India's Telecom Reform - Indian Institute of Public Administration

Key Regulatory Issues
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