Nepal Framework-A.2.-What issues should ordinance to Amend & Unify Telecommunication related Regulation in Nepal accommodate?

As the Telecommunication Act, 1997 hasn’t been revised since last 20 years to address the current market dynamics, Nepalese telecommunication authorities recently initiated to amend it with an Ordinance. However, the same ordinance was drafted without the extensive public consultation domestically and internationally.

It would have been better if the Ordinance has been reviewed based on all related telecommunications regulation and administered by reputable International Organizations such as ITU or World Bank. Their involvement would add tremendous value towards achieving a coherent and world class legislation which would be able to attract continuous investment into the evolving Communications and IT sector, protecting the long-term interest of end-users and addressing the emerging challenges in the era of Digital Economy.

As such, the Ordinance needs to address following aspects:-

1.  LICENSING AMENDMENTS TO TELECOMMUNICATIONS ACT AND HOW TO TRANSITION: The proposed Ordinance creates a new licensing framework which if enforced will create three categories of license i.e. Ordinary License, Unified License and Infrastructure Service. However, these 3 categories of licenses should include services in manner that will create least complication to map with the previous service lists. As such, Ordinary License should include Internet Service Providers and Network Service Providers; Unified License should include cellular mobile service or basic telephony service, Local Telephone license, Domestic Trunk Service, ILD, CMTS etc.; and Infrastructure Service License should include Tower Co., Fiber Co., and effectively passive infrastructure.

Moreover, Infrastructure Service License shouldn’t be made mutually exclusive as this is inconsistent with the Government aspiration to introduce competition in all the markets. Further, there should be standardized license duration for all 3 categories of licenses, i.e. 30 years.

Section 2(d) of the Ordinance which defines "Telecommunications Service" as service relating to: (a) the acts of the conveyance or reception of any sounds, signs, signals, writings or images by the wire, radio, optical or other electromagnetic systems whether or not such signs, signals, writings, images, sounds or intelligence have been subjected to rearrangement, computation or other change in any manner for their emission, transmission or reception; (b) the owning and/or providing of Telecommunications Lines needs to be amended and it should include following broader definitions as follows:-

“Infrastructure Services” should be defined as services relating to the owning or providing of Telecommunications Lines. “Internet services” should be defined as services which permit customers to gain access to Internet which is the interconnected computer network that uses the Internet protocol suite (TCP/IP) to link devices globally. “Network services’’ should include VSAT network services, local data network services, leased circuit services, packet switched data services, network services which provide access an applications service provided over a network, and a managed network service which enables the transmission of units of information over a link within a particular unit of time. “Ordinary Telecommunications Services” should be defined as a Telecommunications Service (excluding the owning and/or providing of Telecommunications Lines) for the provision of (i) Internet Services, (ii) Network Services and (iii) such as other Telecommunications Services (excluding the owning and/or providing Telecommunications Lines); “Unified Telecommunications Services” should be defined as all other Telecommunications Services including specifically Telecommunications Services which utilizes frequency and Basic Telecom Services.

In the new licensing framework, all the relevant telecommunication services have to be clustered into either Ordinary, Unified or Infrastructure licenses. While making such mapping, old legacy licensing categories such as telegram, telex, audio text, voice mail, fax mail, audio conferencing, prepaid calling card, radio paging network, email, video etc. which have either become outdated or are not suitable to be regulated in a smartphone world are to be removed. Similarly, some of the telecommunication services like International Long Distance (ILD) Call, Cellular Mobile Telephone Services, Domestic Trunk Service, Fiber Company, Tower Company etc. which are missing in the Schedule 6 and 7 of the Telecommunication Rules 1997 needs to be considered under one of the 3 categories of licenses.

2. DECOUPLING THE SPECTRUM ASSIGNMENT FROM EXISTING LICENSES AS PER WORLD PRACTICES:  Radio frequency spectrum is not defined in the Telecommunications Act 1997. As such, due to limitations in the Telecommunications Act and Radio Act currently, the only way to allocate frequency in Nepal is by the granting of a separate Telecommunications Service license under the Telecommunications Act.  In fact, spectrum licenses should be treated separately from the Telecommunications Services Licenses. For this, there should be amendments in the Telecommunications Act to insert an entirely new section of frequency licenses or amend/replace the Radio Act. Optimally going forward, amendments should be made to the Radio Act to provide flexibility in the issuing of spectrum licenses as recommended by the ITU in 2012.

3. ADDRESSING COMPETITION ISSUES – NO EXPLICIT PROHIBITION BUT MORE STRUCTURED ASSESSMENT ON EACH CASES: The proposed Ordinance has a couple of new provisions in it, namely section 38 on activities influencing competition and section 39 on discrimination, cross subsidy or forcing to avail services. Notwithstanding section 38, a licensee should be allowed to apply to the Nepal Telecommunication Authority in writing for approval to merge or acquire another licensee. The Authority shall grant such approval if it is satisfied that such a merger or acquisition is in the national interest and/or will result in significant public benefits.  In the event that the Authority does not approve such a request it shall provide the applicant with its written reasons for not granting such approval.

It is because, explicit prohibition from engaging in certain activities should not be imposed which would distort the free market concept. Rather, substantial lessening of competition (SLC) and significant market power (SMP) test needs to be performed and evaluated on case by case basis. Lessening of competition will be ‘substantial’ if the reduction in competitive constraints in the communications market (or the resulting increase in market power) is considerable or big. For example, conduct which attempts to eliminate a minor market participant might only have a trivial effect on competition and that’s not the substantial lessening of competition, but conduct which attempts to reduce competition from a major participant could have a dramatic effect on competition in the market and that’s the substantial lessening of competition. Similarly, an undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers. Another rationale for the proposed changes in Ordinance is that merger and acquisitions have been proven to be beneficial and common in a lot of market and therefore should be encouraged.

4. COMMON LICENSE FEE, SIMPLIFIED RENEWAL FEE AND LOWER RENEWAL FEE BEYOND YEAR 15: Section 13 (i) of the Telecommunications Act, 1997 outlines functions and duties of Nepal Telecommunication Authority concerned with fees. In contrast, the Telecommunications Rules, 1997 which have been issued in exercise of the powers contained in the Section 61 of the Act contain a number of provisions and Schedules in relation to License Fees. Similarly, there are other provisions like Rule 11 (operative provision which links in Schedule 6 and 6(a)), 14 (sale or transfer of a license), 31 (fees in relation to frequency spectrum), Schedule 6, 6(a), and 7 (renewal) in relation to fees.These fees are numerous, complex and there is no clear basis provided on how they have been calculated.

There should be proper administration of license fee and renewal fee. It is because, license renewal process in Nepal is being held too often. For example, Cellular Mobile Telephony Service (CMTS) license is subjected to renewal in Year 10, Year 15, and Year 20. This is sub-optimal since licensee will be subjected to the frequent periodical risk on non-renewal and this may stunted service providers investment plan.

Similarly, for CMTS license renewal fee, fee of NPR xx billion beyond Year 15 is not sustainable. It is because, the dynamics of the market when the CMTS license was issued (2004 A.D) was significantly different compare to the current market in terms of declining ILD market, stiffer competition in voice market, higher regulatory fees including spectrum fee, migration to OTT services, higher capex for mobile broadband network etc. Hence, renewal fee beyond Year 15 needs to be aligned at 2% of Gross Revenue only, which could be payable on annual basis until the expiry of the License. This proposal may need to be reflected in the Telecommunications Rules and the license conditions held by the Licensee. Similarly, it would be better to reduce the Royalty Fee, to do away with the need to renew the license every 10 and 5 years despite being awarded with 25-year license.

5. AMENDMENTS TO SERVICE CHARGE REGIME: With the start of 4G network service in Nepal, customer can now stream digital contents and services more swiftly by using data from their smart phone. Similarly, with increasing digital contents and mobile based services on market worldwide, there is a need for customer to get access to those content by paying directly from their smart phones. However, in current context, operators need to seek one to one tariff approval for those service offerings and such approval has been taking unreasonably long duration. This has not only impacted planned service offerings in intended time but customers are also deprived of innovative services. Hence, there should be revision in current service charge regime where value added services and similar are regulated that does not permit sufficient price and service differentiation and innovation by Mobile Network Operators (MNOs).

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Disclaimer:  Nepal Framework is the series of article in which I will attempt to highlight some of the salient aspects of Nepalese economy requiring reform and attention. The views expressed herein is just the personal perspective of writer and doesn’t reflect opinion of whatsoever organization he is currently engaged with.