India's Telecom Reform - Indian Institute of Public Administration

India’s s Telecom Reform: 

m: 

A Chronological Account 

Mahesh Uppal with S.K.N. Nair and C.S. Rao 

Series Editors: 

Aasha Kapur Mehta, Pradeep Sharma 

Sujata Singh, R.K.Tiwari 

2006

Economic Reforms in India: Pro-poor Dimensions

Table of Contents 

1 

2 

3 

4 

5 

Introduction 1 

Key Regulatory Issues 7 

Conclusion 15 

Epilogue 16 

Appendices 19 

References 35

Economic Reforms in India: Pro-poor Dimensions 

LIST OF ACRONYMS 

ADC 

Access Deficit Charge 

IP 

Telephony: Internet Protocol Telephony 

BICP 

Bureau of Industrial Costs and Prices 

ISP 

Internet Service Provider 

BSNL 

Bharat Sanchar Nigam Ltd 

IUC 

Interconnection Usage Charges 

CA 

Certifying Authorities 

MOC 

Ministry of Communications 

CCA 

CDMA 

CdoT 

COAI 

CMSP 

CPP 

DEL 

DoT 

DTS 

FDI 

FICCI 

GMPCS 

Controller of Certification Authority 

Code Division Multiple Access 

Centre for Development of Telematics 

Cellular Operators Association 0f India 

Cellular Mobile Service Providers 

Calling Party Pays 

Direct Exchange Line 

Department of Telecommunications 

Department of Telecommunication Services 

Foreign Direct Investment 

Federation of Indian Chambers of 

Commerce and Industry 

Global Mobile Personal Communication 

by Satellite 

MOCIT 

MTNL 

NFAP 

NLDS 

NTP 

PCO 

PSTN 

RIO 

SDCA 

SSA 

TDSAT 

TRAI 

Ministry of Communication and Information 

Technology 

Mahanagar Telephone Nigam Ltd 

National Frequency Allocation Plan 

National Long Distance Service 

National Telecom Policy 

Public Call Office 

Pubic Switching Telecom Network 

Reference Interconnect Offer 

Short Distance Charging Areas 

Secondary Switching Area 

Telecom Dispute Settlement Appellate 

Tribunal 

Telecom Regulatory Authority of India 

GSM 

Global System for Mobile Communications 

UASL 

Unified Access Service Licence 

GOT-IT 

Group on Telecom and IT Convergence 

USOF 

Universal Service Obligation Fund 

HFCL 

Himachal Futuristic Commmunications 

Limited 

VSNL 

WLL 

Videsh Sanchar Nigam Ltd. 

Wireless in Local Loop 

ICICI 

Industrial Credit and Investment Corporation 

of India 

WLL(M) 

Wireless in Local Loop relating to “Limited 

Mobility” 

ICT 

Information and Communication Technology 

WPC 

Wireless Planning and Coordination 

ILD 

International Long Distance 

WTO 

World Trade Organisation

India’s s Telecom Reform: 

m: 

A Chronological Account 

Mahesh Uppal with S.K.N. Nair and C.S. Rao 1 

1 

Introduction 

The telecom sector occupies a special area of interest for 

students and analysts of India’s economic reforms, because 

of the lead role it played in drawing private investment, 

the institutional changes that the process involved 

and the dramatic results achieved in terms of availability 

and access. A chronological recording of India’s telecom 

reforms is invaluable for a complete understanding of the 

tortuous reforms process and the clash of interests among 

existing and new participants and mid-course policy corrections. 

By end 2003, positive trends resulting from the reforms, 

like accelerated growth in penetration levels and fall in tariffs, 

were already in evidence (see Tables 1 to 6). The level 

of telephone penetration, which was less than half of one 

percent in 1991, had increased to about 4 per 100 of population 

in terms of fixed line phones. (This growth index 

has crossed 10, taking both fixed and mobile phone subscribers 

into account). However, the sharp increase in subscriber 

numbers is concentrated in the urban areas. The 

rural subscriber base has grown at a much slower rate as 

compared to the urban and seems virtually stagnant when 

the two are compared. Thus, while the urban poor have 

seen vast improvements – in availability as well as 

affordability - the rural populations have seen little of the 

beneficial effects of competition 

The Universal Service Obligation Fund – into which telephony 

operators pay a universal service levy - was set up 

in 2002 to address this urban-rural “digital divide” by providing 

subsidies to operators for expanding access to phones 

and Internet in rural areas. The Fund has had mixed success 

and is largely unutilised, thus highlighting the complexity 

of running such subsidy schemes. A strong plea to 

review its approach has recently been made by the regulator, 

who has argued that a more cost effective approach 

for the USOF would be to move from its current focus 

on fixed telephone lines to fund shared wireless infrastruc- 

1 

This study was conducted as part of the UNDP funded ‘economic reforms’ programme under which the NCAER Centre for Infrastructure and 

Regulation has been set up. Dr. Mahesh Uppal authored the main body of the report. The chronology and statistical tables accompanying it were 

compiled under his supervision. He was assisted by Ms. Ramneet Goswami, Research Associate, NCAER Centre for Infrastructure and Regulation. 

The introductory and concluding sections of the Report are contributed by S.K.N. Nair, Adviser, NCAER. Ms. Nandini Acharya, Research Associate 

assisted with data and verification. The note on ‘Information Communication Technology and Poverty Alleviation’ in Appendix II was written by Dr. 

Ch. Sambasiva Rao, Associate Fellow, NCAER. The views expressed in this paper are those of the authors and do not necessarily reflect the views 

of GOI, UNDP or IIPA. 

1

India’s Telecom Reform: A Chronological Account 

ture. Time will tell if the new approach will be followed 

and if it can deliver to the rural poor the benefits that the 

urban poor have begun to enjoy, thanks to policy reforms 

undertaken in the sector. 

There is also a renewed effort from players other than 

telecommunications operators in rural telecommunications 

space. A growing list of technology innovators 

and entrepreneurs has been active in testing 

new ICT services and business models to serve rural 

populations. Many of these efforts now form a part 

of Mission 2007, a vision of Professor M.S. 

Swaminathan, to establish knowledge centres in all 

villages by August 2007. Some of these efforts are 

highlighted in the Appendix by Ch. Sambasiva Rao, 

attached to this report. Many of these initiatives 

would require policy and regulatory support, especially 

when the models are sought to be scaled up 

from their “pilot phases”. It will be interesting to see 

the degree to which such efforts succeed. 

The Telecom Policy Evolution: A 

Background 

India’s telecommunications reform programme has been 

underway since the late 1980s when the government’s 

monopoly in manufacturing telecom equipment was discontinued. 

However, the more substantive reform was the 

progressive deregulation of the services sector, from a situation 

where the Government of India’s Department of 

Telecommunications (DoT) was the policy maker, operator 

and regulator, all in one. DoT’s success in this role was 

mixed. The network grew significantly, but in comparison 

to most countries, India remained far behind with long 

waiting lists and poor service quality. 

Early attempts to reform the services were modest, with 

the opening of some value-added services such as electronic 

mail, audio-text, etc., to private sector players. This 

was followed by an attempt to allow private sector players 

to enter the mobile service sector. This exercise, and 

the litigation that ensued, reflected the first signs of the 

challenge that lay in ad hoc changes to telecom policy without 

a clear regulatory framework. 

In 1994, the Government of India announced the National 

Telecom Policy (NTP), which defined certain important 

objectives, including availability of telephones on 

demand, the provision of world-class services at reasonable 

prices, ensuring India’s emergence as a major manufacturing/export 

base for telecom equipment and universal 

availability of basic telecom services to all villages. It 

also announced a series of specific targets to be achieved 

by 1997. Against the NTP 1994 target of the provision of 

one PCO per 500 urban population and coverage of all 

600,000 villages, DoT has achieved an urban PCO penetration 

of one PCO per 522 persons, and has been able 

to provide telephone coverage to only 310,000 villages. As 

regards provision of total telephone lines in the country, 

DoT has provided 8.73 million telephone lines against the 

Eighth Plan target of 7.5 million lines. 

NTP 1994 also recognised that the required resources for 

achieving these targets would not be available only from 

government sources and concluded that private investment 

and private sector involvement were required to bridge 

the resource gap. The government invited private sector 

participation in a phased manner from the early nineties, 

initially for value added services such as paging services 

and Cellular Mobile Telephone Services (CMTS) and thereafter 

for Fixed Telephone Services (FTS). After a competitive 

bidding process, licenses were awarded to eight 

CMTS operators in the four metros, 14 CMTS operators 

in 18 state Circles, six BTS operators in six state Circles 

and paging operators in 27 cities and 18 state Circles. VSAT 

services were liberalised for providing data services to closed 

user groups. Licenses were issued to 14 operators in the 

private sector, out of which only nine licensees are operational. 

The government has recently announced a policy 

for Internet Service Provision (ISP) by private operators 

and has commenced licensing of the same. The government 

has also announced the opening up of Global Mobile 

Personal Communications by Satellite (GMPCS) and 

issued one provisional license. The issue of licenses to other 

prospective GMPCS operators is under consideration. 

2

Introduction 

The policy document set the stage for auctioning telecom 

licenses in India. 

In an interesting twist, it was decided that government 

operators, or other entities owned by the government e.g., 

public sector undertakings such as ITIs, would not be allowed 

to bid for telecom licenses. The then Minister for 

Communications argued that government resources 

needed to be augmented by private investments and Public 

Sector Undertakings (PSUs) bidding for licenses would 

defeat the goal. 

However, since government operators already ran fixed 

line services, the bar on their bidding for licenses would 

essentially exclude them from providing mobile services. 

The auctions for telecom licenses, both fixed and mobile, 

were held in early January 1995. The bidding unit was the 

telecom Circle. This is the unit in which DoT’s own operations 

are run and is typically the size of a federal state. 

Metro areas, for which the process of awarding mobile 

licenses had already been completed weeks before, after 

protracted litigation, were excluded. The use of the Global 

System for Mobile Communications (GSM) standard 

was mandatory for all cellular licensees. (This was reiterated 

to some companies who had expressed an interest in 

using Code Division Multiple Access (CDMA) to provide 

mobile services.) 

Circles were of three types. Type A Circles were considered 

most attractive commercially and Type C the least 

so 2 . Virtually all Indian companies, in partnership with an 

array of blue chip as well as smaller international companies, 

participated in the auctions. 

The winner in these auctions was the small equipment 

manufacturer Himachal Futuristic Company Limited 

(HFCL), in partnership with Bezeq, an Israeli government 

controlled company. It won nine licenses for its bids totalling 

Rs. 85,000 crores. 

Soon after the results of the bids were announced, the 

government announced that it had decided to invoke the 

provision in the tender documents that gave the government 

the right to limit or “cap” the number of licenses. It 

announced that no company would be allowed to retain 

more than three licenses for the Type A Circles, which were 

considered to have the maximum commercial potential. 

This meant HFCL would have to forgo all but three of its 

A-Circle licenses. In effect, it also bailed HFCL out from 

having to pay the huge amounts it had bid and not having 

to be bound by the bids, which to some, were beyond the 

company’s resources. 

There were several allegations and counter-allegations relating 

to the post-auction decision to cap the number of 

licenses a company would be awarded. It brought parliamentary 

proceedings to a standstill in December 1995. 

Members demanded that the Minister for Communications 

be sacked for his attempts to benefit a particular company 

and for causing losses to the exchequer as a result of 

the forgoing of the license fees as a consequence of the his 

actions. 

The decision to limit A-Circle licenses was not the only post 

facto decision taken. The government also announced that 

some of the license fees bid by players were below its 

“reserve price” for them. This meant that most of the 

other bids, including the very low ones by Reliance for 

many C-Circles and many by others for A and B Circles, 

were unacceptable. 

In 1996 a total of six fixed line licenses were “won” after 

several rounds. However, for mobile licenses, most Circles 

except Jammu and Kashmir, Andaman & Nicobar Islands 

and parts of West Bengal and Orissa could attract winning 

bids. 

The earliest telecom services run by the private sector were 

mobile. Cellular services started in all four metros in August 

1995. The process of selecting operators for these 

services was started in 1992 and was later challenged in the 

courts on the grounds of not being transparent. In a landmark 

decision, the Supreme Court had ruled in late 1994, 

that the government was within its rights to employ hidden 

criteria to evaluate applicants for licenses as long as the 

criteria themselves were fair. 

2 

see Appendix III for a listing of the Circles by these categories 

3


By early 1997, virtually all private cellular licensees had begun 

operations. Basic services, with only six licensees, were 

slow to begin and were able to start operations only in 

1999, because of delays and uncertainties occasioned by 

disputes on licensing terms. 

The High Court directed the matter be moved to the Telecom 

Regulatory Authority of India (TRAI), which had been set up 

in early 1997. TRAI quashed the impugned order of the DoT. 

In the proceedings before TRAI, the main argument offered 

by DoT, which had only weeks ago helped set up TRAI, was 

that the latter had overstepped its jurisdiction. This was to 

become a pattern in its dealings with TRAI. 

The situation was repeated a few months later. The Mahanagar 

Telephone Nigam Ltd. (MTNL) announced its plans to start 

mobile services in October of the same year and barely a 

year after new private players had entered the mobile market, 

following the auctions for cellular licenses, which forbade the 

public sector to bid. MTNL and the government argued that 

license documents had expressly retained the government’s 

right to enter the mobile centre. 

Cellular Operators Association of India (COAI) moved 

TRAI to challenge MTNL’s right to provide cellular services 

on the grounds that its members were promised 

duopoly rights. 

TRAI in its judgement in February 1998 agreed that it was 

the government’s right to give licenses to operators, but 

the body’s recommendations on need and timing were 

required, before MTNL could be allowed to enter the 

mobile market. MTNL’s license or its terms were unavailable. 

TRAI refused to allow MTNL to provide mobile 

service. Again, the government argued that TRAI had no 

jurisdiction on the matter and moved the High Court. 

A new set of issues emerged after private sector operations 

began in full swing. The operators faced huge costs. 

In particular, the investments required to set up infrastructure 

were huge, as were the license fees bid by operators. 

The entry costs for customers to use the service were low, 

but charges paid by users to make and receive calls, were 

prohibitive. The operator estimates for minutes of usage 

were wrong. The revenues from the services were nowhere 

close to meeting license fee commitments that the prospective 

operators had bid. 

Defaults in license fee payments began soon after the initial 

payments required for obtaining the licenses were made. 

Virtually every company defaulted in its payments. In some 

cases, the operators obtained permission from DoT to 

delay pending payments. 

Some failures of the government too compounded the 

operators’ worries. There were frequent and long delays in 

providing clearances and permissions for radio frequencies 

and rights of way that are so critical for setting up 

infrastructure. Operators claimed that these delays wrecked 

their business plans. 

The licenses for Internet Service Providers (ISP) seemed 

to upset the basic operators. The license conditions envisaged 

a fee of one rupee for becoming an ISP and permitted 

ISPs to set up infrastructure to provide last mile access 

to the subscriber if none existed. Basic service operators 

argued that the ISP license infringed their exclusive right to 

set up fixed infrastructure. 

The operators approached the government and courts for 

relief. 

The operators asked the government to compensate them 

for losses that they said were the result of the government’s 

decisions. The operators proposed moving from the license 

fee regime (that in this case meant paying fees they had themselves 

bid) to a revenue sharing regime where an agreed share 

of all revenues could be given to the government. 

In the courts, private basic telecom operators sought to 

persuade the courts that the breach of their rights by ISP 

licenses had undermined their businesses and made them 

unviable and led to default in license fee payments. Cellular 

operators, on the other hand, argued that the delays by the 

government had made their businesses unviable. Both sets 

of service providers claimed substantive damages. 

4

Introduction 

In 1998, there was bitter litigation between the government 

and private operators. A veritable who’s who of Indian 

legal luminaries argued telecom cases in the Delhi High 

Court . The government stand was upheld in the case of 

MTNL’s entry as well as in the claims of damages lodged 

by the private operators. 

Meanwhile, the government had asked two agencies, in 

quick succession, to report on industry issues. First, ICICI 

was to examine the industry’s performance and report on 

the need for a license extension for cellular services. Second, 

the Bureau of Industrial Costs and Prices (BICP) was 

asked to review the viability of private cellular operations. 

Both accepted that the industry faced problems and government 

support was required. ICICI said a 10-year license 

was unattractive for operators and lenders; and recommended 

an extension of the license period to 15 years. 

The BICP report was never made public, but is said to 

have accepted the operators’ case about delays. However, 

it is said that the report did not totally support the private 

operators’ demands. 

The new Minister of Communications took office in 1998. 

He made no secret of his scepticism relating to the operators’ 

pleas for relief from pending license fee payments. 

He sent letters to all license fee defaulters in January 1999 

asking them to pay 20 percent of their outstanding license 

fee payments and to securitise the balance 80 percent dues 

by February 15, 1999 or face punitive action. This deadline 

was later extended to February 28, 1999. 

TRAI also faced familiar challenges in 1999, when it ruled 

that cellular service rentals must rise by 200 percent, but 

tariffs for mobile calls must fall to less than half of their 

price of Rs. 16.80 per minute. This was necessary for the 

viability and affordability of cellular services. In the same 

tariff order, TRAI also announced the move to a system 

of charging where the originator alone paid for the call 

(the so called Calling Party Pays or CPP regime). In India 

and a few other countries, the system in place required 

both, originating and receiving parties to pay. 

The government, basic operators (whose subscribers would 

now pay more to contact mobile users) and some consumer 

agencies again challenged TRAI’s authority to deal with this 

issue. They argued that CPP dealt with interconnection revenue 

sharing that formed a part of the license agreement. 

TRAI had no jurisdiction over this. TRAI lost again. 

By late 1999, the courts’ decisions raised serious concerns 

about the role and powers of TRAI. In particular its ability 

to ensure fair play in the market place was seriously in 

question if it was not to be able to intervene in decisions 

on who played in the field and by what rules. The successful 

challenge to the CPP regime was also a sign that TRAI 

lacked the powers to enforce technically adequate and fair 

priced interconnection to all players in the telecom market, 

arguably, the most important function regulators carry out. 

In response to concerns of private operators and investors 

about the viability of their businesses, a high powered 

government committee led by Deputy Chairman, Planning 

Commission was announced by the Prime Minister in 

late 1998. The committee was asked to make recommendations 

for a new telecom policy and for resolving issues 

facing basic and cellular operators. 

The government group prepared a draft National Telecom 

Policy in early 1999. The policy draft sought to address 

many of these concerns. In a move unprecedented for 

government processes in the sector, more reminiscent of 

TRAI consultative processes, the document was made available 

on the Internet for wider feedback on the proposals. 

The Prime Minister took charge of the Ministry of Communications 

in August 1999. A formal announcement of 

the New National Telecom Policy (NTP-99) was made in 

April 1999. The move to a revenue sharing regime from 

the license fee commitments made by operators was now 

official. Unlimited competition would be allowed in all 

services except those, like mobiles, which were dependent 

on spectrum availability. Technology restrictions were lifted. 

The controversy over BSNL/MTNL’s entry in cellular services 

ended by the document specifying that government 

5


operators would be the third mobile operators in their 

areas of operation, which then could have only two private 

players each. The regulator would be strengthened. In 

addition, NTP-99 proposed the setting up of a USOF to 

support services in rural and other remote areas. 

Following the announcement of the NTP-99, the government 

issued the so-called “migration package”, which laid 

out the terms and conditions to be met by operators wishing 

to move from the license fee regime to a revenue sharing 

agreement with the government. The package envisaged 

that any operator could move to the new regime on the 

payment of an entry fee, which would be equal to the 

dues that would have been payable by the operators until 

31 st July 1999. The percentage of revenues to be shared 

with the government would be decided later. The operators 

would accept unlimited competition. Importantly, they 

would need to unconditionally withdraw all pending litigation 

against the government. All migrating operators 

would need to lock in their existing share holdings for five 

years. Migration to revenue sharing would not be permitted 

to either operator if even one of the two private operators 

providing a service in the Circle did not wish to 

migrate. All operators signed up. 

The promise in the NTP-99 to strengthen the TRAI was implemented 

in a remarkable way. In early 2000 the government 

issued an ordinance to amend the TRAI Act 1997. TRAI’s 

powers relating to tariffs and interconnection, deemed by 

courts to be limited, were restored in full. Even the government 

would have no right to overrule TRAI in these two 

areas. TRAI was reconstituted with new members. The mandate 

to adjudicate disputes between the service providers as 

well as between service providers and the government was 

taken away from TRAI and handed over to the proposed 

new body, the Telecom Dispute and Settlement and Appellate 

Tribunal (TDSAT). It would no longer be necessary for 

the government to refer to the Chief Justice of the Supreme 

Court of India, if the former wished to remove any TRAI 

member as long as the member concerned was given an 

opportunity to be heard. This last provision was a clear sign 

that the government was not comfortable with what it felt 

was an overly independent regulator. 

NTP-99 had also referred to the government’s intention 

to restructure the DoT. In September 1999, we saw the 

division of DoT into two parts. DoT was responsible for 

policy, planning, licensing etc. and the Department of Telecommunications 

Services (DTS) for operations (fixed line 

and mobile service providers in India excluding Delhi and 

Mumbai). The government also announced a plan to 

corporatise DTS so that it functioned as a company. The 

Telecom Commission is co-ordinating the functions of 

both DoT and DTS in accordance with the administrative 

and financial powers vested with it. 

Corporatisation came a step closer when DTS was briefly 

converted into the Department of Telecommunications 

Operations and then, in October 2000, the Bharat Sanchar 

Nigam Limited was formed. The process, contentious for 

years, was completed rather swiftly, in part, presumably, 

because it was decided, that the powerful engineering staff 

of DoT would continue to belong to the Indian Telecom 

Service cadre and the government would continue to guarantee 

their pensions. 

6

2 

Key Regulatory y Issues 

Convergence 

The NTP-99 also spoke of the convergence of communications 

technologies and the need to have a policy that 

could exploit it advantageously. 

On August 11, 2000, the government received the draft 

report of Sub-Group on Convergence. The group proposed 

a Convergence Law and suggested a common regulatory 

body for India for content and carriage, i.e., broadcasting 

and telecommunications. The report received a 

mixed response from sector players and experts. This was 

in part, because it did not, as it was perhaps not mandated 

to do so, deal with the large number of extremely contentious 

licensing issues that would result during the move to 

a converged policy environment in which carriage and 

content would be treated in an integrated manner. 

It was surprising to notice the relatively low profile manner 

in which the Information Technology Act 2000 was 

passed. The Act gave legal sanctity to electronic transactions. 

It also created the office of Controller of Certification 

Authority (CCA) to regulate Certifying Authorities (CA) 

who would assign digital signatures and other instruments 

of authentication. The retiring Director of DoT’s Centre 

for Development of Telematics (C-DoT) was appointed 

as the first CCA. 

The Cabinet approved the Communications Convergence 

Bill 2001 drafted by the committee. It also approved the 

repeal of The Indian Telegraph Act 1885, The Indian Wire- 

less Telegraphy Act 1933, Telegraph Wire Unlawful Possession 

Act 1950, The Cable Television Networks (Regulation) 

Act 1995 and the Telecom Regulatory Authority of 

India Act 1997. The Bill, ambitious in intent, was unprecedented 

in leaving no role for the government in licensing. 

However, experts criticised it for being too general and 

not dealing with transition arrangements as also with issues 

relating to economic regulation. (The Bill was introduced 

in Parliament and was also reviewed by a Parliamentary 

Committee, but lapsed with the dissolution of the 13 th 

Lok Sabha before it could be made into law). 

Related, indirectly at least, to the same issue of convergence, 

the government announced the merger of the Ministry 

of Information Technology (MoIT) and Ministry of 

Communications (MoC) on December 22, 2001. The new 

entity is now called the Ministry of Communications and 

Information Technology (MoCIT). The merger, much 

discussed and debated, brought together MoC and MoIT. 

However, the Ministry of Information and Broadcasting 

was left out of this attempt at dealing with the convergence 

of communications technologies. 

Licensing and Regulation Post 

NTP-99 

Within months of the new team of members of TRAI 

taking office, a series of decisions were taken, many of 

which seem to reflect the message, explicit or implicit, about 

the events that led to the dissolution of the previous body 

7


and the replacement of all but one members of the erstwhile 

body. 

The first instance of the new reality was a review by TRAI 

of the previous body’s recommendation, in late 1999. 

TRAI had then asked the government to allow open entry, 

in the national and international long distance services on 

payment of a fixed fee. The review by the new body agreed 

with the government view and favoured a limited number 

(3) of players and auction for these licenses. The new recommendations 

were made three months after their taking 

office in February 2000 and reversed those made less than 

six months earlier. This was ominous. 

A major dent in the credibility of a body that had accommodated 

the government position was to come just three 

months later. The government itself did a somersault on 

long distance licensing. In mid July 2000, the Prime Minister 

announced a decision that implied that the government 

had chosen to accept the dissolved TRAI’s recommendation 

on the subject, in toto. 

More controversy followed and raised concerns about the 

independence of the new TRAI. In November of its first 

year, the body issued a consultation document laying the 

grounds for the introduction of a limited mobility service 

to be provided by basic operators in their Short Distance 

Charging Areas (SDCAs) where local call rates apply. The 

subject of limited mobility, provided using fixed line wireless 

infrastructure of basic service providers, had come up 

about a year earlier. The government had told the regulator 

then that it considered such mobile services using a 

handset unacceptable, since they would overlap with services 

of licensed cellular operators. 

So there was widespread concern, especially among GSM 

cellular operators, when TRAI, in November 2000, issued 

a consultation paper on “Policy Issues Relating to Limited 

Mobility by use of Wireless in Local Loop Techniques in 

the Access Network by Basic Service Providers”. The consultation 

paper had argued that the limited mobility service 

using WLL (F) - WLL (M) for short-distances would 

add value to fixed line services and provide cheap mobility 

to basic service users at fixed line prices. It argued that 

the limited mobility services would have minimal impact 

on the cellular mobile services since the products would 

cater to different markets i.e., high and low end users. 

The commercial opportunities and threats perceived by 

basic and mobile operators were obvious. The division 

between the two camps, which had fought aggressively 

for migration to revenue sharing a few months earlier, was 

sudden but bitter. 

The TRAI consultation process in Delhi gave hints of a 

new politicisation of the licensing and regulatory process. 

The meeting attracted a diverse group that included promoters, 

local politicians and lawyers and remained unruly 

for most of its duration. 

The cellular operators protested, as vigorously as basic operators 

supported the TRAI thinking on the issue. To the 

cellular camp, limited mobility services were unprecedented, 

virtually unheard of elsewhere and a back-door entry into 

their business and that too on the terms and conditions 

specified for basic fixed phone services for which the license 

fees were a fraction of what they had paid. The 

basic operators were allowed higher revenue shares from 

their long distance calls, since their local call business was 

not profitable. The cellular players were predominantly 

dependent on airtime charges for their revenues. 

To the basic operators’ camp it was an attempt to block a 

technology that allowed them to do more i.e., provide mobile 

services, than the fixed phone service they were licensed 

to provide. They claimed that the cell players had managed to 

block competition in a market that they had postured to keep 

to themselves and extracted several concessions, such as the 

option to set up mobile public phone services. 

Nobody, including the government and TRAI, seemed to 

have considered that virtually all basic operators, except 

Hughes (which was eventually sold to Tatas) and possibly 

HFCL (who had sold most of their interests in the Gujarat 

mobile license earlier), were also running mobile cellular 

businesses. It was a uniquely Indian phenomenon. 

There were of course some pure mobile players such as 

Hutch, BPL and a couple of smaller ones like RPG, Spice 

8

Key Regulatory Issues 

who had much to lose from limited mobility. On the other 

hand, private basic businesses had failed to take off in any 

significant manner and mobility offered a major opportunity 

to companies like Reliance who had acquired basic 

licenses for almost the whole country post NTP-99. The 

dispute was real. 

TRAI issued recommendations on issues relating to “Limited 

Mobility” through Wireless in Local Loop (WLL). In 

the “Access Network by Basic Service Providers” on 8 th 

January 2001, weeks after completing a hurried consultation, 

TRAI recommended that WLL (M) service by fixed 

service providers be permitted and that no additional fee 

be charged or tariffs changed. 

The government was quick to act on the recommendations. 

The guidelines for fixed services, which included limited 

mobility services, were issued, complete with application 

forms for prospective operators, in a record three 

weeks, on 25th January 2001. Such speed was not common 

to the decisions generally taken by DoT on other issues. 

These guidelines stated inter alia that “Basic Service Operator 

shall be allowed to provide mobility to its subscribers 

with Wireless Access Systems limited within the local 

area i.e., Short Distance Charging Area (SDCA) in which 

the subscriber is registered. While deploying such systems, 

the operator has to follow the numbering plan of that 

SDCA and it should not be possible to authenticate and 

work with the subscriber terminal equipment in SDCAs 

other than in which it is registered. The system shall also be 

engineered so as to ensure that hand over of subscriber 

does not take place from one SDCA to another SDCA 

while communicating.” 

Cellular operators in particular complained bitterly and alleged 

foul play. In response to the controversy following 

the TRAI recommendations, the government referred the 

issue of “limited mobility” to the Group on Telecom and 

IT Convergence (GOT-IT) for their recommendation in 

April 2001. GOT- IT recommendations on WLL limited 

mobility were sent to the Prime Minister later that month. 

The group found WLL (M) came within the purview of 

NTP-99 and recommended sharing of long distance revenues 

for WLL (M) to be brought at par with cellular mobile 

services. It also recommended that SDCAs be divided into 

three sub-categories – rural, semi-urban and urban - and 

that each sub-category be covered in equal proportion for 

each phase of the rollout prescribed, to qualify for allocation 

of spectrum for WLL (M) services. GOT-IT recommended 

that allocation of the spectrum be inextricably 

linked to performance and that the spectrum already allocated 

be forfeited in case of failure to meet subsequent 

rollout obligations. The group also proposed that existing 

fixed operators applying for new licenses give undertakings 

as well as performance guarantees to fulfil their obligations 

within a defined time frame. 

Cellular operators considered GOT-IT’s recommendations 

far from acceptable since the group had not conceded 

that the services were illegal as GSM mobile operators 

insisted they were. However, the recommendations on revenue 

sharing for long distance services and rural services in 

effect, recognised their regulatory and commercial concerns. 

This was something that TRAI had not done. The 

GSM operators felt a victory of sorts. 

The COAI approached TDSAT to challenge the licensing 

of limited mobility services. After months of extended 

hearings on 15 th March 2002, TDSAT dismissed the COAI 

petition seeking to prohibit fixed service providers from 

offering any type of mobile services. It ruled that the introduction 

of WLL (M) services was a policy decision of 

the Government of India and was therefore not subject 

to review by the Tribunal. 

COAI challenged the TDSAT judgement on WLL (M) in 

the Supreme Court less than a month later on 11 th April 

2002. The Supreme Court gave its judgement in December 

that year. While it did not stay the government decision, 

it was scathing in its criticism of the TDSAT’s failure 

to deal with the issues before it. It was persuaded that the 

Tribunal had full jurisdiction on the issues raised before it 

and had failed to consider them. It accepted that cellular 

players concerns about fairplay were real. The apex court 

sent the matter back to TDSAT for review with particular 

focus, on a level playing field i.e., fair competition aspects 

of the move to allow limited mobility services. 

9


In August 2003, TDSAT gave its judgement on the legality 

of WLL (M) services. Its majority decision, – that of two 

of its administrative members - accepted that the WLL (M) 

service was legal, but argued that the government’s decision 

to allow it, was taken in unseemly haste. It said TRAI should 

have levied additional fees. The minority judgement, that of 

the chairperson of TDSAT (and its only judicial member), 

said that the WLL (M) service is illegal and suggests important 

relevant information was not disclosed to government 

committees examining the legality of the service and that decisions 

were taken for extraneous reasons. Both judgements 

had serious concerns about the decision-making processes at 

TRAI and by the government. TRAI was given four months 

to enforce limited mobility and levy additional fees on players 

providing the service. 

After the completion of arguments and before the TDSAT 

judgement of August 2003, TRAI floated its hurriedly put 

together paper on the unification of fixed and mobile licenses. 

The unification of the two types of services is justified 

on the ground that the norm, internationally, is to 

have convergence of all service licenses. On complaints 

that TRAI’s approach of limiting unification to fixed and 

mobile services only, TRAI issued a single page amendment 

seeking views on the unification of all telecom services. 

So, in September 2003, TRAI undertook two parallel, and 

seemingly divergent, consultation processes. One open house 

sought views on unifying the licenses of fixed and mobile 

services. A second open house meeting - on the same day in 

some cities - was held to seek views on what additional fees 

were to be levied for limited mobility services being provided 

in the market as the TDSAT had directed TRAI to do. 

In October 2003, TRAI gave its recommendations, proposing 

an immediate merger of fixed and mobile licenses in the 

area of operations of current cellular companies. It recommended 

that the government be paid additional fees, equivalent 

to the difference between those paid by fixed line and the 

fourth cellular licensees awarded. Service areas were to be as 

those for erstwhile cellular operators. It recommended that 

Reliance must pay a penalty for offering de facto mobile services 

through call forwarding arrangements. Full unification, 

according to TRAI, is to be achieved in six months. 

The government immediately accepted TRAI’s recommendations 

and issued guidelines for a new unified access service 

license (UASL) in November 2003. All fixed line operators 

paid fees for unified licenses shortly thereafter. The 

action to enforce the scope of licensed limited mobility 

services to SDCAs was left in abeyance till the decision to 

unify the licenses was taken in November 2003. 

The sector seems to have arrived at a kind of “peace” 

after the government finally offered concessions of a two 

percent reduction in revenue share payments to the outwitted 

cellular operators. The cellular operators have withdrawn 

all litigation. The sector is poised for a new phase 

of growth and possibly less litigation in the coming months. 

The route to this stage though, has been controversial. 


NTP-99 had mooted the setting up of a Universal Service 

Obligation Fund (USOF), to support rural services which, 

in view of their high costs and perceived low revenue 

potential had difficulty in attracting investments. The proposal 

was to impose a levy on major telecom service providers 

and for the proceeds to go to a USOF. 

TRAI’s consultation paper on the arrangements for setting up 

and deploying the fund was released in July 2000. The TRAI 

recommendations of 3 rd October 2001 had proposed a 

“proxy model” approach where the government or the regulator 

would essentially compute costs. When DoT issued its 

guidelines on Universal Service Obligation (USO) on 27 th 

March, 2002 and announced the creation of the USOF starting 

1 st April 2002, this model was rejected. The Fund is implementing 

an approach which determines service costs through 

a “negative auction”; bids are invited for the minimum subsidy 

and the selected operator would be required to provide 

services in an area considered to be “net cost positive” i.e., 

commercially unviable. 

It is useful to summarise the USO guidelines according to 

which: 

i) “The funds created by the Universal Service Levy shall 

be spent in rural and remote areas on both the public 

10


access telephones or community telephones meant for 

public use and individual household telephones in net 

high-cost rural/ remote areas. 

ii) The support from USOF will be provided to meet 

net cost (i.e., cost minus revenue) of providing the 

universal service.” 

Uncharacteristically, it was the government, and not the 

economic regulator, TRAI, that chose the approach of 

allowing the market to determine the most efficient cost 

for delivering a service. Rakesh Mohan, a part-time member 

of the then TRAI had written a dissenting note in TRAI’s 

recommendations on the subject. 

The retiring Secretary of the Department of Telecommunications 

was appointed the USOF’s first administrator. 

The resources of the fund come from a fixed levy, currently 

five percent, mainly from operators of fixed, mobile 

communications services. The fund is now operative. 

An amendment to the Indian Telegraph Act 1885 was 

cleared by Parliament in December 2003, to allow funds 

received under universal obligation to remain with the 

USOF and not revert to the Consolidated Fund of India, 

as unutilised budgeted funds would ordinarily do in governmental 

organisations. 

Interconnection 

Interconnection is one of the most problematic areas in an 

environment with multiple operators competing with each 

other. There is broad consensus in international regulatory 

circles that new operators must be provided interconnection 

to an existing network at a price, which is cost based 

and is provided in a timely fashion. In India, interconnection 

was a part of the license agreement that specified actual 

amounts, if any, that each party could charge the other. 

This was a blessing in disguise. 

The license agreement route to setting interconnection terms 

meant that newcomers were saved most, though not all, 

of the interminable wait and negotiation to connect to the 

incumbent’s network when they needed to get their services 

off the ground. The disadvantage was, of course, 

that the actual charges for interconnection in the license 

agreements were in most cases without a known basis. In 

addition, there was a tendency to confuse user tariffs and inter 

operator tariffs, i.e., interconnection charges. Thus some relatively 

technical decisions became the subject of often uninformed 

debate and speculation. A case in point was the way 

in which TRAI was made to revise its stand on the CPP regime 

for mobile services. The CPP regime was struck down 

by the High Court when it was first instituted on the grounds 

that TRAI had no right to revise provisions of a license agreement 

between an operator and the government. 

TRAI’s first intervention in this area was in November 1997 

when a set of principles and methodologies to be followed 

were posted for discussion. 

TRAI’s first comprehensive tariff order in March 1999 stated: 

“Through this Order, the Authority also wants to send a 

signal to investors in this sector about the direction of 

telecom pricing reform, the main elements of which will 

be: service providers, and through them customers, will 

be provided enhanced flexibility for pricing and giving alternative 

tariff packages to customer.” 

On the need for tariff rebalancing the document went on 

to say: 

“The Authority has considered the pros and cons of undertaking 

tariff re-balancing now. It came to the conclusion 

that tariff re-balancing cannot be achieved in one 

step, and further that the first step in this regard cannot 

be postponed if the policy of introducing private service 

providers has to succeed. In fact, the Authority believes 

that this should have been undertaken even before 

introducing competition in this sector. The growth and 

development of this sector will not be sustainable without 

this reform”. 

By this formulation, the Authority had set a clear agenda 

for the sector. 

3 

The Authority faced immediate opposition from the Minister for Communications, who directed that the whole order be kept in 

abeyance till further notice. 

11


TRAI was able to bring down leased line prices dramatically 

to the tune of approximately 90 percent in some cases. This is 

important since these prices are key determinants of interconnection 

costs, besides being of value to data service users. 

The rate-rebalancing process was begun in a small way 3 . 

On September 1999, TRAI issued Telecommunication 

Interconnection (Charges and revenue Sharing - First 

Amendment) Regulation 1999 and specified interim tariffs 

and the introduction of CPP for cellular services. The new 

tariffs entailed higher monthly rentals of Rs. 475 / Rs. 500 

for metros/circles respectively, but lower call charges and 

a terminating charge, of approximately Rs. 1.60 per minute, 

for calls to mobile phones, which was till then levied for 

calls terminating on fixed line phones. 

In a far-reaching move, on 17 th January, 2000, the Delhi 

High Court quashed Clause 8 of the Telecommunication 

Interconnection (Charges and Revenue Sharing) Regulation 

of May 28, 1999. The Court ruled that TRAI is not 

empowered to change the terms of interconnection 

amongst service providers, since it is part of the license 

agreement of cellular operators. This raised questions 

about the relationship between new sector specific regulators, 

consumer interest and judiciary as well as the roles 

and capacities of different agencies struggling to adapt 

themselves to an increasingly market driven economy. 

On 12 th July 2002 TRAI issued the Telecommunication 

Interconnection (Reference Interconnect Offer) Regulation, 

2002 (2 of 2002). The regulation mandates that service 

providers with significant market power publish a Reference 

Interconnect Offer 

(RIO) “stipulating the various technical and commercial 

conditions including a basis for interconnect usage charges 

for origination, transit and termination. Following these, 

the new entrants can seek interconnection and agree upon 

specific usage based charges.” All RIOs are to be approved 

by the regulator. 

The Telecommunication Interconnection Usage Charges (IUC) 

Regulation of 29 th January 2003 was a comprehensive review 

of the interconnection charges. It provides estimates of 

costs of network elements involved in interconnection. 

According to this TRAI document: 

“The cost based monthly rental (including license fee) is 

estimated to be Rs. 424. Recent data from BSNL shows 

that at present their recovery on account of monthly rental 

is in the range of Rs. 165 to Rs. 175 per month. BSNL was 

charging lower rentals for certain exchange capacity slabs. 

On that basis, a balance amount of Rs. 249 to Rs 259 per 

month per DEL needs to be recovered through Access 

Deficit Charge (ADC).” 

IUC regulations thus envisage the levy of an additional 

charge, to recover from networks connecting to the fixed 

line networks, an access deficit, the revenue shortfall in providing 

local calls at regulated prices. The amount of access 

deficit is estimated to be Rs. 13,000 crores. 

The amount of the deficit and the nature of the calculation 

are both contentious. The amount would seem to 

detract from the fact that the incumbent with considerable 

market power in the interconnection market is a hugely 

profitable company with profits of Rs. 9,000 crores. The 

calculations are based on the incumbent’s annual reports. A 

major concern is the conflict of interest, since the source 

of the data in question and the intended beneficiary of the 

ADC payment are both BSNL. Another issue is that ADC 

payments would be paid for all calls to basic operators, 

irrespective of whether they terminate in urban or rural, 

or profitable or unprofitable users. 

These IUC regulations also envisage reciprocal payments 

for terminating traffic on all networks including mobile. 

This removes an anomaly of the earlier regime when calls 

to cellular networks involved no payments of terminating 

charges to the latter. 

As a result of the new IUC ruling, outgoing calls to mobiles 

become expensive and incoming calls become free. 

Anomalies continue to exist between calls to WLL (M) 

and cellular services when they interconnect to the fixed 

network, but parity is retained when the calls are between 

the two types of mobile services. 

The new leadership of TRAI responded to concerns in 

the IUC regulations of January 2003 by issuing a new con- 

12


sultation paper on IUC issues to seek further views on 

modification of IUC, new estimates for ADC etc. This 

culminated with the issue of the new IUC regulation (2 of 

2003). On 29 th October 2003 the access deficit, estimate 

was reduced to roughly 40 percent from Rs. 13,000 crores 

to Rs. 5,000 crores. However, the deficit will now be recovered 

from a wider range of service calls than those 

involving calls to fixed line phones, as envisaged earlier. 

This buffers some users from its impact, but mobile users 

calling mobiles would need to pay more. 

Spectrum Management 

Spectrum availability in India is arguably a bigger issue these 

days since mobile services that use wireless technologies had 

little demand or indeed supply till 1995. Fixed line infrastructure 

was the more dominant mode of connectivity and the 

need for spectrum was limited. The agency dealing with spectrum 

issues, i.e., Wireless Planning and Coordination (WPC) 

has been criticised occasionally for its relatively outdated and 

slow processes. However, its role has been less contentious 

than that of DoT with which it has a looser connection. 

WPC reports to the government through the member (Technology) 

Telecom Commission, but otherwise works relatively 

independently of the DoT. 

In the context of the telecom reform of the 1990s, the role 

of the WPC started when mobile operators were first licensed. 

They each had 4.5 Hz of spectrum allotted to them. 

In 1996, the Telecom Commission approved an increase 

in frequency allocated in the 800/900 MHz band from 4.5 

MHz to 6.2 MHz in the four metros, to accommodate the 

rapid increase in cellular subscribers. 

This was followed by a waiver by the government on 

November 4, 1997 of an annual royalty charge of Rs. 1,200 

per cellular subscriber with prospective effect. The waiver 

was later (1999) applied with retrospective effect for the 

period July 20, 1995 to August 27, 1997. 

Mobile operators as well as some others have made several 

representations to the government in recent times, about 

the small amount of spectrum available for services. The 

delays in frequency allocation have come in for frequent 

criticism. The government committee that conducted a 

review of telecom policy set up a Spectrum Management 

Committee on December 16, 1998, to give its recommendations 

on the efficient and cost-effective management of 

the available spectrum. 

The committee submitted its report in December 1998. 

Its recommendations included: 

“It is noteworthy that the committee did not consider it 

practical for the defence services to vacate any of the spectrum 

in use by them, in any appreciable manner. Clearly 

the committee does not agree with many private sector 

players that the release of the spectrum by defence is both 

feasible and necessary.” 

A major controversy erupted when the government took the 

contentious move to introduce limited mobility services using 

the WLL network of basic service licensees. DoT’s guidelines 

for new fixed service licenses, announced in January 2001, 

envisaged the allocation of spectrum on a first come, first 

serve basis. This was in direct contrast to the pricing schemes 

that extract a premium for spectrum use by commercial players. 

Cellular operators claimed to have paid orders of magnitude 

more than for their licenses, which they claimed, were 

the de facto price of the spectrum. They accused the government 

of favouring a rival service. 

The bargain price of spectrum for fixed service to provide 

limited mobility was sought to be highlighted when 

Sterling Infotech, the holder of the mobile license for Tamil 

Nadu, offered to pay the government Rs. 2,500 crores for 

5MHz spectrum in the 800/900 MHz band for all the 

circles in India. This was several times more than the corresponding 

price that fixed service providers would pay 

for the spectrum. 

In January 2002, the Minister of Communications approved 

the publication of the National Frequency Allocation 

Plan (NFAP) so as to help optimal utilisation of the 

frequency spectrum. Till this time, the NFAP has been seen 

as a security related sensitive document that was unsuitable 

for publication. 

13


Meeting a long pending demand for spectrum by cellular 

operators, WPC issued an order in February 2002 to 

allocate additional spectrum to cellular operators. Rules 

proposed for the additional allocation of spectrum included: 

• Allocation of additional spectrum of 1.8 MHz per 

operator in the 1800 MHz band, taking the total allocated 

spectrum up to 2x8 MHz per operator; 

• Cellular operators may apply for additional spectrum 

on reaching a subscriber base of four lakhs in the service 

area, but frequency will be allocated after the subscriber 

base has crossed five lakhs. 

• Further additions to the spectrum are possible up to 

2x10 MHz per operator after reaching such subscriber 

base as may be prescribed. 

Spectrum Usage Charges 

Up to 2x4.4 MHz - 2% of Adjusted Gross Revenues (AGR) 

Up to 2x6.2 MHz - 3% of AGR 

Up to 2x10 Mhz - 4% of AGR 

TRAI, which is indirectly involved with spectrum management, 

but has been involved in the controversy relating to 

license fees paid for mobile services, has raised the important 

issue of the efficient use of spectrum. In late 2003, 

TRAI castigated mobile operators for using the spectrum 

inefficiently. 

In the coming days, spectrum pricing is likely to become 

an even more important consideration for mobile operators 

and as a consequence for the growing numbers of 

users of their services. 

14

A Theoretical Model of Subcontracting for High Quality 

3 

Conclusion 

The absence of a well thought-out initial plan and strategy 

comes through clearly as the main reason for much of the 

problems that arose in India’s telecom reforms. This in 

turn was linked to confusion with regard to three distinct 

objectives - promoting new investment, efficiency through 

competition and fiscal concerns - which influenced decision-making 

at various stages of the process. 

The relationship between the DoT and the regulatory agency 

introduced through reforms was another area of weakness 

that contributed to uncertainties and delays. It is noteworthy 

that clarity on the basic issues was eventually brought about 

only through the recommendations of task forces and groups 

(reporting to the Prime Minister) culminating in NTP-99. 

But further problems cropped up on account of the entry of 

new wireless-based technologies, in particular, the way this 

entry was handled. This led to disputes and eventually to renegotiations 

of the terms of licenses already awarded for fixed 

line and mobile services, a process that again turned out to be 

messy. As a partial fall-out, moves towards consolidation 

through mergers and acquisitions have also come about. 

These developments notwithstanding, the process of reduction 

in tariffs was initiated by the regulator and was soon 

taken over by the forces of competition. This commenced in 

the period covered in the report but only gained greater momentum 

subsequently. Inflows of investments into the sector 

(including volumes of FDI) and resurgent economic growth 

have combined with the fall in tariffs to generate an accelerating 

increase in subscriber numbers. The recent trends (December 

2005/ January 2006) would take the country to the 

first place in telecom sector growth, worldwide. 

In spite of the many setbacks to the process and the obvious 

challenge of connecting the remaining largely rural 

population, the success of the telecom reform exercise is 

spectacular in many respects. It is most visible in the abundance 

of services, the absence of long waiting times and a 

vastly cheaper and improved service with operators vying 

for consumer business, a contrast from the old days of 

corrupt monopolies. Perhaps the most important and visible 

sign of this success is the growing number of urban 

poor using mobile phones to enhance their livelihoods, 

besides communicating with loved ones. 

So much more could have been achieved, but what has 

been achieved is extraordinary in comparison to the reform 

initiatives in other sectors in India. 

15


4 

Epilogue 

Between December 2003 and December 2005, several further 

developments have taken place in the field of telecom 

reforms, of which the important ones are dealt with below. 

Unified Access Service Licenses 

On 13 th January 2005 TRAI came out with recommendations 

on a unified licensing system in the country in line 

with the convergence of markets and technologies becoming 

a reality and forcing a realignment of the industry. According 

to the recommendations, a service provider may 

provide the service that was earlier provided by another 

type of service provider. A single service provider can 

now offer telecommunication, cable and broadcasting services. 

The Unified Licensing Regime (ULR) is designed to 

encourage the free growth of new applications and services 

leveraging on the technological developments in Information 

and Communication Technology (ICT). Under 

ULR, operators would pay six percent of their adjusted 

gross revenue (contribution to USOF at five percent 

plus administrative cost of one percent) as license fee. 

The recommendations also include the proposal to allow 

niche operators to serve rural areas with a phone density 

of less than one percent. Niche operators would pay no 

entry fees. The recommendations envisage the migration 

of existing service providers to the ULR to be optional 

for current operators. However, after a period of five years 

it shall be mandatory for all telecom operators to migrate to 

the ULR. It is important to mention that these recommendations 

are pending with the government and yet to be accepted. 


The USO Fund was constituted in 2002 and an administrator 

was appointed. The Fund envisages auctions of 

subsidies to operators who will serve rural areas. The 

guidelines issued by the USOF envisage subsidies to successful 

bidders for providing a variety of rural lines e.g., 

village public phones, second phone lines, high speed 

internet centres as well as replacement of VPTs based on 

Mobile Access Rural Radios (MARR) technology. USOF 

subsidies have been awarded for providing a second VPT, 

termed rural community phone, in 46,253 villages of 

population exceeding 2,000 and for private household 

phones in 1,685 SDCAs (roughly equivalent to a revenue 

taluka) that were identified by the administration as ‘unremunerative’ 

in terms of telephone usage and revenues. 

However, TRAI has recently argued that the USOF approach, 

were it to be completely successful, would result 

in a rural tele-density of only four percent. A comprehensive 

rethink is required, especially to ensure that wireless technologies 

and infrastructure can be adequately supported, to 

replicate the huge success of mobiles in urban areas. 

Access Deficit Charge 

The ADC regime came into effect from 1 st May 2003 for 

compensating the Fixed Service Providers (FSPs), but predominantly 

BSNL, the incumbent and main provider of 

fixed lines in India, for meeting the revenue deficit arising 

out of providing services below costs, i.e., 

16

Epilogue 

(a) filling the gap between ‘affordable’ monthly rentals 

and the cost based monthly rental, 

(b) financing of free calls and 

(c) local tariffs charged below the cost of their provision. 

All long distance calls except those involving basic telephone 

subscribers at both ends, (with minor exceptions) 

are subjected to ADC. 

ADC was levied on a per minute basis. Revised reduced 

rates of ADC were brought into effect on 1 st February 

2005. The ADC regime was controversial and raised many 

questions about its methodology and fairness from affected 

private operators. The total amount of compensation was 

brought down to Rs. 5,341 crores. According to TRAI, 

this revision was necessitated mainly due to 

(a) an increase in the base for generating the ADC amount 

due to the huge increase in mobile subscribers and the 

consequent higher minutes of usage and 

(b) falling per line capital cost resulting through new technologies. 

One more revision of ADC charges (23rd 

February 2006) has brought down the amount of ADC 

to Rs. 3,335 crores and changed the method of charging 

from the earlier per minute basis to one where 

operators would pay a percentage of their revenues. 

For long distance calls, however, the earlier per minute 

payments would continue, but at a considerably lower rate. 

TRAI envisages merging the ADC regime with the USO 

levy by year 2008-09. 

Long Distance Tarif 

ariffs 

fs 

Domestic STD charges (rupees per minute for distances 

beyond 200 kms) came down from Rs. 4.80 in March 

2003 to Rs. 3.60 in March 2004 and later to Rs. 2.40 by 

March 2005. International long distance calls during the 

same period have fallen from Rs. 24 to Rs. 7.20. The effective 

charge for mobile users was reduced from Rs. 2.40 to 

Rs. 1.20 during the same time. The reduced ADC, increased 

competition, expectations of increase in the subscriber base 

and in the minutes of average usage have been the main 

factors contributing to falling tariffs. 

Opening of Internet net Telephony 

and Further Liberalisation of 

National Long Distance Services 

In December 2005, the government also announced a virtually 

free entry, at a vastly reduced fee of Rs. 25 million, to 

India’s long distance telephony services, both national and 

international. Along with this came the removal of earlier 

controls on Internet telephony, meeting a long-standing 

demand. The removal of restrictions on Internet telephony 

is likely to especially help future rural subscribers, since a 

much larger proportion of their calls in long distance. 

Pan India Tarif 

ariffs 

fs 

On 14 th June 2005, the Minister of Telecom and IT announced 

that the government operators would offer a 

package in which a customer could make a one minute call 

to anywhere in India or a three minute local call for one 

rupee. This brought to fruition the minister’s often-stated 

goal for customers to have access to a One India tariff, 

irrespective of distance. The One India tariffs however, 

do envisage additional monthly rentals and do not come 

with ‘free calls’, which were included in the basic consumer 

tariff package. Subscribers have the option to change over 

to this One India tariff. 

Subscriber Growth and 

Penetration levels 

At the commencement of economic reforms in 1991, the 

country had a total of about five million telephones and a 

waiting list of nearly two million and an overall telephone 

penetration level of a little over half of one percent per 

head of population. Access to telephony was confined almost 

entirely to the urban areas. Here also, the waiting list 

did not correctly reflect the pending demand as potential 

applicants were discouraged by the long waiting period, 

the stipulated application fee that would remain locked in 

and the poor quality of service. By 2003-04, the number 

of fixed line phones had crossed 40 million and cellular 

mobile phone subscriber numbers were rising so rapidly 

that they overtook the fixed line subscribers in 2005. At 

17


the end of December 2005, the total subscriber base had 

grown to 124.85 million, made up of 48.93 million fixed 

lines (including fixed WLL phones) and 75.91 million 

mobile connections. Average penetration touched 11.43 per 

hundred, with urban tele-density of 23 percent and rural 

penetration of two percent. 

18

Appendix I 

Chronology of Indian Telecom Reform 

1990, December: A high level committee headed by Dr. M. 

B. Athreya was set up to recommend the most appropriate 

organisational structure for the management of telecom services 

in the country. The committee recommended that the 

DoT be split into four corporate entities, value added services 

should be thrown open to competition by public or 

private enterprises, co-operatives etc. Small entrepreneurs must 

be encouraged in installation, cabling, closed user networks 

and subscriber premises work, for greater efficiency and 

employment generation. Importantly, policy and regulation 

should be separated from operations. 

1991-1993: The beginnings of private sector participation 

in telecom services. The sub-sector of ‘value added services’ 

was opened up to private investment in July 1992. 

These included: 

Cellular Mobile Radio Telephone 

Radio Paging 

Electronic Mail etc. services 

1992, January 20: DoT invites technical bids for cellular 

mobile telephone services in Delhi, Mumbai, Calcutta and 

Madras. 

1992, July: Value added services opened to private investment 

by DoT. These include e-mail, voice mail, 64 Kpbs 

private data services, audio text and video text services, 

radio trunking services, cellular mobile services, radio paging 

services, and video-conferencing. 

1992, October 12: The Minister of Telecommunications 

announces the list of metro cellular licensees. The metro 

cellular operators - Bharti, Essar, Hutchison Max, BPL, 

Modi Telstra, Usha Martin, Skycell and RPG win licences 

for cellular services in metros. 

1993, May: As part of the ongoing reform process, the 

Ministry of Communications requests ICICI to recommend 

terms and conditions for the private sector’s entry 

into India’s telecom services and to study the necessary 

changes required in the telecom sector and recommend 

modalities for constituting an independent Telecom Regulatory 

Authority. 

1993, October: The G.S.S. Murthy Committee submits its 

report on the licensing of public switched telephone networks. 

1994, January: ICICI submits its report on the setting up 

of a Telecom Regulatory Body for India. 

1994, May 13: National Telecom Policy (NTP-94) was 

announced. 

1994, June 13: ICICI Telecom Working Group report on 

entry conditions for basic telecom services suggests the 

optimal level for entry of private players should be a Secondary 

Switching Area (SSA). 

1994, November 10: ICICI Telecom Working Group 

submits final report on the process for the selection of 

new operators for basic services. 

1994, November 29: On the basis of re-evaluation as per 

the directions of the Supreme Court, on a petition by one 

of the operators, DoT orders a change in the cellular operator 

for Mumbai. Hutchison Max signs licence for 

Bombay. 

19


1995: Working fixed lines cross 10 million, annual fixed 

line growth crosses 20 percent. 

1995, January 16: Tenders invited for cellular services in 

the rest of India. 

1995, March: Paging services debut in India. 

1995, March 15: The Gupta Committee makes recommendations 

regarding the restructuring of DoT. 

1995, May 27: DoT issues clarifications and announces 

several changes in the original tender conditions of the basic 

services. Tender opening date extended to June 23, 1995. 

1995, June 07: DoT receives 33 bids for mobile services 

in 18 telecom circles. No bidders for Andaman & Nicobar 

and Jammu and Kashmir circles. 

1995, June 23: 81 bids received for fixed line (basic) services 

in 20 Circles. No bids for Jammu and Kashmir. 

1995. August 05: DoT opens financial bids for cellular 

mobile services. 

1995, August 15: VSNL begins public Internet access in 

selected cities. 

1995, August 23: Modi Telstra launches the first cellular 

operation in the country in Calcutta. 

1995, November 2: The government announces that no 

company may retain more than three A and B Circle 

licences. 

1995, December 1: Second round of bidding for basic 

services in 13 Circles. 

1995, December 12: DoT issues 34 licenses to 14 companies 

for operating cellular services in the 18 telecom Circles. 

1996, January 1: Bids for basic services opened. Only six 

companies participate in the bidding. Only five Circles out 

of 13 receive acceptable bids. 

1996, March 12: Letter of Intent awarded to highest bidders 

in the second round of bidding. 

1996, March 15: Third round of bidding for basic service 

licenses for nine Circles. 

1996, May: Draft Interconnect Agreement released by 

DoT. Discussions begin with mobile operators. 

1996, July 23: TRAI Bill introduced in Lok Sabha. 

1996, October: Mobile licenses issued to two operators 

each in 20 Circles. 

1996, November: DoT allows assignability of cellular licenses, 

meeting the demand of financial institutions. 

1997, February: India signs Telecommunications Basic 

Services agreement at World Trade Organisation (WTO) 

allowing companies with up to 25 percent foreign equity 

access to most parts of its telecom market. It signs up for 

a regulatory reference paper that forms part of the agreement, 

but its commitment does not include important competitive 

safeguards relating to state owned and other incumbents, 

independent regulators and issues such as interconnection 

and spectrum fees. 

1997, March 18: TRAI Bill, 1997, a modification of the 

previous Bill presented a year ago, passed by the Lok Sabha 

and the Rajya Sabha. 

1997, March 25: TRAI is set up with three members. 

1997, March 26: COAI approaches TRAI against DoT’s 

order that hikes the price of fixed to mobile calls. 

1997, April: Mobile services commence in non-metro 

Circles. 

1997, April 25: TRAI quashes DoT’s PSTN to mobile 

tariff order. 

1997, September 12: DoT gives clearance for national 

automatic roaming. 

1997, October 10: MTNL indicates intention to enter into 

cellular services in its GDR Prospectus. 

1997, November 3: Cellular operators seek TRAI intervention 

to stop MTNL’s plans to offer mobile services. 

1997, November 19: Private operators permitted to make 

their licenses assignable in favour of the lenders. 

1997, December 4: Consultation paper on numbering plan. 

20


1998: Mobile phones cross one million. 

1998, January 9: DoT commissions the Bureau of Industrial 

Costs and Prices (BICP) to assess the viability of the 

Indian cellular industry . 

1998, January 12: DoT gives clearance for national and 

international roaming. 

1998, January 15: DoT announces the policy for ISPs, no 

limit on the number of licenses. Fee to be one rupee. 

1998, February 17: TRAI rules that the government must 

seek a recommendation from TRAI before issuing a license 

to a new service provider, even though the recommendation 

would not be binding on the government. 

1998, March 2: MTNL files a petition in the Delhi High 

Court challenging the TRAI order restraining it from entering 

cellular services in Delhi and Bombay. 

1998, April: The ICICI Report concludes that on a 10- 

year license, cellular telecom projects are not attractive for 

either the lender or the promoter. Recommends extension 

of the license period to 15 years while maintaining the same 

NPV. The government rejects the report on the grounds 

that ICICI is an interested party. 

1998, June 4: Bharti launches India’s first private sector 

operated basic services in the Madhya Pradesh Circle. 

1998, July 16: The Delhi High Court, holds that the power 

of the government to grant or amend a license is not subject 

to the recommendation of TRAI, nor are these recommendations 

mandatory in nature. 

1998, October 8: DoT announces extension of the cellular 

license period from 10 to 15 years for Circle operators. 

1998, October 24: The Prime Minister announces that “a 

new Telecom Policy will be formulated within the next 

three months” 

1998, November 9: BICP submits report on the financial 

viability of cellular phone services. 

1998, November 20: A Group on Telecommunications 

(GoT) is set up by the Prime Minister under the chairmanship 

of Shri Jaswant Singh to make recommendations on 

the proposed New Telecom Policy and issues relating to 

existing licensees of basic and cellular services and TRAI 

1998, November 26: Apex Industry Associations constitute 

the Group on Telecommunication (InGoT) to provide 

a co-ordinated response to the government’s GoT. 

1998, December 21: TRAI floats a consultation paper on 

the viability assessment for license fee determination. 

1998, December 24: Report of the Spectrum Management 

Committee under the Chairmanship of Lt. Gen. P Gokharn. 

1999, January: TRAI expanded by adding two new 

members. 

1999, January 23: The government issues a Draft Discussion 

Paper on the New National Telecom Policy. 

1999, January 25: The Ministry of Communications, sends 

letters to all license fee defaulters asking them to pay up 20 

percent of their outstanding license fee or face punitive 

action. 

1999, March 9: The TRAI Telecommunications Tariff 

Order increases the monthly rental for mobile services to 

Rs. 600 (from Rs. 156) and lowers the peak ceiling tariff 

rate to Rs. 6 (from Rs. 16.80) per minute. The Order also 

proposes the implementation of CPP regime. 

1999, March 26: New National Telecom Policy 1999 

announced. 

1999, May: TRAI says tariff rebalancing be phased in over 

a three-year period. 

1999, May 22: DoT issues disconnection notices to the 

Koshika Telecom and Aircel Digilink, for failure to clear 

license fee dues. 

1999, July 6: Union Cabinet clears the migration of existing 

licensees to NTP-99. 

1999, July 15: TRAI’s consultation paper on competition 

in domestic long distance communications. 

1999, July 29: Private operators formally accept DoT’s 

migration package for transition to NTP-99 and agree to 

21


withdraw all litigation pending against the DoT / Government 

of India. 

1999, July 30: The settlement is challenged through a Pubic 

Interest Litigation. 

1999, August: The Prime Minister takes over charge of 

the Ministry of Communications and clears move to a 

revenue sharing regime. 

1999, August 10: Delhi High Court rules that the existing 

licensees can migrate to the new policy as per the package 

approved by DoT. 

1999, August 31: TRAI releases a consultation paper on 

Calling Party Pays for Mobile Services. 

1999, September: Division of DoT (for policy, planning, 

licensing etc.) and DTS (fixed line and mobile service provider 

in India excluding Delhi and Mumbai); the government 

announces plan to corporatise DTS. 

1999, September 15: Notification by the government 

giving MTNL a provisional amendment to its CMTS 

license. 

1999, September 17: TRAI issues an order for the commencement 

of CPP for cellular mobiles from 

1st October’ 1999. 

1999, October 13: Petition challenges TRAI’s jurisdiction 

to propose CPP. 

1999, December: The government sets up a Group of 

Ministers on Telecom and Information Technology (GoT- 

IT) headed by the Finance Minister. 

1999, December: Private ISPs allowed to set up satellite 

gateways. 

1999, December 13: TRAI recommendations on “Introduction 

of Competition in National Long Distance Communication” 

proposing open entry on nominal fees. 

2000, January 17: Delhi High Court rules that TRAI is 

not empowered to change the terms of interconnection 

amongst service providers, since it is part and parcel of 

the license agreement of cellular operators. 

2000, January 24: The TRAI Act is amended to include 

the need for the body’s recommendations before new licences 

are issued. TRAI is the sole authority to fix tariffs as 

well as terms and conditions of interconnectivity between 

service providers. 

2000, February: TRAI (Amendment) Ordinance 2000 

promulgated to bifurcate its role between two entities – 

regulator (TRAI) and adjudicator (TDSAT). 

2000, March 1: Birla AT & T and Tata merge cellular 

operations. 

2000, May: Reconstituted TRAI and separately carved 

TDSAT start functioning. 

2000, May 15: Newly reconstituted TRAI revises recommendations 

on the opening up of national long distance 

to private competition to suggest that the number of players 

be restricted to four in addition to the incumbent. Recommends 

bidding for licences. 

2000, May 23: TRAI releases consultation paper on issues 

relating to the introduction of CPP for cellular mobile 

services. 

2000, June: Department of Telecom Operations carved out 

of Department of Telecom Services to operate the network. 

DTS to manage state owned telecom companies. 

2000, June 9: Information Technology Act 2000 passed. 

2000, June 23: TRAI recommends that mobile service 

providers pay 17 percent of adjusted gross revenues as 

licence fees. 

2000, July 15: Prime Minister announces the opening up 

of national long distance operations to unrestricted competition. 

2000, August 9: DoT permits CMSPs to share infrastructure 

with other service providers and allows direct 

interconnectivity between licensed CMSPs and any other 

telecom service provider. 

2000, August 11: Sub-group on convergence set up with 

Fali Nariman as convenor, submits final draft report on 

proposed Convergence Law. Suggests a common regula- 

22


tory body for India for content and carriage i.e., broadcasting 

and telecommunications. 

2000, August 13: Guidelines for opening of NLD announced. 

2000, August 31: TRAI issues recommendations on basic 

service licenses and suggests open entry with fees ranging 

between Rs 10 million to Rs one billion depending on type 

of Circle, (ref: Appendix II for details of Circle types) “to 

weed out non-serious players”. Recommends variable revenue 

shares for FSPs. 

2000, September 7: DoT recommends a three-tier revenue 

share license fee structure for CMSPs as below: 

20 percent p.a. for metros, 

15 percent p.a. for Circle A & B service areas, 

10 percent p.a. for other (Type C) Circle service areas 

2000, October 1: Corporatisation of DoT by the formation 

of BSNL. 

2000, October 24: Recommendations of TRAI on the 

induction of a fourth mobile operator. 

2000, November 3: TRAI issues consultation paper on 

Policy Issues relating to Limited Mobility by use of Wireless 

in Local Loop Techniques in the Access Network by 

Basic Service Providers. 

2001: FDI almost doubles to over Rs 8000 crores post 

NTP-99 and there is a move to revenue sharing from fixed 

license fees. 

2001, January 5: Fourth cellular operators license guidelines 

announced by DoT. 

2001, January 8: TRAI recommends that FSPs be allowed 

to offer, “limited mobility” within the SDCA. 

2001, January 18: BSNL announces a concessional tariff 

for its subscribers for calls up to a distance of 200 

kilometres. 

2001, January 23: COAI approaches the Telecom Dispute 

Settlement and Appellate Tribunal (TDSAT) against 

TRAI recommendations allowing limited mobility services 

using WLL. 

2001, January 25: DoT announces FSP guidelines, which 

include the right to offer “limited mobility” services 

through WLL. 

2001, March 20: TRAI writes to DoT referring to the 

stipulation in the TRAI recommendations on WLL (M) 

that envisage that the Mobile Switching Centre (MSC) 

should not be used for WLL based mobility. 

2001, March 23: DoT issues guidelines for allocation of spectrum 

on a first come, first serve basis for FSP licensees. 

2001, March 27: Letters of Intent issued by DoT to private 

fixed operators Tata Teleservices, Reliance Communications 

and HFCL InfoTel to offer fixed and limited 


2001, April 24: TDSAT sets aside TRAI order on 

concessional tariffs saying TRAI had violated the principles 

of natural justice since BSNL was not given a hearing prior 

to issue of orders. 

2001, June 29: Bidding begins for fourth cellular service 

license slot in 21 Circles. 

2001, July 19: DoT challenges jurisdiction of TDSAT on 

matters relating to spectrum charges. 

2001, July 31: The winners for the fourth cellular license 

are announced. 

2001, August: Opening of NLD service to competition. 

2001, August 27: Communications Convergence Bill 2001 

approved by Cabinet. 

2001, September 25: DoT issues amended license agreements 

for existing cellular operators to reflect their migration 

to NTP-99. 

2001, November 11: Bharti Telesonic signs NLD Telephony 

license. 

2001, November 12: TRAI submits recommendations on 

opening up of International long distance to private 

participation. 

23


2001, November 23: TRAI Issues consultation paper on 

Introduction of Internet Telephony. 

2001, December 21: Bharti Telesonic, India’s first private 

national long distance operator announces a steep decline 

in the price of mobile-to-mobile long distance calls. 

2001, December 22: Ministry of Information Technology 

and Ministry of Communications merge to create 

Ministry of Communications and Information Technology. 

Ministry of Information and Broadcasting left out. 

2001, December 28: BSNL responds to the STD tariff 

cut announced by IndiaOne (Bharti Telesonic) and announces 

an even sharper cut of up to 62.5 percent in STD tariffs. 

2002: Internet subscriptions cross one million. 

2002, January 5: Minister of Communications approves 

National Frequency Allocation Plan (NFAP) for optimal 

utilisation of frequency spectrum. 

2002, February: Tata acquires management control of 

VSNL after the government sells the major part of its 

stake in VSNL. 

2002, February 20: TRAI submits recommendations on 

introduction of Internet Telephony (IT). 

2002, March 15: TDSAT rules that the introduction of 

WLL (M) services is a policy decision of the government 

and consequently not subject to review by the Tribunal. It 

dismisses COAI petition seeking to prohibit fixed service 

providers from offering any type of mobile services. 

2002, March 21: ISPs allowed to provide the service on 

payment of additional license fees. However, incoming IP 

calls may not be terminated on the phone network. 

2002, March 27: DoT issues guidelines on Universal Service 

Obligation (USO). Announces the creation of Universal Service 

Obligation Fund (USOF) starting April 1, 2002. 

2002, April 1: Opening of International Long Distance 

service to competition; VSNL monopoly ends. 

2002, April 5: TRAI issues consultation paper on Reference 

Interconnect Offer (RIO). 

2002, April 11: COAI challenges TDSAT judgment on 

WLL (M) in the Supreme Court. 

2002, April 18: DoT issues notification for spectrum usage 

charges for microwave access and backbone. 

2002, July 19: Bharti launches International long distance 

service. 

2002, October 7: BSNL appeals to TDSAT against TRAI’s 

plan to forbear cellular tariffs. 

2002, October 19: BSNL launches countrywide cellular 


2002 December: Mobile phones cross 10 million. 

2002, December 17: Supreme Court sets aside the TDSAT 

judgement on WLL (M) and remits the matter to the Tribunal 

for reconsideration, with special emphasis on the 

question of a level playing field. The Supreme Court says 

TDSAT had not exercised its full jurisdiction. 

2002, December 28: Reliance lnfocomm launches WLL 

(M) services. 

2003: Internet subscribers cross three million. 

2003, January 7: BSNL slashes STD rates for over 500 

kilometres. 

2003, February 10: COAI approaches TDSAT objecting 

to the provision of WLL (M) services outside the SDCA 

by Tata Teleservices and the advertisement of roaming 

facilities by Reliance Infocomm. 

2003, February 21: TRAI’s recommendations on the issue 

of fresh licenses to cellular mobile service providers 

(CMSPs) says more players are feasible only if additional 

spectrum is available. 

2003, February 24: Cellular operators approach TDSAT 

against TRAI to protest what they regard are iniquitous 

tariffs, in comparison to those for limited mobility. 

2003, April 8: TDSAT rejects the government’s claim on 

privilege of disclosing official documents relating to introduction 

of WLL (M) services. 

24


2003, May 15: Consultation paper on IUC issues seeks 

further views on modification of IUC, new estimates for 

ADC etc. 

2003, July 16: TRAI’s consultation paper on Unified Licensing 

for Basic and Cellular Mobile Services. 

2003, August 8: TDSAT pronounces split (2 – 1) judgement 

on the legality of WLL (M). Majority decision of the 

body’s two administrative members accepts WLL (M) service 

is legal, but says government decision to allow it was 

taken in unseemly haste and further that TRAI should have 

levied additional fees. Dissenting minority judgement (that 

of the Chairperson of TDSAT, its only judicial member) 

says WLL (M) service is illegal and that decisions were 

taken for extraneous reasons. 

2003, October 27: TRAI recommendations on “WLL 

(M) issues pertaining based on Hon’ble TDSAT’s order” 

stipulate additional entry fees for WLL (M) players based 

on difference in fees paid already and those bid for and 

paid by the fourth cellular operator in the relevant operating 

area. 

2003, October 27: TRAI’s recommendations on unified 

licensing proposing immediate merger of fixed and mobile 

licenses in area of operations of current cellular 

licenses. 

2003, October 29: TRAI reduces access deficit estimate 

from Rs 135 billion to Rs 53 billion. 

2003, November 11: DoT issues guidelines for Unified 

Access Services licenses. All fixed line operators allowed 

to migrate to a Unified Access Services License on payment 

of a fee. 

2003, November 14: Unified licences granted to telecom 

operators Reliance, Tata Teleservices, Shyam Telecom and 

HFCL. 

25


Appendix II 

Information Communication Technology 

and Poverty Alleviation 

Expert studies attribute the high incidence of rural poverty 

in India to: 

(a) lack of proper income generating activities and opportunities 

in villages, 

(b) Inadequate infrastructure facilities and 

(c) Ineffectiveness of existing government agencies in the 

fields of health, education, agriculture extension services 

etc. 

Information and Communication Technology is a tool that 

lends itself to addressing all the three areas, so as to realise 

the goal of speedy alleviation of poverty. 

Government programmes aimed at addressing rural poverty 

fall into three broad categories: 

(a) Providing basic infrastructure in rural areas, e.g. setting 

up new schools, health facilities, rural roads, drinking 

water supply and electrification, 

(b) Promoting rural industries, increasing agricultural productivity 

and providing rural employment and 

(c) Policies aimed at providing productive resources that 

in turn help raise the incomes of the poor. 

Problems of design, implementation and monitoring and 

overall inadequacy of resources undermine the effectiveness 

of these programmes. 

On the design side, centralised planning leads to the same 

policies being applied in different geographic areas without 

taking into account variations in agro-climatic conditions, 

skills of rural population, access to social infrastructure 

and literacy levels. On the other hand, decentralised 

planning also lacks effectiveness where it is not supported 

by regional databases and tools for spatial planning. 

With regard to implementation, problems are posed by a 

multiplicity of agencies involved in the process. Lack of 

co-ordination among different government departments 

implementing such programmes dilutes the benefits derived 

at the grass root level. Lack of co-ordination is often 

caused by want of reliable communication systems. 

The other main hurdles of programme implementation are 

the unwillingness of programme workers to stay in the field 

and lack of proper supervision. The records maintained by 

programme workers are suspect, because they are not updated 

through actual contacts with the target population. 

Manual reporting systems have also been ineffective due to 

the enormity of data, adding up to difficulties in monitoring 

large programmes. These problems compound the inherent 

drawback posed by inadequacy of resources. 

Effective poverty alleviation strategies, on the other hand, 

are characterised by micro level planning, effective supply 

of credit to the poor, improved management of government 

run poverty alleviation programmes and building 

networks of self-help groups amongst the rural poor with 

the active involvement of local non-governmental 

organisations. Grass root intervention is identified as a necessary 

factor of poverty alleviation. 

26

Information Communication Technology and Powerty Alleviation 

Information Communication 

Technology (ICT) as a Tool for 

Poverty Alleviation 

Telephony provides the basic infrastructure for applications 

denoted by the term ‘Information Communication Technology’ 

(ICT), in particular, the use of Internet-based 

programmes. ICT is now identified as a key element of poverty 

alleviation in rural areas. Five channels of ICT’s impact on 

rural poverty have been identified and discussed. These are. 

i. Access to Information and Knowledge: ICT enables the poor 

to have access to information and knowledge regarding 

government policies, which in turn results in the 

voices of the poor being heard in decision-making 

fora. Further, by providing infrastructure for networking 

of the rural poor, it enables them to get connected 

to the mainstream, participate in public affairs, organise 

and mobilise. It improves the service delivery of education, 

agricultural extension and other public services 

and most importantly, health, through facilities like telemedicine 

that link hospitals to the rural poor, reducing 

the incidence of referral cases in rural areas. 

ii. 

iii. 

Improves the Market Connectivity: ICT increases connectivity 

to the market that would facilitate the realisation 

of economic benefits in terms of getting suitable prices 

for rural produce and also creating employment opportunities. 

Market information on prices of agricultural 

outputs and inputs, as well as the consumer products 

required in rural areas, protects people from exploitation 

by middlemen. Industries located in rural 

areas, or dependent on rural produce (such as sugar) 

maintain the smooth, timely flow of inputs and in turn 

meet market requirements of their output. 

Accountability and Good Governance: ICT facilitates better 

monitoring of public administration, social services 

and development programmes. Information has often 

been described as one of the most effective tools 

in the hands of citizens. It not only helps them fight 

corruption and arbitrary exercise of power in the structures 

of government, but also to participate in governance. 

Communication facilities help better governance 

iv. 

v 

by fostering better relations between the public administration 

and citizens. Similarly cheaper governance 

through replacement of paper by electronic means of 

exchanging information can be achieved by communication 

facilities. Governance can also be made more 

effective by reducing the response time of the government 

to local issues. 

Creation of New Income Generating Activities: ICT increases 

productivity and extends the sphere of economic activity 

in rural areas. Communication facilities, combined with 

information technology, create new economic activities 

and opportunities for the educated rural youth (e.g., as 

tourist guides, ICT service centre operators, data processing 

professionals and content developers etc.). It also 

increases the efficiency in performing existing activities 

by reducing the costs of transactions and processes. Thus 

the efficiency, especially of small business units in rural 

areas, is increased with the use of ICT. 

Empowerment of Women: A further crucial contribution 

is that information technology benefits women by improving 

access to information, which may lead to their 

empowerment and participation in economic and 

community activities. 

Critical Success Factors and 

Complementary Measures 

A few critical success factors and complementary measures 

needed to ensure the optimal impact of ICT in poverty 

alleviation require attention. As with other measures 

towards this end, effective design and management of the 

operational models of the ICT facilities themselves make 

for one critical factor. Developing adequate technical infrastructure 

viz., electricity, widespread use of computers 

and a legal framework that would support e-transactions 

have also been identified as critical factors, dependent in 

turn on providing sufficient funds for setting up and maintaining 

the ICT facilities. 

A set of complementary factors has also been identified in 

literature (World Bank 1999) for an effective ICT 

programme for alleviating rural poverty. These are . 

27


a. Basic Literacy and e-literacy: Basic education and knowledge 

of information technology among the rural 

population are keys to exploiting the benefits of ICT. 

b. Role of NGOs: Given the present status of the rural 

population in India, NGOs have a key role in educating 

and organising rural communities. They can also 

contribute to the development and deployment of 

locally relevant contents/services and making use of 

these services. 

c. Rural Access Roads: The information on market conditions 

need to be supported by rural access roads, which 

in turn help make use of the information accessed 

through communications. 

d. Availability of Energy: Energy, either conventional or 

non-conventional, needs to be available in the villages 

in order to provide reliable and uninterrupted communication 

facilities in the villages. 

e. Micro-credit schemes: Properly structured micro-credit 

schemes are required in order to help the population 

take up income generation activities with the help of 

knowledge acquired through ICT. 

f. Legal, Institutional and Regulatory Framework: Lack of this 

framework could result in the lack of consumer confidence 

that will undermine the usage of these facilities. 

g. Content, applications: Information on livelihood or direct 

earnings makes people flock to ICT facilities. 

Therefore, applications of ICT that lead to income 

generation are a must for inducing people to use ICT 

facilities. 

h. Process re-engineering: Various departments of the government 

need to undergo a considerable process 

reengineering exercise to improve their own information 

processing methods and quality of services to introduce 

e-governance and citizen-centric services. 

It can be observed that there is some overlap in the critical 

success factors and complementary factors. Regardless of 

classification, both sets of factors have a bearing on the 

use of ICT facilities for poverty alleviation. It would also 

be observed that basic telephony could contribute to the 

provision of some of the complementary factors like literacy 

(by making village postings more attractive to qualified 

teachers) and access roads (by facilitating better implementation 

and maintenance). 

Finally, the shift of population away from agriculture is an 

index of economic growth and poverty reduction. This shift 

has been very slow in India and the share of population dependent 

on agriculture was estimated at 52 percent in 2003. A 

significant contribution that communications can make towards 

the object of growth with poverty alleviation is in facilitating 

a speedier shift of agricultural population to productive 

employment in small and medium towns. 

Recent Initiatives in the Field 

There are both private and public initiatives to use ICTs 

for socio-economic purposes. Among the private initiatives, 

Indian Tobacco Company’s (ITC) ‘e-choupal’ project 

has attracted wide notice. The main objective of this project 

was to create a single point of contact for the farmers and 

suppliers of both agricultural inputs and consumer products 

initially and eventually to turn them into e-commerce 

hubs in rural areas. In accordance with these objectives, ‘echoupals’ 

were designed to work as a combination of an 

Internet kiosk, village gathering place and e-commerce hub. 

‘e-choupals’ are now functional in the states of Madhya 

Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka. 

Further expansion is also taking place. 

Also notable among non-government initiatives is the ‘n- 

Logue’ scheme promoted by the Indian Institute of Technology, 

Madras. Internet centres set up under this project 

in some southern states cater to village needs in areas of 

medicine, education, animal husbandry and bank credit. 

Among the public initiatives, the Gyandoot project was 

commissioned in the Dhar district of Madhya Pradesh in 

January 2000 by the district administration. Providing agriculture 

market information and interfacing the district administration 

with ordinary people are the main objectives 

of this project. The services offered by the village outlets 

28

Information Communication Technology and Powerty Alleviation 

(‘Soochanalyas’) are applications for pensions, government 

schemes and grievances of citizens. The content was prepared 

in the local language. The experiment was not completely 

successful; bureaucratic problems eroded the 

project’s impact in respect of the goals it set out to achieve. 

However, similar experiments have been initiated in several 

other states on a pilot basis. The schemes in 

Maharashtra, Rajasthan and Kerala are well reported. 

Another notable experiment done by the central government 

is the Community Information Centre (CIC) Project 

that was started in January 2000 as a measure to speed up 

economic development in the north-east region. The main 

objective of the project was to help the north-eastern states 

to join the national socio-economic mainstream by providing 

internet connectivity and making the delivery of 

citizen services efficient. In addition to Government to 

Citizen services, CICs provide Internet access and e-mail, 

printing, data entry and word processing and training facilities 

for the local population. An enlarged scheme that 

would extend to the whole country has also been announced. 

These facilities are bringing the remote and backward areas 

of the country closer to the national mainstream through 

efficient and faster information flow. The issue of the 

sustainability of these models in the long run has also been 

experimentally tested. 

29


Appendix III 

Type A, B, C Circles (For Award of Licenses) 

Type A Circle Type B Circle Type C Circle 

Andhra Pradesh Haryana Assam 

Gujarat Kerala Bihar 

Karnataka Madhya Pradesh Himachal Pradesh 

Maharashtra Punjab Orissa 

Tamil Nadu Rajasthan North East 

Uttar Pradesh (East) 

Uttar Pradesh (West) 

West Bengal 

30

Select Telecom Statistics 


Table 1. Number of Direct Exchange Lines (DELs) 

(As on 31st March) 

Circle/ 

Metros 

DELs Including Junction 

91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-2000 2000- 01 2001-02 2002-03 

Andaman 0 0 0 0 3757 5077 6818 8272 15773 24463 30076 33034 

& Nicobar 

Andhra 340241 379892 443170 509027 647305 797326 1000423 1167419 1572399 2227487 2838418 3131544 

Pradesh 

Assam 40638 48742 60203 73653 86756 107051 139977 161531 211906 273068 338328 420942 

Bihar 108756 131670 166059 203248 247316 280431 345711 399093 502221 627400 891796 756842 

Chhattisgarh* 0 0 0 0 0 0 0 0 0 0 0 258196 

Gujarat 450799 496762 576037 658224 780731 915563 1130647 1292440 1547828 1921850 2398691 2833880 

Haryana 1113937 129884 153227 195020 242028 294514 357106 428395 524565 642001 794194 983896 

Himachal 33636 40658 47688 58697 80046 110258 145505 181886 225103 285130 346891 435642 

Pradesh 

Jammu and 28803 31809 34378 41627 46610 52598 72964 89362 107863 130021 173533 222811 

Kashmir 

Jharkhand* 0 0 0 0 0 0 0 0 0 0 0 372533 

Karnataka 332253 375043 434456 507995 527201 783697 1019176 1084019 1355084 1705139 2161583 2586724 

Kerala 260261 305605 377805 436741 644003 681234 887572 1227683 1464685 1829400 2256555 2690584 

Madhya 209860 278156 350693 452657 541276 622551 717844 1529555 1874903 2331793 2976906 1145511 

Pradesh 

Maharashtra 364662 431798 502692 610976 766734 984698 1290852 800784 941136 1095952 1263118 3643422 

North East-I 26881 32384 41584 50271 58960 75393 100643 116479 151595 195396 244670 169437 

North East-II* 0 0 0 0 0 0 0 0 0 0 0 119930 

Orissa 67799 80659 95742 116763 135401 166415 209996 266098 334273 423309 526416 641226 

Contd... 

31


Table 1 Contd... 

Orissa 67799 80659 95742 116763 135401 166415 209996 266098 334273 423309 526416 641226 

Punjab 208294 233827 267330 326338 427397 570966 745945 890495 1083964 1292252 1543449 1923014 

Rajasthan 154887 183899 233980 309115 393738 494410 645138 755560 927005 1109400 1326286 1591284 

Tamil Nadu 286632 312559 353875 417564 524308 671412 906317 1165806 1523415 1926967 2477366 2779709 

Uttar Pradesh 329301 390383 482973 542303 658593 393284 520852 686212 872897 1106574 1400258 1674579 

(East) 

Uttar Pradesh* 0 0 0 0 0 416645 534811 654547 809464 994004 1220249 1147714 

(West) 

Uttaranchal* 0 0 0 0 0 0 0 0 0 0 0 311753 

West Bengal 64257 68806 78550 92049 113145 159181 236358 314426 415851 541131 742905 992849 

Total 4421897 3952536 4700442 5602268 6925305 8582704 11014655 13220062 16461930 20682737 25951688 30867056 

Metros 

Chennai 174296 186473 208452 238879 282034 342382 468060 502616 625245 767863 919651 1024901 

(BSNL) 

Delhi 520562 605272 688830 813850 966940 1167010 1511130 1551111 1641503 1818236 1979856 2065803 

(MTNL) 

Kolkata 258882 274426 300634 335020 380407 445514 618385 672278 852598 1029121 1229637 1312532 

(BSNL) 

Mumbai 699097 791222 898390 1035569 1240618 1440785 1782181 1855629 2012410 2213388 2347302 2428183 

(MTNL) 

Total 1652837 1857393 2096306 2423318 2869999 3395691 4379756 4581634 5131756 5828608 6476446 6831419 

All India 6074734 5809929 6796748 8025586 9795304 11978395 15394411 17801696 21593686 26511345 32428134 37698475 

Source: DOT Annual Reports 

* Figures shown from the creation of new States/separation of Circles 

32


Table 2. Status of Public Telephone 

(As on 31st March of each year) 

Year Local PCOs Trunk PCOs 1 STD/ISD PCOs Highway PCOs Total 2 

1993 100,526 20,436 41,391 0 61,827 

1994 117,416 21,384 57,119 1,781 80,284 

1995 143,002 0 87,543 2,010 89,553 

1996 161,424 0 116,532 2,694 119,226 

1997 184,291 0 157,333 3,554 160,887 

1998 210,495 0 213,385 4,060 217,445 

1999 243,052 0 272,989 4,639 277,628 

2000 287,994 0 355,390 5,567 360,957 

2001 361,196 0 490,505 8,374 498,879 

1. 

Trunk PCOs have been merged into Local PCOs after 1994 

2. 

Totals of PCOs with STD facility 

Source: Indian Telecommunication Statistics 2002 

Table 3. Telephone Supply (Fixed Line Telephones – PSUs And Private) 

Year No. of Annual Waiting List Total Demand Annual Growth 

ended DELs (Supply) Growth (Million) (Supply + Total 

31 March (Million) (Percent) Waiting List) Demand 

(Million) 

(Percent) 

1991 5.07 10.6 1.96 7.04 11.6 

1992 5.81 14.5 2.29 8.1 15.1 

1993 6.8 17 2.85 9.64 19 

1994 8.03 18.1 2.5 10.52 9.1 

1995 9.8 22.1 2.15 11.95 13.6 

1996 11.98 22.3 2.28 14.26 19.3 

1997 14.54 21.4 2.89 17.43 22.3 

1998 17.8 22.4 2.71 20.51 17.7 

1999 21.59 21.3 1.98 23.58 15 

2000 26.51 22.8 3.68 30.19 28.1 

2001 32.44 22.3 2.92 35.35 17.1 

2002 37.70 16.2 1.69 39.39 11.4 

2003 40.75 8.1 1.81 42.56 8.1 

2004 43.23 6.1 1.79 45.02 5.7 

Source: Indian Telecommunication Statistics 2002 

Department of Telecom Annual Reports 

33


Table 4: FDI Inflow (Year-Wise) (Aug 1991 to December 2002 (Rs.in Millions) 

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 

Inflow 21 161 2,228 9,876 22,328 40,084 42,211 45,097 84,806 95,621 

Source: DOT Annual Report 2002-03 

Table 5: Villages Covered by Village Public Telephones 

As on 

31 March 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Number 185,136 216,632 267,832 310,687 340,640 374,605 408,922 468,862 514,287 521,468 

Source: NCAER Centre for Infrastructure Data Base 

Table 6: Status of Mobile Phones and Internet 

Subscribers 

Year 

Mobile 

Phones 

Internet 

Subscribers 

1997-98 794,232 25,000 

1998-99 1,070,603 150,000 

1999-00 1,599,364 350,000 

2000-01 3,107,449 650,000 

2001-02 5,478,932 1,130,000 

2002-03 10,480,430 1,699,000 

2003-04 (Sept.) 18,306,142 2,942,000 

1. 

Source: www.coai.com, 

2. 

Source: www.exhange4media.com 

34

References 

Asian Development Bank (2001) Information and 

Communication Technology (ICT) Strategies for Developing 

Countries, Executive Summary of Proceedings, 21-27 February, 

Singapore. 

Bhatnagar, S., and Schware, R. (eds.)(2000) Information and 

Communication Technology in Development: Cases from 

India, Sage Publications. 

Department of Information Technology (2005) E-Governance: 

Driving the Vision of the NCMP, Vision & Approach, 

Presentation made at 8 th National e-Governance Conference, 

3 rd -5 th February, Bhubaneswar, India. 

Hanna, Nangy K. (2003) Why National Strategies are Needed for 

ICT-Enabled Development, ISG Staff Working Paper, No.3. 

Heeks, Richard (2004) E-government for Development, Causes 

of e-Transparency Success and Failure: Factor Model, University 

of Manchester, UK 

Telecom Regulatory Authority of India (2004), “Growth of 

Telecom Services in Rural India: The Way Forward”, 

Consultation Paper No.16/2004. 

Website of Gyandoot http://gyandoot.nic.in/ 

Website of ITC E-Choupals, http://www.itcportal.com/sets/ 

echoupal_frameset.htm 

World Bank (1999) Knowledge for Development, World 

Development Report 1998/99, Oxford University Press 

35

About the Series Editors 

Aasha Kapur Mehta is Professor of Economics at the Indian Institute of Public Administration, New Delhi and leads the 

Chronic Poverty Research Centre’s work in India. She has a Masters from Delhi School of Economics, an M.Phil from 

Jawaharlal Nehru University and a PhD from Iowa State University, USA. She has been teaching since 1975, initially at 

a college of Delhi University and then at IIPA since 1986. She is a Fulbright scholar and a McNamara fellow. Her area 

of research is now entirely focused on poverty reduction and equity related issues. 

Pradeep Sharma is an Assistant Resident Representative and heads the Public Policy and Local Governance Unit in 

the India Country Office of United Nations Development Programme (UNDP). A post-graduate from University of East 

Anglia (UK) and Doctorate from Jawaharlal Nehru University, he has held several advisory positions in the Government 

of India and has taught economic policy at LBS National Academy of Administration, Mussoorie. He has several 

publications to his credit. 

Sujata Singh is an Associate Professor at the Indian Institute of Public Administration. She completed her doctoral 

studies in Public Administration and Public Policy at Auburn University, USA. Her primary research interests are in the 

area of Comparative and Development Administration, Public Policy Analysis, Organizational Theory and Evaluation of 

Rural Development Programmes. 

R.K. Tiwari is Senior Consultant, Centre for Public Policy and Governance, Institute of Applied Manpower Research, 

Delhi. He was formerly Professor of Public Administration at the Indian Institute of Public Administration (IIPA), New 

Delhi. He received his education at Gwalior, Allahabad and Delhi. He has undertaken a number of research studies in 

Development Administration, Rural Development, Personnel Administration, Tribal Development, Human Rights and 

Public Policy. He has conducted consultancy assignments for the Department of Posts and in the Ministry of Rural 

Development, Government of India; and for the Government of Orissa and the Narmada Planning Agency, Government 

of Madhya Pradesh. He has published several books.

India's Telecom Reform - Indian Institute of Public Administration

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