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Indian Telecom Industry


The Indian telecom industry has been one of the best performing industry groups in the recent years. In order to facilitate the sector several reforms have been introduced in the sector during the past decade. The National Telecom Policy of 1994 and the New Telecom Policy of 1999 (NTP-99) has been the driving force of the development and liberalisation in this sector. Since its inception, Department of Telecommunication (DoT) is formulating developmental policies for driving the growth of the telecom sector.

Pre-Liberalisation Scenario

In the 1880s telephone services were merged with the postal system and the telecom services came under the monopoly of the Department of Post and Telegraph. The Indian telecom sector was entirely under government ownership till the 1980s. In 1984, the private sector was allowed only in telecommunication equipment manufacturing. As a part of the early reforms, the government set up an autonomous body, the Centre for Development of Telematics (C-DOT) in 1984, to develop the R&D activity in the telecom sector. It was set up to develop the state-of-the-art telecommunication technology to meet the needs of the Indian telecommunication network.

The government separated the Department of Post and Telegraph in 1985 by setting up the Department of Post and the Department of Telecommunication (DoT). The DoT was established as a wholly-owned government operator for the entire telecom service operation in India. The responsibility for managing the planning, engineering, installation, maintenance, management, and operations of telecom services lay with the DoT.

In order to ease out DoT operations, the government set up two new public sector corporations, MTNL and VSNL, under the DoT in 1986, however, the government retained policy formulation and regulation decisions with the DoT. While MTNL was established to look after the operation of basic telephony services in metros such as Mumbai and New Delhi, VSNL was set up to operate, develop and accelerate international telecom services in India. The Telecom Commission was set up in 1989 as an executive body to assist the DoT in policy regulation, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development and standardisation/validation of equipment etc.

Liberalisation Policy 1991

In 1991, India adopted the new economic policy of liberalisation. The policy aimed at improving viability, competitiveness and efficiency of the Indian economy in the international market and also for enhancemnet and growth of international trade. To attain the objectives of new economic policy a telecom service of world class quality was essential. Thus thrust in reforms in the telecommunication sector was witnessed during the 1990s along with the liberalisation of the economy. Liberalisation in telecommunication services began in 1992 when the telecom sector was deregulated with the Government unbundling the domestic basic services and the domestic value-added services (VAS)1 and allowing private sector participation in provision of value added system(VAS) such as cellular and paging services. The government paved the path for the entry of the private sector in telephone services by adopting the National Telecom Policy in 1994. This policy aimed at bringing about universal service and qualitative improvement in telecom services.

National Telecom Policy 1994 (NTP-94)

The National Telecom Policy was announced in 1994 which aimed at improving India's competitiveness in the global market and provide a base for a rapid growth in exports. This policy eventually facilitated the emergence of Internet services in India on the back of established basic telephony communication network. This policy also paved way for the entry of the private sector in telephone services.

The main objectives of the policy were:

The policy also announced a series of specific targets to be achieved by 1997 and further recognised that to achieve these targets the private sector association and investment would be required to bridge the resource gap.

Thus, to meet the telecom needs of the nation and to achieve international comparable standards, the sector for manufacture of telecom equipment had been progressively relicensed and the sub-sector for value-added services was opened up to private investment (July 1992) for electronic mail, voice mail, data services, audio text services, video text services, video conferencing, radio paging and cellular mobile telephone. The private sector participation in the sector was carried out in a phased manner. Initially the private sector was allowed in the value added services, and thereafter, it was allowed in the fixed telephone services. Subsequently, VSAT services were liberalised for private sector participation to provide data services to closed user groups.

Establishment of TRAI

The entry of private players necessitated independent regulation in the sector; therefore, the TRAI was established in 1997 to regulate telecom services, for fixation/revision of tariffs, and also to fulfil the commitments made when India joined the World Trade Organisation (WTO) in 1995. The establishment of TRAI was a positive step as it separated the regulatory function from policy-making and operation, which continued to be under the purview of the DoT2.

The functions allotted to the TRAI included:

  1. To recommend the need and timing for introduction of new service provider
  2. To protect the interest of customers of telecom services
  3. To settle disputes between service providers
  4. To recommend the terms and conditions of license to a service provider
  5. To render advice to the Central government on matters relating to the development of telecommunication technology and any other matter applicable to the telecommunication industry in general.

New Telecom Policy 1999 (NTP-99)

In recognisation of the fact that the entry of the private sector, which was envisaged during NTP-94, was not satisfactory and in response to the concerns of the private operators and investors about the viability of their business due to non realisation of targeted revenues the government decided to come up with a new telecom policy. Moreover, convergence of both markets and technologies required realignment of the industry. To achieve India’s vision of becoming an IT superpower along with developing a world class telecom infrastructure in the country, there was a need to develop a new telecom policy framework. Accordingly, the NTP 1999 was framed with the following objectives and targets:

In line with the above objectives, some of the specific targets of the NTP 1999 were:

Developments After 2000

There were major developments on the policy front post year 2000. Establishment of Bharat Sanchar Nigam Ltd (BSNL) (2000), privatisation of VSNL (2002), termination of monopoly of VSNL in International Long Distance, opening up of National Long Distance (NLD) and International Long Distance (ILD) services to competition (2000), introduction of Unified Access Licensing (UASL) regime (2003), implementation of calling party pays (CPP) (2003), increase in FDI limits from 49% to 74% (2005) and proposal for mobile number portability (2006) which paved way for the remarkable growth in the sector.

Universal Service Obligations

The Government is committed to provide access to all people for basic telecom services at affordable and reasonable prices. In order to increase access to telecommunication within rural areas as well as increase teledensity, the government set up a Universal Service Obligation Fund (USOF) in 2002. This fund is expected to help in achieving universal service obligations (as laid down in the NTP 1999). The fund is used to subsidise the developments in the telecom sector in the rural areas. It is used to provide support for increasing wireless network in rural and remote areas. The fund is also expected to cover both public accesses through public or community telephones in villages as well as individual household telephones in identified net high cost rural/remote areas. The infrastructure for mobile and broadband services in rural areas is to be created from this fund to aid increase in rural teledensity. The Indian Telegraph Act (1885) has been amended and mobile services have been included under basic telephony in rural areas to further help the cellular operators to access the USOF, which will help them to finance telecom infrastructure in rural areas.

The resources for meeting the USO would be raised through a ‘universal access levy’. This would constitute a percentage of the revenue earned by all the operators under various licenses. The implementation of the USO obligation for rural / remote areas would be undertaken by all fixed service providers who will be reimbursed from the funds collected from the universal access levy. Other service providers will also be encouraged to participate in USO provision subject to technical feasibility and shall be reimbursed from the funds from the universal access levy.

Universal Access Regime

In 2001, basic service operators in India were permitted to offer limited mobility services over wireless local loop (WLL (M)) using CDMA technology in their coverage areas. Moreover, they were also able to offer all-India mobility using the CDMA WLL (M) technology. The regime resulted in increasing the popularity of these services, as the prices of these services were generally lower than that for GSM cellular mobile services. This created a potential disadvantage for the GSM cellular operators as they had paid substantial amounts to obtain their licences and WLL (M) services were increasingly seen as largely substitutable for GSM services; as a result, the government decided to move towards a Unified Access Services Licensing regime for basic and cellular services, which was introduced in October 2003. The focus of the effort was on technological advancement. Under the new licensing regime, both basic service operators and cellular carriers gained freedom to offer basic and/or cellular mobile services using any technology, which has ensured a fair competitive market for the service providers.

Interconnection Usage Charges Regime (2003)

Interconnection is very important for the service providers and users. A variety of access networks - fixed and mobile, national long distance network and international long distance networks have to interconnect with each other to make local, national and international calls possible. In order to have seamless end-to-end service, it is imperative to have an effective interconnection usage charges (IUC) regime in place.

The TRAI implemented the Telecommunication Interconnection Usage Charges (IUC) Regulation during 2003 to fix the terms and conditions of interconnectivity between service providers, to ensure effective interconnection between different service providers and to regulate arrangements among service providers for sharing their revenue derived from providing telecommunication services.

The regulation aimed to cover arrangements among service providers for payment of IUC for telecommunication services, covering basic service, which included WLL(M) services, cellular mobile service providers and long distance operators throughout India.

On March 9, 2009, the TRAI issued the ’Telecommunication Interconnection Usage Charges (Tenth Amendment) Regulations’ with the below-mentioned key features. The new charges came into effect from April 1, 2009:

Broadband Policy (2004)

TRAI constantly monitors growth of internet services in India. In December 2003, penetration of broadband and internet services in India was very low at 0.02% and 0.4%3, respectively; as a result, the government announced the Broadband Policy on 2004 on the basis of TRAI recommendations to facilitate greater levels of penetration. The policy estimated the internet subscribers to grow to 40 mn and broadband subscribers to grow to 20 mn by 2010, which would include subscribers using various technologies. The Broadband Policy Framework virtualised creation of infrastructure through various access technologies, which could contribute to growth and could coexist.

The policy aimed at improving the quality of services (especially rural) and covering 20 mn subscribers by the end of 2010. It also aimed at creation of an environment for promoting knowledge-based society. It was also realised that improving broadband connectivity would bring about major implications such as creation of e-governance, online education, telemedicine networks and connectivity for rural knowledge centres, greater integration into the world economy through international voice and videoconferencing, lower prices for NLD and ILD etc.

Moreover, the Ministry of Information and Technology has proposed establishing a National Knowledge Network to inter-connect all knowledge institutions through an electronic digital broadband network. The new broadband policy encouraged creation and growth of infrastructure through various access technologies that can mutually coexist such as optical fibre technologies, digital subscriber lines on copper loop, cable TV network, satellite, and terrestrial wireless technologies. The telecom regulator also suggested a range of measures for an open-sky policy for DTH, VSAT4 and uplinking, using satellites that could boost broadband.

Foreign Direct Investment (FDI)

One of the important sources of the substantial financial investment required for the growth of tele-density has been FDI. In 2005, the government permitted 74% foreign investment in telecom companies from the earlier limit of 49% which resulted in unprecedented entry of foreign investment in the sector. The table below enumerates the FDI policy related to the telecom sector:

Guidelines for Intra Circle Mergers and Acquisitions

In January 2004, the government issued guidelines for intra circle mergers of licenses in telecom sector. According to the guidelines, post-merger there should be at least three operators in a particular service area for a particular service and the market share of the merged entity would not exceed 67%. Also, merger in the same service area was to be divided into two distinct categories: fixed and mobile services. While merger of companies holding different service licenses is permitted, a standalone basic service license cannot be merged with a standalone cellular service license and vice versa. Accordingly, with prior approval of DoT, merger of licenses is permitted in the following categories: cellular license with cellular license; basic license with basic license; unified access service license (UASL) with unified access service license; basic with unified access service license and cellular with unified access service. All the mergers are to be notified to the TRAI and the merged entity is required to obtain the approval of DoT for the proposed merger. The merged entity is entitled to the total spectrum held by the merging entities subject to the condition that post-merger, the amount of spectrum does not exceed 15 MHz per operator per service area for metros and category A service areas and 12.4 MHz per operator per service area in category B and category C service areas. The merged spectrum subject to these entities will remain with the merged entity.

Revised Guidelines for Intra Circle Mergers and Acquisitions

The DoT issued revised guidelines for intra service area merger of Cellular Mobile Telephone Service (CMTS)/ UAS licences on April 2008 thus replacing the guidelines issued in 2004. Some of the salient features and changes introduced by the revised merger guidelines are as follows:

Mobile Number Portability

Mobile Number Portability (MNP) will enable subscribers to change their operators while retaining their number; this will not only give more choice to customers but also lead operators to further improve their services to retain their customers. The DOT issued guidelines for MNP service license on August 1, 2008. The DoT has envisaged guidelines for geographical division of the country into two Number Portability Zones (zone 1 and zone 2), each consisting of 11 licensed service areas. According to these guidelines, the MNP will be initially implemented in all metros and category A service areas within 6 months of award of MNP license. Subsequently, the operation of MNP will be expanded to the rest of the service areas in a time-bound manner.

Considering the implementation of MNP service for mobile subscribers, among various mobile service providers in the same service area, requires customisation and upgradation of the existing networks to be capable of proving this service besides considerable time and effort. The DoT had initally decided to launch MNP by the fourth quarter of 2008, however, the implementation of MNP is now extended up to Mar 31, 2010. This will be implemented in the first phase for metro and Category A service areas in Delhi, Mumbai, Kolkata, Maharashtra, Gujarat, Andhra Pradesh and Tamil Nadu, including Chennai and Karnataka service areas.

Mobile Virtual Network Operator (MVNO) Policy

India is yet to implement a policy on the MVNO. According to TRAI recommendations to DoT an “MVNO is a licensee in any service area that does not have spectrum of its own for access service, but can provide wireless (mobile) access services to its own customers through an agreement with the licensed access provider, UAS/CMTS licensee. MVNOs are envisaged to work as a catalyst for the growth of the mobile sector. The introduction of MVNOs will help the mobile network operators to widen and deepen the market besides promoting competition. However, the concerned authorities will also consider that since MNP will also be introduced in the near term, introduction of MVNOs will not create bottlenecks in the implementation of MNP.

Spectrum Policy

With growing demand for telecommunication services and the proliferation of new technologies, demand for additional spectrum has been increasing. Spectrum is the most essential input for the growth of wireless services; its inadequacy not only hinders the growth but also adversely affects quality of services. In India, spectrum is shared among Defence, Railways, ONGC, etc and the two streams of Cellular Mobile Service Providers, that is, GSM and CDMA. Another technology, namely, Digital Enhanced Cordless Telecommunications (Cor-DECT) also shares spectrum, but as its reach is less, it is basically not substitutable for GSM and CDMA technologies.

Recognising the importance of spectrum in the growth of wireless services, the Indian government has set up two committees - Spectrum Management Committee 1999 and a Steering Group on Spectrum Pricing 1999. The TRAI also issued recommendations on spectrum-related issues in May 2005. Even the Twenty-eighth Report of the Standing Committee of the Parliament on Spectrum Management 2005 has highlighted issues regarding spectrum management. Assignment of Spectrum in India is governed by the National Frequency Allocation Plan (NFAP) 2002 and the international radio regulations of the International Telecommunications Union (ITU).

Recognising the importance of spectrum in the growth of wireless services, the Indian government has set up two committees - Spectrum Management Committee 1999 and a Steering Group on Spectrum Pricing 1999. The TRAI also issued recommendations on spectrum-related issues in May 2005. Even the Twenty-eighth Report of the Standing Committee of the Parliament on Spectrum Management 2005 has highlighted issues regarding spectrum management. Assignment of Spectrum in India is governed by the National Frequency Allocation Plan (NFAP) 2002 and the international radio regulations of the International Telecommunications Union (ITU).

The National Frequency Allocation Plan (NFAP) was developed way back in 1981 on the basis of the international frequency allocations and after taking into account the national spectrum requirements as well as technologies available during that time. Pursuant to the New Telecom Policy 1999 (NTP 1999), the NFAP was reviewed in a transparent manner with participation of all stakeholders and a revised NFAP was formulated known as NFAP 2000. Further, the NFAP 2000 was reviewed in view of changes in the International Radio Regulations and after taking into account the fast-growing national spectrum requirements in a transparent manner and the NFAP 2002 was also published. The NFAP /has been reviewed from time to time, taking into account changes in international allocations as well as national spectrum requirements and emerging technologies.

With the trend in the telecommunication sector moving towards mobility, the government has recognised and has implemented automated spectrum management system in January 2005. This system will address bottlenecks in spectrum availability as radio frequency spectrum is one of the necessary ingredients of mobility. Electromagnetic spectrum is considered as a scarce natural resource and needs to be properly utilised to introduce new radio communication technologies.

In the report of Standing Committee on Information Technology 2006-07, a comprehensive spectrum policy was stated to be under consideration by the government taking into account all relevant aspects, including those recommended by the Standing Committee on Information Technology.

Further, during November 2007, the government constituted a committee to recommend revised subscriber-based spectrum allocation criteria. The committee in its report has recommended allocation of additional spectrum in steps of 1 MHz. The criteria for spectrum allotment will be based on the active subscribers, peak traffic of the operator’s network and demographic features of the service area. These criteria will be reviewed from time to time wherein relevant factors and technological developments will be taken into account.

Next Generation Network Recommendations (NGN)

The key aspects of the Next Generation Networks (NGN) are that these networks enable access through a variety of networks, and because they are based on internet protocol (IP) technology, they not only offer much cheaper bandwidth but also make available a wide variety of services. In March 2005, TRAI gave its recommendations on NGN; the main thrust was to bring out the urgent need for unified licensing regime to enable the NGN network to be utilised to their full capabilities and the promotion of broadband in the country. The emphasis was also given on the need for awareness building about the several aspects of NGN. The auction for 3G spectrum is scheduled in 2010 wherein spectrum usage rights shall be awarded separately for specific service areas. For 3G, the Government has decided to auction radio spectrum in the 2.1GHz band. 1 block of 2x5MHz spectrum in the 2.1GHz band has been allocated to MTNL (in Delhi and Mumbai) and BSNL (in all other service areas where a block is available). MTNL and BSNL have already rolled out 3G services in India.

1 Telecom services were categorized into domestic basic (which included basic telephony, telex and fax), domestic value-added services (VAS) which covered all other services such as paging, cellular, data services, VSAT and international basic and VAS

2 The TRAI Act was amended by an ordinance, effective from January 24, 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI.

3 As per Economic Survey 2004-05

4 DTH - Direct-To-Home, VSAT - Very Small Aperture Terminal