India's Telecom Reform - Indian Institute of Public Administration

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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
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: India’s s Telecom Reform: m: A Ch
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 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 (

India's Telecom Reform - Indian Institute of Public Administration

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