pacts, as per an The Economic Times report. Khullar said it may not be possible to continue with the regime where the government doesn’t make make more spectrum available and not allow these roaming pacts, terming it as a Catch-22 situation for telcos.

Our take: Licences should be separated from spectrum. Just because a company doesn’t have spectrum in an area, shouldn’t prevent it from leasing it from another player and acquire customers. This is specifically relevant for companies that have licenses to operate in an area, but only have 2G spectrum, but not 3G spectrum. We understand the need to prevent hoarding of spectrum, but that should be addressed using roll-out obligations.

Cable Operators As Franchisees: Licensees can appoint cable operators as franchisees to setup and operate rural telephone exchanges and manage last mile linkages for the same in rural areas. They can also provide Internet service by using the networks of authorized cable operators as a last mile link.

Related reading:

On India’s Plans For Internet Telephony: Unified Licenses & Interception
India’s New Telecom Policy 2012: What’s Changed? Additions & Omissions
– India’s New National Telecom Policy Approved; Unified Service Licenses, Intra-Circle MNP, Spectrum Reforms