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The Telecom Regulatory Authority of India has issued a consultation paper on the “Rationalization of Entry Fee and Bank Guarantees” - a brief review of the proposed framework

The Telecom Regulatory Authority of India has issued a consultation paper on the “Rationalization of Entry Fee and Bank Guarantees” - a brief review of the proposed framework
Trade & Regulatory Compliance Practice | Jasman Dhanoa

The Telecom Regulatory Authority of India (“TRAI”) has issued a consultation paper (“CP”) on the “Rationalization of Entry Fee and Bank Guarantees” and has sought comments from stakeholders by 23rd August, 2022 and counter-comments by 6th September, 2022. As per the current framework under the Unified License (“UL”)/ Unified License-Virtual Network Operators (“UL-VNO”) regime, there is a provision of different Entry Fee and two separate bank guarantees (“BGs”) i.e., Financial Bank Guarantee (“FBG”) and Performance Bank Guarantee (“PBG”). Consequently, the Department of Telecom (“DoT”) has sought TRAI’s suggestion on the need to:

  • Reduce the entry fee and make it uniform across all authorizations
  • Merge FBG and PBGs and an amount of a single BG should be prescribed for each authorization.

The CP recognises the fact that the DoT has already carried out reforms in the existing licensing regime by reducing the amount of BGs to 20% of the existing levels. This reduction by 80% in the levels of BGs was done pursuant to the telecom reforms announced by the Government on 15th September, 2021.

Salient Features

1.Entry Fee

  • Entry Fee is a fixed one-time amount that prospective entrants must pay to enter a market. Entry Fees are typically non-refundable and constitute start-up costs for a firm. One justification for prescribing entry fee is the extensive usage of public resources by firms in certain industries
  • The applicable entry fee for different types of access services has been consistently reduced by DoT over the years. Under the Unified Access Service License regime, in order to obtain a pan-India access license, a licensee would have had to pay an entry fee of Rs. 1658.57 crore, whereas under the UL regime they need to pay a maximum amount of Rs.15 crore as entry fee.
  • Similarly, the entry fee for the National Long-Distance licenses has been reduced from Rs. 100 crore in 2002 to Rs. 2.5 crore. Further, for International Long-Distance (“ILD”) licenses, the entry Fee was reduced from Rs. 25 crore to Rs. 2.5 crore through DoT press release dated 10.11.2005 to promote growth and competition in this segment. The UL 2013 guidelines also prescribed an entry fee of Rs. 2.5 crore for a pan-India ILD license.
  • The CP justifies imposing entry fees in order to take into account use of public resources as well as to inhibit non-serious players. It also notes that entry fee increases the entry costs for the prospective entrants which has implications for the level of competition in the sector. Hence, it becomes essential that the entry fee must be set at an optimal level.
  • The CP notes that the Access Service segment has witnessed a decline in the number of players, from around 8 players in each license service area, to 5 by 2018 and further to 4 at present. While it is not clear whether the level of entry fee has an impact on the uptake of licenses, the moot question is whether the present level of entry fee is appropriate in the context of reduced number of access service providers.
  • The CP reckons that a reduction/ rationalization of the level of entry fee for different licenses is likely to send a positive signal to potential investors in terms of ease of doing business.

2.Bank guarantees: BGs ensure that the Telecom Service Providers pay their dues on time and fulfil their obligations as per the License’s terms and conditions prescribed in agreement.

  • The CP has noted that the rationale behind introducing BGs was to safeguard the interest of the DoT as in the case where telecom service provider defaults on his payment dues or fails to fulfil its performance obligations or renew its BG then the government can encash the same and recover all the dues.
  • FBG covers the liabilities in respect of license fee and other dues not otherwise securitized, whereas PBG covers the violation of license conditions and ensures the performance under the license agreement.

Our Take:

The DoT has taken a progressive step in recognising the need to rationalize the entry fee and BG imposed on telecom service providers. Most of these restrictions were introduced to protect the then nascent telecom sector from fly-by-night operators. The DoT has already carried reforms in September 2021 rationalizing BG, removal of Spectrum Usage Charge and other procedural reforms. The reference to TRAI for further rationalizing entry fee and BG along with the recent move to reform all the telecom related laws build on the reforms already undertaken earlier

Links:
Link to the Consultation Paper on Rationalization of Entry Fee and Bank Guarantees - https://www.trai.gov.in/sites/default/files/CP_26072022_0.pdf

Link to the Telecom Reforms 2021 - https://dot.gov.in/sites/default/files/Telecom%20Reforms%202021-booklet%20combined%20as%20on%2003112021_0.pdf

Practice Contacts

Ameet Datta - Partner (Practice Lead) | ameet@saikrishnaassociates.com

Suvarna Mandal - Partner | suvarna@saikrishnaassociates.com

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