India's Telecom Reform - Indian Institute of Public Administration

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India’s Telecom Reform: A Chronological Account 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. Universal Service Obligation Fund 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
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 and 18: Key Regulatory Issues access teleph
Page 19 and 20: Key Regulatory Issues sultation pap
Page 21: A Theoretical Model of Subcontracti
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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