Experts suggest functional separation of network provisions and services
In the face of the growing likelihood of a duopoly, telecom experts have suggested a new licensing regime separating network infrastructure provision from services.
Following the increase of government shares in Vodafone Idea (Vi), experts have been discussing about the possibility of a duopoly in the telecom market, where Bharti Airtel and Reliance Jio are the competitors. Vi with its pending debt of around ₹2.2 lakh crore (before the debt-equity swap deal) could end up with an 70 per cent government stake in the next couple of years, as per experts.
In such a scenario, Professor V Sridhar from the International Institute of Information Technology in Bengaluru, suggested the introduction of functional separation. This will be regulatory system with an infrastructure layer including network providers, cloud storage providers, optical cable, tower companies, etc and a service layer looking at virtual network operators (VNOs) and OTTs.
“If we separate network infrastructure provisioning from services we can have a duopoly in the infrastructure layer. Hence, we should look at functional separation of network provisions and services given the current the market conditions,” he said.
Regulation remedy
In a joint study to appear in Vikalpa journal, Sridhar, along with Rohit Prasad and Mansi Kedia talked about how functional separation has been used as a regulatory remedy by several countries to address concerns of market power. This method breaks the walled garden within the network infrastructure and retail services entity, enabling better access to essential facilities by other competitors. It also incentivises new investments in the upgradation of network and service innovation.
Mahesh Uppal, Director of Com First (India), too agreed that separating the authorisation of networks and services can mitigate the fears of duopoly. However, he pointed out that major telecom companies are opposed to this idea since currently they have virtually complete freedom to deploy both networks and services.
“The objective of separating the deployment of networks and services will require the government to negotiate with the telecom players,” said Uppal.
Meanwhile, Parag Kar, independent telecom expert, said that changes in the licensing framework will not be effective unless stakeholders are genuinely incentivised to acquire licences that help reduce costs and make service delivery more efficient and affordable.
Double taxation
“The fundamental flaw in India’s current licensing structure lies in its fee model — it offers minimal pass-through benefits and imposes a revenue-based fee on each licensee. For instance, if a service license relies on an infrastructure licence, the cost structure becomes cascading. An 8 per cent licence fee is applied to both entities’ revenues, effectively taxing the same value twice — once when earned by the infrastructure provider and again when embedded in the service provider’s revenue,” he said,
Unless the revenue-share model is dismantled or modified to allow meaningful pass-through mechanisms, Kar said true cost-saving and infrastructure sharing will remain unviable.
He maintained that if the government wants to prevent a duopoly, it must consider keeping Vi afloat by waiving its debts and Adjusted Gross Revenue (AGR) dues. Otherwise, the situation may eventually warrant intervention by the Competition Commission of India, much like how the US government broke up AT&T in 1984 to foster competition and prevent monopolistic dominance in the telecom sector.
Published on April 6, 2025
