Telecom Policy covering value added services and unified access services

I.      BRIEF BACKGROUND

 The telecom services have been recognized the world-over as an important tool for socio-economic development for a nation. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Indian telecommunication sector has undergone a major process of transformation through significant policy reforms, particularly beginning with the announcement of National Telecom policy 1994 and was subsequently re-emphasized and carried forward under National telecom policy 1999. Driven by various policy initiatives, the Indian telecom sector witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also. 

The process of liberalization in the country began in the right earnest with the announcement of the New Economic Policy in July 1991. Telecom equipment manufacturing was delicensed in 1991 and value added services were declared open to the private sector in 1992, following which radio paging, cellular mobile and other value added services were opened gradually to the private sector. This has resulted in large number of manufacturing units been set up in the country. As a result most of the equipment used in telecom area is being manufactured within the country. A major breakthrough was the clear enunciation of the government’s intention of liberalizing the telecom sector in the National Telecom Policy resolution of 13th May 1994[1].

India is amongst the fastest growing telecommunications markets across the globe. The average monthly mobile subscriber growth over the past year has been 15-17 million customers. Currently, the mobile subscriber base is approximately 671 million (as of August 2010). The overall teledensity for India has already surpassed 60 percent and the market continues to exhibit unabated growth[2].

With the successfully concluded auctions of the 3Generation (3G) and Broadband Wireless Access (BWA) spectrum, this growth is set to become even more aggressive. Indian telecom operators have very effectively worked with rest of the telecom ecosystem to enable India emerge as the country which offers the lowest mobile tariffs across the globe[3]. All these achievements have helped India emerge as one of the most attractive investment destinations for all international players looking to win a share of the second largest mobile market in the world[4]. These players can also look at leveraging on the successful low-cost model that India has pioneered. During the past year, several telecom players in India have made tremendous efforts to establish themselves on the global level through cross border mergers and acquisitions. These strategic alliances are a step towards the globalization of the Indian telecommunication industry.

 1.1       National Telecom Policy, 1994         

In 1994, the Government announced the National Telecom Policy which defined certain important objectives, including availability of telephone on demand, provision of world class services at reasonable prices, improving India’s competitiveness in global market and promoting exports, attractive Foreign Direct Investment (FDI)and stimulating domestic investment, ensuring India’s emergence as major manufacturing / export base of 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[5].

1.2       Objective of the New Telecom Policy will be as follows[6]:

Ø  The focus of the Telecom Policy shall be telecommunication for all and telecommunication within the reach of all. This means ensuring the availability of telephone on demand as early as possible.

Ø  Another objective will be to achieve universal service covering all villages as early as possible. What is meant by the expression universal service is the provision of access to all people for certain basic telecom services at affordable and reasonable prices.

Ø  The quality of telecom services should be of world standard. Removal of consumer complaints, dispute resolution and public interface will receive special attention. The objective will also be to provide widest permissible range of services to meet the customer's demand at reasonable prices...                        

Ø  Taking into account India's size and development, it is necessary to ensure that India emerges as a major manufacturing base and major exporter of telecom equipment.

Ø  The defence and security interests of the country will be protected

1.3     Value Added Services

In order to achieve standards comparable to the international facilities, the sub-sector of value-added services was opened up to private investment in July 1992 for the following services :

Ø  Electronic Mail

Ø  Voice Mail

Ø  Data Services

Ø  Audio Text Services

Ø  Video Text Services

Ø  Video Conferencing

Ø  Radio Paging

Ø  Cellular Mobile Telephone

In respect of the first six of these services companies registered in India are permitted to operate under license on non-exclusive basis. This policy would be continued. In view of the constraints on the number of companies that can be allowed to operate in the area of Radio Paging and Cellular Mobile Telephone Service, however, a policy of selection is being followed in grant of licenses through a system of tendering

1.4       Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20^th February, 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997[7], to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.

TRAI’s mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society. One of the main objectives of TRAI is to provide a fair and transparent policy environment, which promotes a level playing field and facilitates fair competition. In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority.

The TRAI Act was amended by an ordinance, effective from 24^th January, 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI.

1.5       New Telecom Policy 1999

The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26^th March, 1999, to become effective from 1^st April, 1999. NTP-99[8] laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate.

Key features of the NTP 99 include:

·      Strengthening of Regulator.

·      National long distance services opened to private operators.

·      International Long Distance Services opened to private sectors.

·      Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee.

·      Resolution of problems of existing operators envisaged.

·      Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.

·      Department of Telecommunication Services (DTS) corporatized in 2000.

·      Spectrum Management made transparent and more efficient.

All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition.

1.5       National Long Distance (NDL)

National Long Distance opened for private participation. The Government announced on 13.08.2000 the guidelines for entry of private sector in National Long Distance Services without any restriction on the number of operators. The DOT guidelines of license for the National Long Distance operations were also issued.

Highlights - NLD Guidelines[9]

• Unlimited entry for carrying both inter-circle and intra-circle calls.
• Total foreign equity (including equity of NRIs and international funding agencies) must not   exceed 74%. Promoters must have a combined net worth of Rs.25 million.
• Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centres.
• Seven years time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase.
• Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%.
• Private operators permitted to set up landing facilities that access submarine cables and use excess bandwidth available.
• Licence period would be for 20 years and extendable by 10 years.

1.6       International Long Distance (ILD)

In the field of international telephony, India had agreed under the General Agreement on Tariffs & Trade (GATS) to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with   automatic extension of the licence by a period of 5 years. The applicant company pays one-time non-refundable entry fee of Rs.25 million plus a bank guarantee of Rs.250 million, which will be released on fulfillment of the roll out obligations. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately[10]. At present 24 ILD service providers (22 Private and 2 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with at least one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I Tax’s. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carrier’s Network.

II.                UNIFIED ACCESS SERVICES

Unified access license regime was introduced in November’2003[11].  Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensee’s network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A’, Category `B’ and Category `C’ Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum.

In October 2003 TRAI submitted its recommendations on Unified Licensing regim[12]e which envisaged total elimination of service based licensing. Unified Licence was an approach towards convergence of access media. Full implementation of the new regime was to be completed in two phases. The Union Cabinet approved the TRAI report in October 2003.  Phase I was the first step of migration of existing licensees to the Unified Access Licensing Regime. This was to be followed by a second phase of a fully Unified Licensing /Authorisation Regime having all telecom services under one licence. This was for grant of licences to new operators. However, the benefits of Phase I were extended to new operators. Ministry replied that TRAI had submitted recommendations one on Unified Licensing (January 2005)[13] and another on Spectrum Related issues (May 2005)[14].

Based on the recommendations of Group of Ministers which agreed with the principles laid down by TRAI in its Report, Cabinet (31 October 2003) approved the proposal for charting the course for Universal Licensing Regime in the following manner

Ø  A two-stage process; the Unified Access Regime for basic and cellular operators allowing a migration path to existing BSPs and CMSPs in the first phase to be implemented immediately followed by a second phase of a fully Unified Licensing/Authorisation Regime within six months, bringing all telecom services under one licence, after a process of detailed consultation by TRAI;

Ø  Fee paid by the fourth cellular operator to be used as benchmark for migration of Basic Service Operators(BSOs) to the new access regime and no fee to be paid by the existing Fourth Cellular Mobile Service Providers (CMSPs) for migrating to new regime;

Ø  The DoT to be authorised to finalise details of implementation of UAS and the fully Unified Licence Regime with the approval of the Hon'ble Minister of Communication & Information Technology (MoC&IT) based on the recommendations of TRAI.

2.1    GUIDELINES FOR UNIFIED ACCESS (BASIC & CELLULAR)   SERVICES LICENCE.[15]

DoT issued the guidelines on UAS Licencing (11 November 2003), for moving towards UASL regime by giving the option to all existing BSOs and CMSPs to migrate to UASL regime. The guidelines also included a condition that “All applications for new Access Services Licence shall be in the category of Unified Access Services Licence.” There was ambiguity regarding entry fee to be charged from the new licensees as TRAI had not given any recommendation regarding introduction of new operators in the first phase of UASL regime. Secretary, DoT, spoke to the Chairman, TRAI who clarified  (14 November 2003) that entry fee of the new unified licensee would be the entry th fee of 4 Cellular Operator and in service areas where there is no fourth operator,  the entry fee of existing BSO fixed by the Government (based on TRAI recommendations). DoT decided to receive all applications under UAS without revision of the spectrum allocation procedures/revision of entry fee, which automatically lifted the restriction on the number of operators in the UAS regime

i.          The existing operators shall have an option to continue under the present licensing regime (with present terms & conditions) or migrate to new Unified Access Services Licence (UASL) in the existing service areas, with the existing allocated/ contracted spectrum

ii          The license fee, service area, rollout obligations and performance bank guarantee under the Unified Access Services Licence will be the same as for Fourth Cellular Mobile Service Providers (CMSPs).

iii.        The service providers migrating to Unified Access Services Licence will provide wireless services in already allocated/contracted spectrum and no additional spectrum will be allotted under the migration process for Unified Access Services Licence.

iv         In addition to services permissible under current licences, Cellular Mobile Service Providers (CMSPs) may also offer limited mobility facility existingFD4IN03Guidelines for Unified Access Services Licence 2 within Short Distance Charging Area (SDCA) as permitted to Basic Service Providers at appropriate tariffs through concepts such as home-zone operations, etc.

v          The Unified Access service providers are free to use any technology without any   restriction.

vi         No additional entry fee shall be charged from CMSPs for migration to UASL.  For Basic Service Operators (BSOs), the entry fee for migration to the Unified Access Services Licence for a Service Area shall be equal to the entry fee paid by the Fourth Cellular Operator for that Service Area, or the entry fee paid by the BSO itself, whichever is higher. While applying for migration to UASL, the BSO will pay the difference between the said entry fee for UASL and the entry fee already paid by it.

vii        Notwithstanding anything stated in para (vi) above, no additional entry fee will be paid by the existing Basic Service Providers where no Fourth CMSP had bid despite repeated attempts.

viii       Those Basic Service Operators who do not wish to migrate to the full mobility regime, would only be required to pay the additional fee for Wireless in Local Loop (M), with mobility confined strictly within Short Distance Charging Area, as prescribed separately.

ix         Some of the Basic Service Licensees have provided following features/facilities to their subscribers:

a)  Over the air activation/authentication of the subscriber wireless access terminal outside one Short Distance Charging Area (SDCA) by pressing/punching certain keys/numbers such as *444N;

b)  Use of the same subscriber wireless access terminal in more than one SDCA;

c)  Multiple registration or temporary subscription facilities in more than one SDCA using the same subscriber terminal in wireless access systems.

x          In such cases of migration to Unified Access Services Licence, the Basic Service Licensees shall in addition to the Entry Fee based on the principles stated in para (vi) and (vii) above, pay till the date of payment from the date of their having signed the Basic Service Licence agreement, a penal interest @ 5% above Prime Lending Rate (PLR) of State Bank of India prevalent on the day the payment became due, i.e. the date they signed the Licence Agreement. The interest shall be compounded monthly and a part of the month shall be reckoned as a full month for the purposes of calculation of interest.

xi         The Service Areas for Unified Access Services Licence will be as per the existing Cellular Mobile Telephone Service Licences. BSO wishing to migrate to UASL will be permitted to operate in the service area in which it is already operating. It is, however, clarified that BSOs in Delhi, Haryana and UP(West) service areas ,on migration to UASL, will have service area as that of CMSP in Delhi, Haryana and UP(West) service areas respectively. Since the service area for the Unified Access Service Licensees will be as per existing CMSPs, existing BSOs in Maharashtra, Tamil Nadu and West Bengal service areas will be required to hold two unified licenses (one for Mumbai Metro city and the other for the rest of Maharashtra and so on).

xii        The existing BSOs after migration to Unified Access Licensing Regime may offer full mobility; however, they will be required to offer limited mobility service also for such customers who so desire.

xiii       A total of additional Entry Fee to be paid by existing Basic Service Operators in respect of each of its service area for migration to USAL.

xiv       Request for migration to UASL shall be made in writing by the concerned service provider. The payment of additional Entry Fee and penal interest, if any, is to be made along with and not later than the date of such request in writing for migration to Unified Access Services Licence.

xv        If on verification Department of Telecommunications comes to the conclusion that the entire amount due for migration to UASL has not been paid by the applicant, it shall be intimated to the applicant to pay the difference. The concerned applicant will be bound to pay the said difference in full within 3 working days from the date of receipt of the demand; failing this the application will be rejected and the amounts paid by the applicant, if any, shall be refunded within a period of 15 days from the date of receipt of the demand from DoT. However, no interest shall be payable by DoT for the amounts deposited for migration to UASL. While applying for migration UASL the existing licensee shall also certify as hereunder:

“I have carefully read the guidelines for providing Unified Access Services Licence. I have complied and/ or agree to fully comply with the terms and conditions therein”.

xvi       Consequent upon migration, the Licence will be termed as Unified Access Services Licence. The relevant applicable conditions of the existing licence agreements will get modified to the extent of the conditions stated above.  The amended Licence shall be set out in detail separately.

xvii      The LICENSOR reserves the right to modify these Guidelines or incorporate new Guidelines considered necessary in the interest of national security, public interest, consumer interest and for the proper conduct of telegraph / services.

xviii     With the issue of these Guidelines, all applications for new Access Services Licence shall be in the category of Unified Access Services Licence.

As per guidelines issued for UASL (2005)[16], licences were to be issued on continuous basis without any restriction on the number of entrants in a service area and applications were to be processed within 30 days of submission. Allocation of radio-spectrum and grant of wireless licence was subject to availability and in case UAS licensee was not allocated spectrum due to non-availability, the Licensee was required to endeavor to roll out services using wire-line technology. However, applications for issue of UAS licence were not processed within stipulated period and delayed inordinately by the DoT. In 2004-05, 14 out of 15 applications for grant of UAS Licences were delayed by 608 to 969 days. In 2005-06, all 9 applications were delayed by 232 to 421 days. All 29 applications for issue of new UAS Licence received in 2006-07 were not processed till October 2007 without assigning any reason/justification on records and without sending any communications to the applicants.  This largely opaque and uncertain delivery system coupled with fast paced growth in the telecom sector during the decade led to heavy rush of companies to the sector.

2.2       Amendment to Guidelines for Unified Access Services

On 28^th July, 2010, DoT released a set of amendments to the telecom licenses, under which certain specific obligations were imposed upon the operators in the interest of the national security of the country. This move was intended to address the security concerns that were raised by the Home Ministry, regarding the telecom equipment being imported from other countries.

2.3       Key Amendments to the Unified Access Services License Agreement

The Amendment to Unified Access Services License Agreement issued by the DoT on 28^th July, 2010 were primarily focused on addressing security related concerns for expansion of telecom services in various zones of the country

(a)        Security Policy: Within thirty (30) days of the date of the Notification, the telecom operators were asked to submit their organizational policy on security and security management to DoT

(b)        Network Audit: Telcos were asked to engage international accredited agencies to conduct audit and certify core equipment such as routers, switches, firewall, intrusion detection and prevention systems and all software associated with telecom operations and services. Operators are also required to ensure that such audit agencies should not be from the same country as that of the vendors of the telecom operators

(c)        Minimal dependence on foreign engineers: Telcos were asked to ensure that dependence on foreign engineers would be made minimal and/or almost nil within a period of two (2) years from the date of the Notification

(d)       Location Details: Operators would be required to ensure up gradation of existing equipment within one year from the date of notification, in order to ensure that the telecom operators are able to provide location details of mobile customers within a precision of upto fifty meters

(e)        Security and Business Continuity: DoT has approved the template of a Security and Business Continuity agreement which will need to be executed by the telecom operators

and their vendors. The agreement requires the vendors to transfer their intellectual property to a third party. The telecom operator and the vendor are required to enter into an agreement with an escrow agent authorized by Controller of Certifying Agencies (CCA) or the National Informatics Centre, Department of Information Technology,  Government of India. As per the terms of the agreement, CCA will create an encryption key for the escrow materials and the decryption key will remain with the escrow agent.  If the vendor fails to provide support and DoT feels it is necessary to release the source code they may obtain the same from the agent.

In line with standard practice with regard to such legislation, Government of India has reserved the right to give policy directions to TRAI and also to seek its recommendations on matters connected with technology, service provision etc. Both these provisions have figured in recent past in reported disagreements between TRAI and Government. NTP 1999 has recognized the role of TRAI recommendations in a number of areas.

Annexure -1

Regulatory regime in the Indian telecommunications sector[17]

Telecommunications in India is a Union subject i.e. the federal government has the exclusive authority to legislate on it. The key Acts of Parliament which govern the Indian telecommunications sector are:

·                     Indian Telegraph Act 1885

·                     Indian Telegraph (Amendment) Rules 2004

·                     Indian Wireless Telegraphy Act 1933

·                     Information Technology Act 2000

·                     Communication Convergence Bill 2001

·                     Telecom Regulatory Authority of India Act 1997

The institutional framework for regulating telecoms in India comprises the following key agencies

A.        Telecom Commission

The Telecom Commission was set up by the Government of India in 1989 with administrative and financial powers of the Government of India to deal with various aspects of telecommunications. The Commission consists of a Chairman and fourfull time members who are ex-officio Secretaries to the Government of India in the DoT. In addition, there are four part time members who are Secretaries to the Government of India of the departments concerned.

B.        Department of Telecommunications

The Department of Telecommunications is part of the Ministry of Communication and Information Technology of the Government of India. It is the authority in India which looks after licensing and overall policy making in India.

C.        Jointly the main functions of the Telecom Commission and the Department of Telecommunications include:

• Policy formulation
• Review of performance of the sector
• Licensing
• Wireless spectrum management
• Administrative monitoring of Public Sector Undertakings in telecom (Including BSNL and MTNL)
• Research and development
• Standardization/ validation of equipment
• International relations

D.        Telecom Regulatory Authority of India[18]

TRAI was formed in 1997 by an Act of Parliament as an independent regulator for the Indian telecommunications industry. Subsequently, in 2000, the adjudicatory powers of TRAI were separated and entrusted to the Telecom Dispute Settlement & Appellate Tribunal (“TDSAT”).  TRAI’s mission is to create and nurture conditions for growth of telecommunications in the country in a manner and at a pace which will enable India to play a leading role in the global information society.  One of the main objectives of TRAI is to provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition. In pursuance of the above objective, TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of the Indian telecoms market.

E.         The key functions of TRAI include:

Regulation of tariffs, interconnection and quality of service;

Making recommendations to the Government on policy issues, licensing, terms & conditions, licence revocation, competition facilitation etc. It is mandatory for the Government to seek recommendations from TRAI in respect of specified matters

F.         Telecom Dispute Settlement & Appellate Tribunal[19]

The Telecom Regulatory Authority of India Act, 1997 was amended by the Telecom Regulatory Authority of India (Amendment) Act, 2000. The amendments were brought about to remove certain difficulties that had arisen in the implementation of the Act. A clear distinction was made between the recommendatory and regulatory functions of TRAI by the setting up of a separate dispute settlement mechanism. By the Amendment Act, an Appellate Tribunal known as the Telecom Disputes Settlement & Appellate Tribunal was set up to adjudicate disputes and dispose off appeals with a view to protect the interests of service providers and  the telecoms sector and to promote and ensure orderly growth of the sector. The Appellate Tribunal came into existence on 29th May 2000 and started hearing cases from January 2001.

G.        The functions of the appellate tribunal are:

(i)         To adjudicate any dispute:

– between a licensor and licensee;

– between two or more service providers;

– between a service provider and a group of consumers;

(ii)        to hear and dispose of appeals against any decision or order of TRAI.

Broadly, the issues involved in cases filed before the Appellate Tribunal relate to Interconnection, challenging the basis of computation of licence fees by licensor, wrongful levy and charge of royalty and licence fees for frequency allocation, blocking of calls by one group of service providers, disputes relating to default traffic, challenges to tariffs fixed by TRAI, cashing of bank guarantees, disputes between broadcasters etc.