India's Telecom Reform - Indian Institute of Public Administration

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India’s Telecom Reform: A Chronological Account 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
Page 2 and 3: India’s s Telecom Reform: m: A Ch
Page 4 and 5: Table of Contents 1 2 3 4 5 Introdu
Page 7 and 8: India’s s Telecom Reform: m: A Ch
Page 9: Introduction The policy document se
Page 13 and 14: 2 Key Regulatory y Issues Convergen
Page 15 and 16: Key Regulatory Issues who had much
Page 17 and 18: Key Regulatory Issues access teleph
Page 19 and 20: Key Regulatory Issues sultation pap
Page 21 and 22: A Theoretical Model of Subcontracti
Page 23 and 24: Epilogue (a) filling the gap betwee
Page 25 and 26: Appendix I Chronology of Indian Tel
Page 27 and 28: Chronology of Indian Telecom Reform
Page 33 and 34: Information Communication Technolog
Page 35 and 36: Information Communication Technolog
Page 37 and 38: Select Telecom Statistics Select Te
Page 39 and 40: Select Telecom Statistics Table 2.
Page 41 and 42: References Asian Development Bank (

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