Telecom Reforms

Introduction

The Department of Telecommunications (DoT), in second half of 2021, released a series of notifications for reforming the telecom sector and bringing much-needed reforms. These notifications were compiled in a booklet titled “Telecom Reforms 2021” and released by the DoT (“Reforms”). The Reforms span over different areas of telecom regulations including: Know Your Customer (“KYC”) Norms, amending the definition Adjusted Gross Revenue (“AGR”), a percentage of which is the license fee, Foreign Direct Investment (“FDI”), Bank Guarantees, Customer Application Forms (“CAF”), sharing and assignment of spectrum, Standing Advisory Committee on Frequency Allocation (“SACFA”) clearance, Import of Wireless Equipment and liquidity requirements of Telecom Service Providers (“TSP”). In this blog, we provide an overview of the Reforms and present a brief overall analysis of the same.

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The TRAI's Recommendations on Unbundling Licenses

Introduction

The Telecom Regulatory Authority of India (TRAI) recently recommended the unbundling of layers of telecom services through a system of differential licensing. The recommendations aim to “catalyse Investments and Innovation and promote Ease of Doing Business”. While the said recommendations have been welcomed by a cross-section of stakeholders, concerns were raised regarding the application of license fee as a percentage of the Adjusted Gross Revenue (AGR) at different levels. Even though the recommendations of the TRAI are not binding on the licensor (Department of Telecommunications (DoT)), they represent a significant shift in TRAI’s approach to the issuance of licenses in the telecom sector and possibly attracting new service providers.

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COVID-19 - Its impact on the telecommunications sector in India

As the global economy continues to reel from the shock and the lasting impact of the novel coronavirus (COVID-19) outbreak, “work from home” and “social distancing” have become the buzzwords in today’s business landscape, with the telecom sector being the invisible hand driving this shift. Remote working, video conferencing, and telecommunications technology have quickly emerged as key enablers for business operations during this lockdown, and streaming services such as Netflix have become the go to source for entertainment, putting the telecom sector in the spotlight today.

The importance of having a strong telecommunications network during this lockdown has also been acknowledged by the government in the guidelines dated March 24, 2020, issued by the Ministry of Home Affairs (MHA)[1], which provides that “telecommunications, internet services, broadcasting and cable services, IT and IT-enabled services (ITeS) only (for essential services)” are the essential services and are exempt from the lockdown. This exemption was also provided in the MHA notification dated April 15, 2020 (which extended the lockdown until May 3, 2020)[2] and in the MHA notification dated May 1, 2020 (which further extended the lockdown for a further period of two weeks).
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National Digital Communication Policy 2018

As you may recall, in May 2018, we reported on the Department of Telecommunications’ (DoT) release for public comments of the Draft National Digital Communications Policy 2018 in our previous blog post, “Draft National Digital Communications Policy 2018: Restructuring the Legal and Regulatory Regime”.

The Ministry of Communications, DoT has now notified the National Digital Communications Policy, 2018 (Policy) vide a gazette notification dated 22 October 2018 (Notification). With the coming of this Notification, it is expected that the Indian telecom sector may soon get a much-needed makeover.
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The TRAI Recommendations on Privacy

This piece reviews the Telecom Regulatory Authority of India (TRAI) recommendations on “Privacy, Security and Ownership of Data in the Telecom Sector” released on July 16, 2018 (Recommendations) and attempts to highlight some of their more immediate potential consequences.

Consultations are typically taken up by TRAI based on requests from the Department of Telecommunications (DoT). In the instant case, the TRAI has atypically put out the consultation and subsequently the Recommendations of its own volition, without an explicit mandate on the subject.

TRAI recommendations are approved and implemented by the DoT pursuant to the procedure under Section 11 of the TRAI Act, 1997. This process may involve the DoT seeking clarifications, modifications or otherwise referring items back the TRAI.

This process may turn out to be more complex in connection with the current set of Recommendations, given that much of their content recommends the passing of broad-ranging new legislation that is not limited to only the telecom sector.

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Draft National Digital Communications Policy 2018 Restructuring the Legal and Regulatory Regime

On 1 May 2018, the Department of Telecommunications (DoT) released the much-awaited Draft National Digital Communications Policy – 2018 (Draft Policy) for public comments. The Draft Policy aims to give direction not only to the telecom market but also to digital communications and prepares the country for the future. The policy, when finalised, will act as a framework for all future legal and regulatory changes/ development in Information and Communications Technology (ICT).

The Draft Policy proposes the restructuring of the legal, licensing and regulatory framework including amendments to the Indian Telegraph Act, 1885 and related legislation, so as to enable the utilisation of newer/ advanced technologies/ convergence. Many stakeholders would suspect the same shall result in unrestricted interconnection between the internet protocol (IP) and Public Switched Telephone (PSTN) networks. The Draft Policy intends introduction of a light touch regulatory regime for various services such as over-the-top (OTT) that allows providers to stream content via the internet, cloud computing, data centres, etc. The Draft Policy also makes clear the requirement to amend terms and conditions for other service providers (OSPs). It further suggests establishing a unified policy framework and spectrum management regime.

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Time to Revisit Spectrum Caps and Market Shares

In the initial years of wireless telephony in India, radio spectrum was administratively allotted to licensees. However, following the recommendations of the National Telecom Policy, 2012, and the decision of the Apex Court in the case of Centre for Public Interest Litigation v. Union of India,[1] the Department of Telecommunications (DoT) de-bundled spectrum allotment from the grant of licenses, and adopted an auction-based price-discovery mechanism for spectrum allotment.

Scarce radio spectrum resources have typically been considered as bottleneck assets, and therefore auctions provide an effective means of price discovery, help maximise revenue for the Government, and ensure optimal allocation of spectrum resources. However, excessive reliance on bid markets risks overlooking potential market failures attributable to enterprises attempting to monopolise bottleneck assets such as spectrum.

Recognising the need to ensure that no one operator should be able to monopolise scarce spectrum resources to the detriment of its competitors and consumers, the DoT, in successive Notice Inviting Applications (NIAs) has prescribed ceilings for the amount of spectrum that can be held by any telecommunications operator in a given band within a Licensed Service Area (LSA), as well as a ceiling on the total amount of spectrum that can be held by an operator across all bands in an LSA. Presently, these stand at 50% of any given spectrum band in an LSA, and 25% of the overall spectrum available in such LSA across all bands. These restrictions have also been incorporated into the Mergers and Acquisitions Guidelines of 2014 (M&A Guidelines) as prescribed by the DoT.

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