Licensing Issues in Telecom Sector

Introduction

 The telecommunication industry is the one fastest growing industry in every country. Over the last la st decade and particularly over the last five years, India has registered an impressive growth in the telecommunications sector; India now has a total of 965.52 Million 1 Telecom subscribers, comprising of of 934.09 Million mobile subscribers & 31.43 wireline subscribers. The Indian teledensity now stands at 79.58%. India today has the world’s second largest network which is growing 

at a rate which is unmatched by any other country in the world. With the connections now growing  at a faster pace in rural areas as compared to urban, it is expected that as India crosses the 1 billion mark, the rural tele-density will grow from the current value of 36.02% to 40%. The sector is expected to grow at 45% per year, which can be attributed to a large extent evolution of the policy  and regulatory framework of the government in recent decade.  At the outset, a License issued by the government is an authority, given to a person upon certain conditions to do something which would have been illegal or wrongful otherwise. There are three main types of licence fee which the government charges: (i) initial licence fee, which generally is nonrefundable, (ii) annual licence fee, and (iii) additional fee for allocation of spectrum.  The Licensing framework has been an integral part of India’s telecommunication law. Under the Indian Telegraph Act, 1885, section 4 gives power to the government to grant licence to any person to establish, maintain or use a telegraph. However, in the telecom sector, the government had complete monopoly until the early 1990s. In 1992, the government allowed licensing in the telecom sector. Evolution of Telecom Regulation

 Telecommunications in India started as a state monopoly in the 1980s and telephone services and postal services came under the Department of Posts and Telegraphs. In 1985, the Department of  Post was separated to create the Department of Telecommunications (“DoT”).  The government also set up two new public sector undertakings: Mahanagar Telephone Nigam Limited (“MTNL”)  which provided services in Delhi and Mumbai, and Videsh Sanchar Nigam Limited (“VSNL”).  VSNL also provided international telecom services in India. The DoT continued to provide telecommunications operations in all regions other than Delhi and Mumbai. 1

TRAI Report, Indian Telecom Services Performance Indicator Report, June 2012

In the early 1990s the Indian telecom sector was liberalized and private sector participation was permitted albeit through a gradual process. The telecom-equipment manufacturing sector was deregulated and the government allowed private telecom companies to manufacture telecom switches for telephone exchanges. In 1992, the DoT invited bids for licenses for cellular services across four metros. However, the bidding process was challenged as unclear and arbitrary in the TATA Cellular v. Union of India 2  case and it was not until three years later that the first mobile

services were launched in Calcutta in 1995. The license fee and tariff was specified by the DoT and it placed caps on rental and tariff. A minimum license fee was specified in each metro and the operators paid a license fee per subscriber. The government also allowed private players to provide  value added services (“VAS”) such such as paging services. services.

In 1994, the National Telecom Policy 1994 (“NTP 1994”) was announced and it was aimed at advance the telecommunications sector in India. The policy allowed private investment in the telecom sector to bridge the resource gap especially in areas such as basic services. As markets and telecom technologies started converging and the differences between voice (both fixed and wireless) and data networks started blurring, the need for developing a modern telecom network became an immediate necessity. Private participation was allowed to provide Basic Telecom Services (BTS  –  fixed wire-line services) and Cellular Mobile Telephone Services (CMTS  –  mobile wireless services). Licenses were awarded to eight CMTS operators which were divided among the four metros. From 1995, over a period of three years, thirty-four licenses were granted among fourteen CMTS operators for eighteen state circles through a competitive bidding process.  A new telecom policy was announced in 1999 (“NTP 1999”) which largely focused on creating an environment for attracting continuous investment in the telecom sector and allowed creation of  communication infrastructure by leveraging on technological development. NTP 1999 allowed private operators providing cellular and basic services to migrate from a fixed license fee regime to a revenue sharing regime which made it financially viable for such operators to function in the market. Most importantly, the government recognized the necessity to separate the government's policy wing from its operations wing so as to create a level playing field for private operators. Accordingly the NTP 1999 directed the separation of the policy and licensing functions of DoT from the service provision functions. The Government corporatized the operations wing of  2

Tata Cellular v. Union of India , 1994 SCC (6) 651.

DoT in October 2000 and named it as Bharat Sanchar Nigam Limited (“BSNL”) which operates as a public sector undertaking. Thereafter in 2002, the monopoly of VSNL also ended. Regulatory and Governmental Bodies

 Telecom Commission: The Telecom Commission C ommission is an inter-ministerial high level l evel government body.  The Commission consists of a Chairman, four full time members, who are ex-officio, Secretary to the Government of India in the Department of Telecommunications and four part time members  who are the Secretaries to the Government of India of the concerned Departments. The essential functions of the  Telecom Commission are as under: 

policy formulation, licensing and coordination matters relating to telegraphs, telephones,  wireless,

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data, facsimile services and other similar forms of communications;

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international cooperation in matters connected with telecommunications;

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promotion of standardization, research and development in telecommunications;

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promotion of private investment in telecommunications;

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preparing the DoT budget and supervising its operations

Department of Telecommunications (“DoT”): As per the Indian Telegraph Act, 1885 and the

Indian Wireless Telegraphy Act, 1933 the Central Government has the exclusive privilege of  establishing, maintaining and working telegraph and wireless telegraphy equipment and is the authority to grant licenses for such activities. The Central Government acts through the DoT. Some of the important functions of the DoT are as follows: 

licensing and regulation

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international cooperation in matters connected with telecommunications (such as International Telecommunication Union (ITU), International Telecommunication Satellite Organization (INTELSAT), etc;

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promotion of private investment in the Indian telecommunications sector;

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promotion of standardization, research and development in telecommunications.  WPC , Spectrum Allocation & Management

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 Telecom Regulatory Authority Authority of India (“TRAI”): TRAI is an autonomous statutory body 

established under Telecom Regulatory  Authority of India Act, 1997 (“TRAI Act”) (discussed In Chapter 0 of this paper). Liberalization made it necessary for the Government to ensure that there is an independent communications regulator. TRAI acts as an independent regulator of the telecommunications industry in the country. One of the main objectives of   TRAI is to provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition amongst various telecom players.  TRAI s powers are recommendatory, mandatory, regulatory and judicial. ‟

 The important recommendatory powers of TRAI are as follows : 

recommendations regarding the need and timing for introduction of new service providers

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recommendations pertaining to the grant of telecom licenses including their terms and conditions

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recommend revocation of license for non-compliance of terms and conditions of license.

 TRAI is the sole authority empowered to take binding decisions deci sions on fixation of tariffs for provision of telecommunication services. Emphasis needs to be placed on the interplay between the recommendatory powers of TRAI and the policy making powers of DoT. While the DoT is the sole authority for licensing of all telecommunications services in India, it is mandatory for the DoT to have before it TRAI s ‟

recommendations with regard to matters over which TRAI has recommendatory powers (mentioned above). Having done so, the DoT has the discretion to either accept or reject the recommendations of TRAI. TRAI has over the years come out with a number of recommendations; DoT has accepted some such recommendations either wholly or partially or has rejected such recommendations. Below  is the status of some of the recommendations made by TRAI to the DoT:

Licensing Framework  National Long Distance Telephony International Long Distance Telephony Internet Services Universal Service Obligation Fund Cellular Mobile Telephone Service (“CMTS”) CMTS operators provide all types of mobile services including voice and non-voice messages, data services and Public Call Offices (PCOs) within their area of operation. CMTS operators utilize network equipment, including circuit and/or package switches that meet the relevant International Telecommunication Union (ITU) /Telecom Engineering Centre (TEC) standards.

Unified Access Service (“UAS”) In 2001, basic service operators in India were permitted to offer limited mobility services over wireless local loop (WLL (M)) using CDMA technology in their coverage areas. Moreover, they were also able to offer all-India mobility using the CDMA WLL (M) technology. The regime resulted in increasing the popularity of these services, as the prices of these services were generally lower than that for GSM cellular mobile services. UAS operators can provide, within their area of operation, wireline (basic) as well as wireless (cellular) services in a service area. Wireless services include Full Mobile, Limited Mobile and Fixed Wireless services. Further, UAS operators can also provide voice mail, audiotex services, video conferencing, videotex, e-mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on nondiscriminatory basis.

 The country is divided into 23 service areas consisting of 19 1 9 telecom circle service areas and 4 metro service areas for providing UAS and CMTS. CM TS. No service can be provided by the UAS operator for which a separate license is required. However, intimation before providing any other VAS has to be sent to the DoT and TRAI. Basic and Cellular Services Licensees are permitted to migrate to UAS License regime. The service providers migrating to UAS License will continue to provide wireless services in already allocated/contracted spectrum and no additional spectrum will be allotted under the migration process. In the wake of its popularity, UAS may have created a potential disadvantage for the GSM cellular operators as they had paid substantial amounts to obtain their licences and WLL (M) services were increasingly seen as largely substitutable for GSM services. As a result, the government decided to move towards a Unified Access Services Licensing regime for basic and cellular services, which was introduced in October 2003. The focus of the effort  was on technological advancement. Under the new licensing regime, both basic service operators and cellular carriers gained freedom to offer basic and/or cellular mobile services using any technology, which has ensured a fair competitive market for the service providers.

 What are the key issues facing the telecom telecom industry in 2013? Rather than issues, let’s focus on the strengths of the telecom sector, particularly around the mobile

ecosystem. The good news is that many issues for telecom in 2013 will revolve around growth opportunities tied to a dramatic uptick in data consumption. For an increasing number of people, mobile is no longer a “nice-to-have”; it’s embedded in their daily lives and integrated into the

 workplace. Moreover, consumers are starting to see beyond the monthly bill and derive more value

from the features, functionality and applications on their devices. With fourth generation (4G) technology rolling out, as well as other technologies to enhance broadband access, along with new  devices and services exploiting it, data usage will continue to expand exponentially, and the overall  value equation to consumers should move in the same direction. Higher speeds and widespread adoption of mobile also are expected to enable additional traction in  vertical markets, especially in banking, mobile payments, automotive telematics and health care.  These incremental services will present new opportunities and also dr ive even more data needs.  The key challenges for telecom in the near term may be spectrum availability and the continued hearty capital requirements to build/enhance/upgrade networks. The projected increase in data usage will outpace the technological advances of 4G, driving toward a potential spectrum shortage in as early as a year or two. With the appropriate focus, it shouldn’t inhibit innovation, but it will

require technical solutions and also escalate pressure for the government to unlock more spectrum, on a timely basis, to allow for further mobile broadband network expansion .