India's Telecom Reform - Indian Institute of Public Administration

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India’s Telecom Reform: A Chronological Account 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
Key Regulatory Issues 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
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 and 10: Introduction The policy document se
Page 11 and 12: Introduction In 1998, there was bit
Page 13 and 14: 2 Key Regulatory y Issues Convergen
Page 15 and 16: Key Regulatory Issues who had much
Page 17: Key Regulatory Issues access teleph
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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