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Favourable Framework: Increased policy and regulatory momentum

February 21, 2017
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The Indian telecom industry saw a number of key policy and regulatory developments during 2016. The year began with an intense debate on the call drop issue, which had the industry and the regulator battle it out in the courts. While the Supreme Court finally struck down the penalty mechanism imposed by the Telecom Regulatory Authority of India (TRAI), these developments ensured that the issue of quality of service (QoS) remained in focus.

Later in the year, the government conducted a rather unsuccessful spectrum auction, which saw the 700 MHz band, the premium band for launching 4G services, remaining unsold. Meanwhile, the launch of services by Reliance Jio Infcomm Limited (RJIL) in the last quarter of the year made the task of the regulator more complex, with allegations and counter-allegations being traded amongst the incumbents and the new operator.

TRAI conducted some important consultations during the past year, providing the much-needed clarity to industry players on key issues. Meanwhile, the policymakers spelt out right-of-way (RoW) rules for the sector, thus addressing a long-pending issue in the industry.

A look at how the telecom policy and regulatory environment evolved during the past year…

Key regulatory moves

Focus on QoS: With a mandate to safeguard consumer interests, the regulator took a sharp view on QoS-related matters. It decided to impose a penalty on operators that failed the call drop test. However, the industry challenged the move in the Supreme Court, which struck down the penalty mechanism on the ground that it was arbitrary. This led the regulator to look for alternative routes to discharge its mandate. Besides appealing to the government to grant it greater penal powers (which was later rejected by the government), TRAI brought out a consultation paper on whether the QoS norms needed to be revisited. It is now also looking at compiling more granular-level data to study variations in call drop rates across cities as well as within a city.

Following the Supreme Court decision, TRAI has carried out several drive tests across the country to assess operator performance. It has also taken steps to bring in more transparency in regulatory matters through its online portal, TRAI Analytics. The portal presents real-time information on the data speeds offered by various operators, drive test results and call drop rates of all operators. TRAI has also reiterated its demand for a telecom ombudsman to address consumer complaints and grievances.

Prohibition of differential pricing: In early 2016, TRAI prohibited service providers from charging differential tariffs for data services based on the websites/applications/platforms being accessed on the internet, thus upholding the principle of net neutrality. Operators were prohibited from entering into an arrangement with another entity that would have the effect of discriminatory tariffs for data services. The decision came as a major blow to Facebook’s Free Basics programme, which had received severe criticism from supporters of net neutrality in the country, as it allowed free access to select websites. TRAI, however, made it clear that it was not in favour of operators playing the role of internet gatekeepers and defining users’ internet experience in a way that was favourable to them.

Resolution of interconnection issues: The launch of RJIL’s services led to a tussle between the regulator and the incumbent operators. With RJIL’s free service offer, there was a major spike in the number of calls terminating on the incumbent operators’ networks. The incumbents decided to make only a limited number of points of interconnection (PoIs) available to RJIL, thus impacting the latter’s QoS. TRAI intervened, asking the incumbents to increase the number of PoIs available to RJIL. The regulator also recommended a penalty of Rs 30.5 billion to be imposed on the operators, stating that not making sufficient PoIs available was a breach of their licence agreements. The final decision on the imposition of the penalty is still awaited.

Other steps: TRAI conducted important consultations on matters such as cloud computing, machine-to-machine communications, the framework for VoIP networks, deployment of public Wi-Fi networks, and sustainability in the sector.

Policy landscape

Spectrum reforms: After years of the industry emphasising that spectrum scarcity was one of the primary reasons for the deteriorating QoS, the government finally took concrete steps to address this issue. In the 2016 auction, the government put on sale the largest quantum of spectrum, including spectrum in the premium 700 MHz band, with the aim of alleviating the spectrum scarcity situation that has been plaguing the sector for long. To this end, it undertook an extensive spectrum harmonisation and liberalisation exercise, and made efforts towards getting the spectrum held by the Ministry of Defence vacated.

However, the auction received a tepid response, in part due to the high reserve prices for spectrum in certain bands as well as the alternative routes available to operators for acquiring spectrum. In value terms, the government mobilised revenues for around 12 per cent of the airwaves that were put on auction, while about 60 per cent remained unsold. It was able to sell about 20 per cent of the airwaves in the 800 MHz band, 79 per cent in the 1800 MHz band, 24 per cent in the 2100 MHz band and 62 per cent in the 2500 MHz band.

The government is now looking to allocate 40 MHz of spectrum to each operator in each of the 22 circles, at par with some international markets, with a view to increasing broadband penetration in the country. Operators currently hold around 25 MHz of spectrum per circle, which is significantly lower than that needed to offer all the services, taking Indian demographics into account. However, the Department of Telecommunications (DoT) does not plan to conduct another round of spectrum auction in the near future.

New RoW rules: The government increased its focus on the telecom infrastructure segment in 2016. In a key move, DoT issued RoW rules for the roll-out of communication networks to facilitate the installation of mobile towers, optic fibre and copper cables in a time-bound and non-discretionary manner. The new rules require that local and state governments appoint nodal officers for enforcing the laid-down provisions. Moreover, they allow online filing of applications to expedite the process of obtaining approvals. Through this new set of rules, the government aims at improving coordination between telecom companies and government authorities. Apart from efforts by the central government, a number of state governments too came out with enabling policies for telecom infrastructure. While Jharkhand released its new telecom infrastructure policy, Rajasthan issued a draft for the same. Many local bodies also took encouraging steps. While the Noida Authority amended its policy for mobile tower installation, the Lucknow Development Authority and the Delhi Development Authority amended their building by-laws for allowing the installation of towers in residential areas and on public buildings.

The government also finalised the active infrastructure sharing policy during 2016, giving a much-needed breather to the industry suffering from high operational costs.

Approval to VNOs: In another key policy move of 2016, DoT paved the way for the entry of virtual network operators (VNOs), thus allowing telecom operators to monetise their unused airwaves and infrastructure. It released guidelines for VNOs, allowing them to create their own service delivery platforms in respect of customer service, billing and value added services. While VNOs will be regarded as an extension of network service operators (NSOs) or telecom service providers, they will be prohibited from installing equipment that interconnects with the network of other NSOs. DoT has so far issued letters of intent to 60 firms for VNO licences. Almost 70 firms expressed interest in VNO permits at the local level, while 10 companies applied for national licences under the VNO policy.

Tax-related disputes

During the past year, a number of tax-related disputes between the industry and the government arose. After the Comptroller and Auditor General issued a report stating that telecom operators had under-reported their revenue during the period 2006-07 to 2009-10, DoT issued demand-cum-show cause notices worth Rs 294.74 billion to six telecom operators. The penalty amount comprises Rs 64.9 billion as licence fees, Rs 137.51 billion as interest, Rs 31.78 billion as penalty and Rs 60.55 billion as interest on penalty. The amount sought from individual operators comprises Rs 81.62 billion from Bharti Airtel, Rs 77.01 billion from Reliance Communications (RCOM), Rs 57.18 billion from Tata Teleservices Limited (TTSL), Rs 46.95 billion from Vodafone India, Rs 27.08 billion from Idea Cellular and Rs 4.9 billion from Aircel. The operators have appealed against the order in the apex court and a decision on the matter is currently pending. However, some old tax disputes were resolved. The Supreme Court dismissed a special leave petition filed by the Income Tax [IT] Department against RCOM for taxing the proceeds of the latter’s foreign currency convertible bonds issued 10 years ago. With this, the apex court has quashed contingent tax liability amounting to about Rs 48 billion on RCOM. Meanwhile, the Delhi High Court has invalidated the two show-cause notices issued against Bharti Airtel by the IT Department. The IT Department had issued notices regarding the interconnection charge payments made by the operator to various foreign entities.

Outlook for 2017

To better address the changing needs of the telecom industry, DoT is planning to start work on the new telecom policy from April 2017, to facilitate sector growth and meet the requirements of next-generation technologies. Under the National Telecom Policy 2012, the telecom ministry has undertaken several initiatives such as the issuance of technology-neutral telecom licences, finalisation of spectrum trading and sharing rules, and full mobile number portability. However, the ministry is yet to meet certain targets, which it plans to fulfil before starting work on the new telecom policy. Moreover, TRAI has decided to hold meetings with industry stakeholders to chalk out a plan for this year. The regulator is expected to soon come out with a list of strategic issues that it plans to address this year. These will be in addition to the urgent issues that may arise throughout the year. Such a move is expected to lend greater regulatory clarity to the sector.

Going forward, the telecom policy and regulatory environment is expected to remain vibrant as the government tries to resolve the pending issues and address the challenges arising from changing industry dynamics.

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