Report – “Reforms in The Indian Telecom Industry”

Table of Contents

Page

Introduction 4

Major reforms through policy initiatives 5

Other minor policy initiatives 7

Major reforms through regulatory initiatives 7

Summation in chronological order 10

Achievements in the sector in the past 4 years 13

Conclusion 14

1|Page
INTRODUCTION:

Before liberalization, the telecommunication sector in India was a monopoly regime.

Defined by very low tele-density, poor state of infrastructure and a highly
bureaucratic structure owing to the government monopoly, the scene war far from
attractive. The National Telecom Policy of 1994 recorded a tele-density of 0.8/100
persons compared to a world average of 10/100 persons, lamenting the sad state of
affairs. It further highlighted the poor state of telecom industry infrastructure, sating
candidly about the waiting list and tele-coverage of villages. The state of affairs was
poor even when compared with low-income countries. In addition to this, the tariff for
fixed line services remained high.
Even though all this portrayed an abysmal picture, India was constrained by the
factors like limited resources and strident stances of employee unions and other
oppositions to a liberalization policy in the industry and introduction of any major
change required an innovative approach. Meanwhile, the Government of India was
conscious of the importance of improving the telecom industry in aspects of volume,
accessibility as well as affordability. It also recognized the role the industry played in
aspects of development process of the economy, along with the reorganizations in
the telecommunication landscape worldwide due to increased globalization and
technological advancements, due to which the Government of India introduced major
reforms to foster a competitive environment. These reforms along with their impacts
will be discussed in the following sections to come.
MAJOR REFORMS THROUGH POLICY INITIATIVES

1.NATIONAL TELECOM POLICY (1994)

Paving way for liberalization required huge investments and structural changes in the
industry which was the genesis for a new policy thereby resulting in the NTP of ’94.
This policy represented the first attempt to document policy objective and thereby
provide a route map for the development processes that were to follow. Along with
this, this policy laid down specific target for achievement like – making the telephone
services available on demand before 1997, coverage of tele services to all villages
before 1997, providing PCOs in urban areas for every 500 people before 1997 and
introduction of value added services that are internationally available, preferably
before 1996. The resource gap that was calculated for realizing these objectives
were well above Rs. 230 billion and hence the policy emphasized on bringing in the
involvement of private sector and the need for investment from the same to bridge
the gap. Therefore, for the first time, Government gave permit to private companies
registered in India to participate in the development of the industry subject to
prescribed conditions. This policy established duopoly regime in telecom sector by
way of providing for two operators in four metros and 18 telecom circles. Another
major aspect of this policy was its emphasis on need for protection and promotion of
customer interests and also ensuring fair competition.
Even though this policy didn’t go far on the route of liberalization, it did ensure the
death of the monopolistic regime in the sector. Also, the implementation of the policy
hasn’t been up to the mark delivering mixed results. Targets were unrealized,
especially when in came to rural telephony. However, the results with regards to
PCOs were much better. Significant growth in the no. of STD and ISD PCOs were
observed and this section was franchised providing increased self-employment
opportunities. The main criteria for introduction of private participation in the segment
of service was a bid price for a ten-year license. But, in service segments, the
players faced a rollout delay, mostly observable in case of basic services and hence,
as a result, private operators were able to introduce services only into 2 of the 6
circles for which licenses were awarded. Considering from a policy perspective,
these delays pointed towards the need for a much better transparent and clear
licensing process.

2. INTRODUCTION OF TELECOM REGULATORY AUTHORITY

In 1997, The Government of India enacted a law (TRAI Act 1997) leading to the
establishment of an independent, statutory regulatory authority. This body was
named the Telecom Regulatory Authority of India, and enjoyed a wide array of
powers. These powers include the ability to ensure technical compatibility and proper
and effective interconnection among operators and service providers, compliance
with licensing conditions, ability to monitor the quality of services, and to protect
consumer interests. Initially, this act entrusted TRAI with the ability to settle disputes
but was later amended to revoke that power. Similarly, TRAI is not responsible for
licensing, setting of standards or allocating spectrums.

3. NEW TELECOM POLICY (1999)

Under NTP 1997, a number of problems faced could be attributed to two major
issues –
a. the actual revenues that were realized were far short of projections.
b. Lack of funding options for operators.
Hence, The New Telecom Policy was introduced to address these issues. The New
Telecom Policy ’99 further liberalized the scope of telecom industry, predominantly
focusing on cellular mobile services, fixed services, cable services etc. Further, the
act recognized the importance of interconnection between operators and brought it
within the jurisdiction of the Act. It also asserts that interconnection would be
permitted between different service providers in both mobile and basic service
segments. In addition to this, this policy also covered the issues faced in areas of
existing operators, spectrum management, restructuring of DoT, and also regarding
the role of regulators. Through this act, the duopoly in the sector was replaced by
way of ensuring free entry.

4. SETIING UP OF TELECOM DISPUTE SETTLEMENTS & APPELLATE

TRIBUNAL
In 2000, an amendment was introduced to the TRAI Act thereby splitting the
regulatory and adjudicatory responsibilities by way of establishing a specialized
statutory dispute settlement mechanism. This was named as The Telecom Dispute
Settlements and Appellate Tribunal or TDSAT, with one chairperson and two
members. It was required that the chairperson of this tribunal be a person who is/has
been a Judge in The Supreme Court of India or a Chief Justice of a High court.
Further, to be a member, a person was required to have held the post of Secretary of
Government of India or any other equivalent post for a period of not less than 2
years, or was required to be well versed in the fields of telecommunications,
commerce and/or administration, technology and industry. The responsibility of this
body constituted of the following:
a. Adjudication of dispute between a licensor and a licensee
b. Adjudication of dispute between two or more service providers
c. Adjudication of disputes between a service provider and a group of consumers
etc.

Further, it is deemed to be competent to regulate its own functioning and enjoys both
the original and appellate jurisdiction. The Civil Court of any place cedes jurisdiction
to this body regarding matters that fall into the latter’s competence. Appeal against
TDSAT’s orders can only be raised in Supreme Court of India. Further, the
government of India distanced itself from the act of providing telecom services
through corporatizing its service arm during the year 2000. Thus came into being the
Bharath Sanchar Nigam Ltd.

5. THE COMMUICATION CONVERGENCE BILL (2001)

This bill was introduced with the aim of converging the markets and technologies in
the telecom industry. But this bill had lapsed in the parliament before becoming an
act and later on, via a Government notification, broadcasting and cable services
were brought within the limits of “telecommunication services” which placed the
regulation of such services under the ambit of telecom regulator and thereby, the
disputes arising in these services, under the limits of TDSAT.
OTHER MINOR POLICY INITIATIVES:

1. INTRODUCTION OF FDI
The FDI policy was aimed at promoting the foreign investment in the telecom sector.
This policy permitted up to 49% of a telecom venture being controlled by foreign
ownership automatically, and up to 74% under certain stipulated conditions. In the
manufacturing of telecom infrastructure sector, sole ownership by foreign entities
have been permitted, subject to certain requirements to be met.

2. INFRASTUCTURE SHARING
Before this policy, only passive infrastructure was allowed to be shared allowing a
new operator to only rent space on towers belonging to another operator for the
purpose of deployment of its own equipment. With the rollout of this policy, new
entrants were allowed to rent all active electronics, circuits and switching
infrastructure thus resulting in enhanced viability and reduced tariffs.

MAJOR REFORMS THROUGH REGULATORY INITIATIVES

1. TRAI AND TDSAT AS CATALYST FOR TELECOM DEVELOPMENT:

As we have seen the, the scenario in telecom industry prior to liberalization was
abysmal, however, post liberalization, the industry finds itself better equipped owing
to the presence of such strong, powerful and independent regulatory mechanism.
The challenges prior to liberalization consisted of quality of service, issues regarding
setting of tariffs, protecting consumer interest etc. These regulatory bodies ensured
that coping with these issues were handled efficiently by way of ensuring proper
involvement of all stakeholders, which was very important for creation of a level
playing field and thereby fostering healthy competition. The mentioned issues were
dealt with in full measure hence transforming the telecom sector in India.

2. TELECOMMUNICATION TARIFF ORDER

In the prevalent setting in Indian telecommunication sector, there was imminent need
for affordable tariff rates, which would also play an important role in expanding the
telecommunication network. Increased competition in the telecom industry had led to
the provision of private players being able to charge any tariffs as they wished,
subject to certain conditions. But this was not applicable to the rural setting. The
Telecommunication Tariff Order (1999) was aimed at addressing this issue by way of
providing transparency in tariff structures to various service providers. This order
also sent various signals to investors regarding the direction of pricing reform, the
main elements of reform were:
a. Rebalancing tariffs to align with the costs, at the same time, focusing on social
objectives.
b. Providing improved flexibility to service providers

Other initiatives taken in this area include the introduction of CPP regime along with
cost based IUC. These brought in a positive effect on aspects of competitiveness in
the sector.

3. UNIFIED ACCES SERVICE LICENSING:

UASL was introduced as a contrast to the separate licenses which was before
prevalent in the basic mobile services. Under UASL, operators were allowed to
provide, pertaining to their area of operations, services like carriage, delivery of
voice, transmission, etc. this is issued non-exclusively for a period of twenty years
and is extendable for a period of ten years.
This regime also balanced the needs of both service penetration and fair
competition.

4. REGULATION ON QUALITY OF SERVICE

The regulator, in accordance with its previous mandate on establishing parameters
for ensuring quality of service, issued regulations on the QOS for different services in
July 2000. Under this, separate parameters were provided for both wireline and
wireless services. Benchmarks were set on the aspects of time taken for providing
telephones after registration, response time to the customer, call completion rate etc.

Meanwhile, the benchmarks that were provided to mobile services included service
access delay, percentage of calls that were answered in 20 seconds, refunds to
customers, etc. under the QOS regulation, TRAI categorized the basic and cellular
parameters into 4 types:
a. Network performance
b. Billing and complaints
c. Customer helpline
d. Customer perception regarding services

Overall, analysis performance by the service providers on the basis of quality of

services shows that the different operators are meeting required benchmarks. But
this cannot be said for wireline services.

5. PROTECTION OF CONSUMER INTERESTS

During the years 2006 and 2007, TRAI took several measures to ensure that the
interest of consumers is met. These includes:
a. Obligating all service providers to submit complete details of various tariffs plans
 they offer to customers at the time of enrolment.
b. Mandating of the need to regularly reflect on credit limits set by the service
providers for a post-paid customer in their monthly bills.
c. Mandating service providers to showcase the details of their various tariff plans
for the awareness and information of consumers.
d. Prescribing on the issuance of docket numbers for the registering of complaints
made to various call centers and also for the termination of services.

Other measures which were taken to protect consumer interest include the
appointment of independent agencies for conducting survey that assessed the
effectiveness & implementation of the “Telecom Consumers Protection and
Redressal of Grievances Regulation 2007” along with customer perception on
services. In addition to this, an audit was conducted to assess QOS. Also, in 2007
January, TRAI set up a Telecommunication Consumers Education and Protection
Fund, the income from which would be used to finance various programs aimed t
educating telecom customers along with facilitating research studies on these
matters.

6. LICENSING OF SERVICES
One major function that TRAI Act conferred on regulators was to recommend, either
Suo moto or at the proper request of licensor, the need as well as the timing for
introduction of new service providers and the terms & conditions of the particular
license. These recommendations have made a positive impact on the following:
a. PMRTS by way of contributing to the lowering of license fees and introducing
more choice of technologies.
b. VSAT operations that provided high speed data for its users and low license fees
for the VSAT captive networks
c. ISP licensing regime that allowed the removal of restrictive provisions in already
existing license conditions
d. “infrastructure sharing”
e. Licensing policy that allowed for access service provisions
f. Acceleration of the growth of internet and broadband technology.

7. WLL Ltd. MOBILITY SERVICE CASE ISSUES RAISED

TRAI previously had proposed to treat WLL Ltd mobility services as a part of basic
service licenses subject to certain conditions. In addition to this, the WLL mobility
would also be limited to local area i.e. SDCS. This decision was also upheld by the
telecom tribunal. This raised a lot of issues regarding whether –
a. WLL services were permissible under basic service license or not
b. WLL services warranted issuance of a separate license or not.
c. The permission for limited mobility services resulted in violation of agreements
with different mobile service operators and if they were entitled to have a
compensation for the possible loss resulting from this.
d. WLL services would be operated on a PSTN architecture or on an MSC.
e. Finally, to what extent, the public’s interests would be taken care of.

One other major issue was also regarding the jurisdiction of technological neutrality
and how it would be warranted if it would lead to an uneven playing field.

8. PROVISIONS FOR TELEPHONE CONNECTIVITY IN RURAL AREAS

There was a prevalent, wide gap between rural and urban tele-density which
required urgent attention and care. During early October 2001, the regulators had
recommended for raising of resources for the discharge of universal service
obligations by way of a universal service levy that was fixed at 5% of the adjusted
gross revenues of all of the telecom service providers. Because of this policy, USOF
or the Universal Service Obligation Fund was setup to meet these obligations. Also,
with this, the number of villages with public telephones increased with a steady pace
over the years. The government owned and operated BSNL was the major
contributor to this.

9. SPECTRUM MANAGEMENT
Under NTP ’99, it was recognized that there is a growing need for spectrum, owing
to the rampant proliferation of technologies. The availability pf spectrum plays a
crucial role in improving QOS, the proper transition to the era of convergence and in
expanding the tele-network. All these made necessary the active management of
spectrum. But there were certain issues prevalent in this case like –
a. Should the number of access providers for the same be capped?
b. Whether the allocation of spectrum should come with certain conditions about its
utilization?
c. What all parameters should be considered while determining the pricing of the
spectrum?
d. How should they prioritize between different categories of service providers?

Another major debate also arose regarding the appeal of allocating spectrum
through auction. Under all the scenarios, TRAI’s decisions were focused on ensuring
a level playing field for all competitors and participants. For this, TRAI has put
forward a lot of recommendations like competition in IPLC segments, portability of
mobile numbers etc. All these recommendations have clearly made a positive impact
on the sector’s growth.

10. ENSURING STABILITY THROUGH TDSAT

TDSAT played a major role in stabilizing the market place by way of resolving
different sector conflicts in a focused and judicious manner. TDSAT by providing a
forum for the operators to settle conflicts and disputes and by giving consumers a
fair deal, has gained credibility and confidence among different stakeholders. Also,
the number of cases heard by the tribunal has increased multifold, mostly due to its
expansion in own responsibility to deal with disputes.

SUMMATION OF REFORMS IN CHRONOLOGICAL ORDER –

2000:
a. TRAI Amendment Act to further strengthen the regulatory mechanisms. This Act
set up the TDSAT.
b. The act of corporatization of the DoT’s operational wing thus forming BSNL.
c. Opening of National Long-Distance services for competition.
d. Giving permit to BSNL ant MTNL to enter as a third-party cellular operator in their
own circles.

2001:
a. Issuance of license for basic services and permitting additional service operators
b. Limiting the mobility provided by fixed service operators that are in the form of
wireless in local loops
c. Permitting of the fourth cellular operator
d. Issuance of first interconnection regulations by TRAI for its basic & cellular
services
e. Introduction of Communication Convergence Bill
f. Opening up of National Long Distance to competition

2002:
a. Opening up of International Long Distance to competition
b. Reduction in license fees
c. Permitting of IP telephony
d. Notifying of ceiling tariffs and regulating the tariffs for national roaming services
e. Giving up of tariffs for cellular services under conditions that the provider will
specify a monthly airtime & rental charge/minute.
f. Issuance of RIO regulation
g. Establishment of the USOF

2003:
a. Introduction of the interconnection usage charges and calling party pays
b. Cancelling of all basic service tariffs except the rural fixed line
c. Cancellation of NLD subject to a ceiling of Rs 8.40/minute
d. Permitting the issuance of unified license by the Government
e. Amendment of NTP ’99 by the Department of Telecom, thereby recognizing the
unified telecom license & unified access license
f. Permitting to allow operators to offer WLL ltd mobility services by the TDSAT
g. Imposing of ADC charges on cellular operators by TRAI
h. Approval of intra-circle mergers by Government
2004:
a. Notification of broadcasting as a telecommunication service
b. Establishment of inter-circle guidelines
c. Formulation of the Broadband policy
d. Issuance for regulation of Reporting System on Accounting Separation thereby
making it mandatory
e. Issuance of mandate on the carry forward of unused balance during grace period
f. Issuance of UAS license to 27 parties

2005:
a. Increase in the FDI limit from 49% to 74% in the sector
b. Announcement of Access Deficit Charges regime
c. Fixing of ceiling tariff charges for international bandwidth
d. Revision of ceiling tariffs for that of domestic bandwidth
e. Provision of recommendations on growth of services in rural areas by TRAI
f. Reduction of entry fee for NLD licenses
g. Reduction of entry fee for ILD licenses

2006:
a. Proposal for number portability by TRAI
b. Further reduction of annual license fee for both NLD and ILD
c. Amending of IUC to accommodate the revenue share regime
d. Further issuance of 22 more UAS licenses
e. Announcement of new criteria for additional spectrum by Department of Telecom

2007:
a. Issuance of “Telecom Unsolicited Commercial Communications” by TRAI
b. Issuance of “Telecom Consumers Protection and Redressal of Grievances
Regulations” by TRAI
c. Issuance of “International Telecommunication Access to Essential Facilities” by
TRAI
d. Reduction in tariff for national roaming services
e. Issuance of Domestic Leased Circuits Regulations

2008:
a. Abolishment of access deficit charges
b. Further issuances of 122 UAS licenses

2009:
a. Issuance of regulations on QOS for the basic telephone services
b. Reduction of interconnect usage charges
c. Disclosure of MVNO guidelines for both 3G and 2G
d. Issuance of regulation for mobile number portability
e. Releasing of guidelines by the Dot for Voice over IP

2010:
a. Auctions completed for 3G and broadband wireless access
b. Pilot test of MNP implementation in Haryana

2011:
a. Countrywide launch of mobile number portability
b. Issuance of “Telecom Commercial Communications Customer Preference
Regulation”.
c. Release of draft of NTP 2011

ACHIEVEMENTS IN THE SECTOR IN THE PAST 4 YEARS –

a. Launch of Tarang Sanchar, the portal sharing the information on mobile towers
b. 100% digitization of the cable TV networks
c. 75% increase in internet coverage
d. Doubling in the countrywide coverage of OFC i.e. Optical Fiber Cable
IMPLEMENTATION OF EXISTING SYSTEM

Even though the implementation of NTP ‘94 did make material differences, it was
found lacking in addressing all problems of competition and thereby in realizing the
targets of policy. A lot of projects faced issues for two main reasons:
a. the actual revenues collected fell short of the projections
b. the operators were not able to arrange funding
The enunciation of an NTP 1999 responded to the changes happening in the
telecom sector worldwide along with the inadequacies of NTP94. NTP99 further
liberalized the scope of cellular service including the terms & conditions of licenses
and also operational aspects. Interconnection had been one key issue among
service providers and gave rise to disputes. Understanding the importance of the
problem, in NTP99 the Government brought it within the limit of policy. The NTP99
policy asserts that interconnection shall be allowed between service providers. This
policy also covered problems in areas as the problems faced by the existing
operators, the restructuring of the DoT, spectrum management and the role of the
regulator. Free entry into telecommunications replaced the duopoly.

Regarding TDSAT - This body’s responsibilities included adjudication of any dispute.

It’s competent enough to regulate its own procedures and also enjoys both original
and appellate jurisdiction. The civil court will cede jurisdiction to TDSAT in matters
that are falling within the latter’s competence. Moreover, appeal against TDSAT’s
orders lies within the Supreme Court of India. The Chairperson & members have a
secure tenure and removal is possible only under a pool of certain tightly defined
circumstances. Along with the setting up of a dispute settlement mechanism, the
government has also distanced itself from providing telecom services by way of
corporatizing Bharat Sanchar Nigam Limited (BSNL).
CONCLUSION
To foster a healthy and competitive environment in such industries, strong regulatory
mechanisms coupled with legitimate regulatory bodies are imperative. An efficient
dispute settlement mechanism, is also a prerequisite. Along with this, when quality
and transparency will be brought in, there will be growth and prosperity. All these
requirements will be fulfilled by a proper policy making structure in place.
These reforms stated above has been aimed at bringing in all the desired traits
mentioned. This was possible by way of facilitating the functioning of an efficacious
structure in place consisting of a formal policy making body and a reliable regulator
for enforcing these.
Due to these reforms, the telecom sector in India has changed for the good,
emerging from its early days of struggle to be one of the prominent sectors in the
country as of today. The sector has surpassed many difficulties and obstacles to
reach the current regime, but it has to continue reforming itself to accommodate the
changing technologies and requirements so as to reach its full potential.