Mahesh Uppal with S.K.N. Nair and C.S. Rao

India’India’India’India’India’s Ts Ts Ts Ts Telecom Reforelecom Reforelecom Reforelecom Reforelecom Reform:m:m:m:m:A Chronological AccountA Chronological AccountA Chronological AccountA Chronological AccountA Chronological Account

Series Editors:Aasha Kapur Mehta, Pradeep Sharma

Sujata Singh, R.K.Tiwari

2006

Economic Reforms in India: Pro-poor Dimensions

Table of ContentsTable of ContentsTable of ContentsTable of ContentsTable of Contents

Introduction 1

Key Regulatory Issues 7

Conclusion 15

Epilogue 16

Appendices 19

References 35

1

2

3

4

5

Economic Reforms in India: Pro-poor Dimensions

LIST OF ACRONYMSLIST OF ACRONYMSLIST OF ACRONYMSLIST OF ACRONYMSLIST OF ACRONYMS

ADC Access Deficit Charge

BICP Bureau of Industrial Costs and Prices

BSNL Bharat Sanchar Nigam Ltd

CA Certifying Authorities

CCA Controller of Certification Authority

CDMA Code Division Multiple Access

CdoT Centre for Development of Telematics

COAI Cellular Operators Association 0f India

CMSP Cellular Mobile Service Providers

CPP Calling Party Pays

DEL Direct Exchange Line

DoT Department of Telecommunications

DTS Department of Telecommunication Services

FDI Foreign Direct Investment

FICCI Federation of Indian Chambers ofCommerce and Industry

GMPCS Global Mobile Personal Communicationby Satellite

GSM Global System for Mobile Communications

GOT-IT Group on Telecom and IT Convergence

HFCL Himachal Futuristic CommmunicationsLimited

ICICI Industrial Credit and Investment Corporationof India

ICT Information and Communication Technology

ILD International Long Distance

IP Telephony: Internet Protocol Telephony

ISP Internet Service Provider

IUC Interconnection Usage Charges

MOC Ministry of Communications

MOCIT Ministry of Communication and InformationTechnology

MTNL Mahanagar Telephone Nigam Ltd

NFAP National Frequency Allocation Plan

NLDS National Long Distance Service

NTP National Telecom Policy

PCO Public Call Office

PSTN Pubic Switching Telecom Network

RIO Reference Interconnect Offer

SDCA Short Distance Charging Areas

SSA Secondary Switching Area

TDSAT Telecom Dispute Settlement AppellateTribunal

TRAI Telecom Regulatory Authority of India

UASL Unified Access Service Licence

USOF Universal Service Obligation Fund

VSNL Videsh Sanchar Nigam Ltd.

WLL Wireless in Local Loop

WLL(M) Wireless in Local Loop relating to “LimitedMobility”

WPC Wireless Planning and Coordination

WTO World Trade Organisation

1

The telecom sector occupies a special area of interest forstudents and analysts of India’s economic reforms, be-cause of the lead role it played in drawing private invest-ment, the institutional changes that the process involvedand the dramatic results achieved in terms of availabilityand access. A chronological recording of India’s telecomreforms is invaluable for a complete understanding of thetortuous reforms process and the clash of interests amongexisting and new participants and mid-course policy cor-rections.

By end 2003, positive trends resulting from the reforms,like accelerated growth in penetration levels and fall in tar-iffs, were already in evidence (see Tables 1 to 6). The levelof telephone penetration, which was less than half of onepercent in 1991, had increased to about 4 per 100 of popu-lation in terms of fixed line phones. (This growth indexhas crossed 10, taking both fixed and mobile phone sub-scribers into account). However, the sharp increase in sub-

scriber numbers is concentrated in the urban areas. Therural subscriber base has grown at a much slower rate ascompared to the urban and seems virtually stagnant whenthe two are compared. Thus, while the urban poor haveseen vast improvements – in availability as well asaffordability - the rural populations have seen little of thebeneficial effects of competition

The Universal Service Obligation Fund – into which tele-phony operators pay a universal service levy - was set upin 2002 to address this urban-rural “digital divide” by pro-viding subsidies to operators for expanding access to phonesand Internet in rural areas. The Fund has had mixed suc-cess and is largely unutilised, thus highlighting the com-plexity of running such subsidy schemes. A strong plea toreview its approach has recently been made by the regula-tor, who has argued that a more cost effective approachfor the USOF would be to move from its current focuson fixed telephone lines to fund shared wireless infrastruc-

IntroductionIntroductionIntroductionIntroductionIntroduction

1

India’India’India’India’India’s Ts Ts Ts Ts Telecom Reforelecom Reforelecom Reforelecom Reforelecom Reform:m:m:m:m:A Chronological AccountA Chronological AccountA Chronological AccountA Chronological AccountA Chronological Account

Mahesh Uppal with S.K.N. Nair and C.S. Rao1

1 This study was conducted as part of the UNDP funded ‘economic reforms’ programme under which the NCAER Centre for Infrastructure andRegulation has been set up. Dr. Mahesh Uppal authored the main body of the report. The chronology and statistical tables accompanying it werecompiled under his supervision. He was assisted by Ms. Ramneet Goswami, Research Associate, NCAER Centre for Infrastructure and Regulation.The introductory and concluding sections of the Report are contributed by S.K.N. Nair, Adviser, NCAER. Ms. Nandini Acharya, Research Associateassisted with data and verification. The note on ‘Information Communication Technology and Poverty Alleviation’ in Appendix II was written by Dr.Ch. Sambasiva Rao, Associate Fellow, NCAER. The views expressed in this paper are those of the authors and do not necessarily reflect the viewsof GOI, UNDP or IIPA.

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India’s Telecom Reform: A Chronological Account

ture. Time will tell if the new approach will be followedand if it can deliver to the rural poor the benefits that theurban poor have begun to enjoy, thanks to policy reformsundertaken in the sector.

There is also a renewed effort from players other thantelecommunications operators in rural telecommu-nications space. A growing list of technology inno-vators and entrepreneurs has been active in testingnew ICT services and business models to serve ruralpopulations. Many of these efforts now form a partof Mission 2007, a vision of Professor M.S.Swaminathan, to establish knowledge centres in allvillages by August 2007. Some of these efforts arehighlighted in the Appendix by Ch. Sambasiva Rao,attached to this report. Many of these initiativeswould require policy and regulatory support, espe-cially when the models are sought to be scaled upfrom their “pilot phases”. It will be interesting to seethe degree to which such efforts succeed.

The TThe TThe TThe TThe Telecom Policy Evolution: Aelecom Policy Evolution: Aelecom Policy Evolution: Aelecom Policy Evolution: Aelecom Policy Evolution: ABackgroundBackgroundBackgroundBackgroundBackground

India’s telecommunications reform programme has beenunderway since the late 1980s when the government’smonopoly in manufacturing telecom equipment was dis-continued. However, the more substantive reform was theprogressive deregulation of the services sector, from a situ-ation where the Government of India’s Department ofTelecommunications (DoT) was the policy maker, opera-tor and regulator, all in one. DoT’s success in this role wasmixed. The network grew significantly, but in comparisonto most countries, India remained far behind with longwaiting lists and poor service quality.

Early attempts to reform the services were modest, withthe opening of some value-added services such as elec-tronic mail, audio-text, etc., to private sector players. Thiswas followed by an attempt to allow private sector play-ers to enter the mobile service sector. This exercise, andthe litigation that ensued, reflected the first signs of thechallenge that lay in ad hoc changes to telecom policy with-

out a clear regulatory framework.

In 1994, the Government of India announced the Na-tional Telecom Policy (NTP), which defined certain im-portant objectives, including availability of telephones ondemand, the provision of world-class services at reason-able prices, ensuring India’s emergence as a major manu-facturing/export base for telecom equipment and univer-sal availability of basic telecom services to all villages. Italso announced a series of specific targets to be achievedby 1997. Against the NTP 1994 target of the provision ofone PCO per 500 urban population and coverage of all600,000 villages, DoT has achieved an urban PCO pen-etration of one PCO per 522 persons, and has been ableto provide telephone coverage to only 310,000 villages. Asregards provision of total telephone lines in the country,DoT has provided 8.73 million telephone lines against theEighth Plan target of 7.5 million lines.

NTP 1994 also recognised that the required resources forachieving these targets would not be available only fromgovernment sources and concluded that private investmentand private sector involvement were required to bridgethe resource gap. The government invited private sectorparticipation in a phased manner from the early nineties,initially for value added services such as paging servicesand Cellular Mobile Telephone Services (CMTS) and there-after for Fixed Telephone Services (FTS). After a com-petitive bidding process, licenses were awarded to eightCMTS operators in the four metros, 14 CMTS operatorsin 18 state Circles, six BTS operators in six state Circlesand paging operators in 27 cities and 18 state Circles. VSATservices were liberalised for providing data services to closeduser groups. Licenses were issued to 14 operators in theprivate sector, out of which only nine licensees are opera-tional. The government has recently announced a policyfor Internet Service Provision (ISP) by private operatorsand has commenced licensing of the same. The govern-ment has also announced the opening up of Global Mo-bile Personal Communications by Satellite (GMPCS) andissued one provisional license. The issue of licenses to otherprospective GMPCS operators is under consideration.

3

The policy document set the stage for auctioning telecomlicenses in India.

In an interesting twist, it was decided that governmentoperators, or other entities owned by the government e.g.,public sector undertakings such as ITIs, would not be al-lowed to bid for telecom licenses. The then Minister forCommunications argued that government resourcesneeded to be augmented by private investments and Pub-lic Sector Undertakings (PSUs) bidding for licenses woulddefeat the goal.

However, since government operators already ran fixedline services, the bar on their bidding for licenses wouldessentially 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 thetelecom Circle. This is the unit in which DoT’s own opera-tions are run and is typically the size of a federal state.Metro areas, for which the process of awarding mobilelicenses had already been completed weeks before, afterprotracted litigation, were excluded. The use of the Glo-bal System for Mobile Communications (GSM) standardwas mandatory for all cellular licensees. (This was reiter-ated to some companies who had expressed an interest inusing Code Division Multiple Access (CDMA) to providemobile services.)

Circles were of three types. Type A Circles were consid-ered most attractive commercially and Type C the leastso2. Virtually all Indian companies, in partnership with anarray of blue chip as well as smaller international compa-nies, participated in the auctions.

The winner in these auctions was the small equipmentmanufacturer Himachal Futuristic Company Limited(HFCL), in partnership with Bezeq, an Israeli governmentcontrolled company. It won nine licenses for its bids total-ling Rs. 85,000 crores.

Soon after the results of the bids were announced, thegovernment announced that it had decided to invoke theprovision in the tender documents that gave the govern-

ment the right to limit or “cap” the number of licenses. Itannounced that no company would be allowed to retainmore than three licenses for the Type A Circles, which wereconsidered to have the maximum commercial potential.This meant HFCL would have to forgo all but three of itsA-Circle licenses. In effect, it also bailed HFCL out fromhaving to pay the huge amounts it had bid and not havingto be bound by the bids, which to some, were beyond thecompany’s resources.

There were several allegations and counter-allegations re-lating to the post-auction decision to cap the number oflicenses a company would be awarded. It brought parlia-mentary proceedings to a standstill in December 1995.Members demanded that the Minister for Communica-tions be sacked for his attempts to benefit a particular com-pany and for causing losses to the exchequer as a result ofthe forgoing of the license fees as a consequence of the hisactions.

The decision to limit A-Circle licenses was not the only postfacto decision taken. The government also announced thatsome of the license fees bid by players were below its“reserve price” for them. This meant that most of theother bids, including the very low ones by Reliance formany C-Circles and many by others for A and B Circles,were unacceptable.

In 1996 a total of six fixed line licenses were “won” afterseveral rounds. However, for mobile licenses, most Circlesexcept Jammu and Kashmir, Andaman & Nicobar Islandsand parts of West Bengal and Orissa could attract winningbids.

The earliest telecom services run by the private sector weremobile. Cellular services started in all four metros in Au-gust 1995. The process of selecting operators for theseservices was started in 1992 and was later challenged in thecourts on the grounds of not being transparent. In a land-mark decision, the Supreme Court had ruled in late 1994,that the government was within its rights to employ hid-den criteria to evaluate applicants for licenses as long as thecriteria themselves were fair.

2 see Appendix III for a listing of the Circles by these categories

Introduction

4

India’s Telecom Reform: A Chronological Account

By early 1997, virtually all private cellular licensees had be-gun operations. Basic services, with only six licensees, wereslow to begin and were able to start operations only in1999, because of delays and uncertainties occasioned bydisputes on licensing terms.

The High Court directed the matter be moved to the TelecomRegulatory Authority of India (TRAI), which had been set upin early 1997. TRAI quashed the impugned order of the DoT.In the proceedings before TRAI, the main argument offeredby DoT, which had only weeks ago helped set up TRAI, wasthat the latter had overstepped its jurisdiction. This was tobecome a pattern in its dealings with TRAI.

The situation was repeated a few months later. The MahanagarTelephone Nigam Ltd. (MTNL) announced its plans to startmobile services in October of the same year and barely ayear after new private players had entered the mobile market,following the auctions for cellular licenses, which forbade thepublic sector to bid. MTNL and the government argued thatlicense documents had expressly retained the government’sright to enter the mobile centre.

Cellular Operators Association of India (COAI) movedTRAI to challenge MTNL’s right to provide cellular ser-vices on the grounds that its members were promisedduopoly rights.

TRAI in its judgement in February 1998 agreed that it wasthe government’s right to give licenses to operators, butthe body’s recommendations on need and timing wererequired, before MTNL could be allowed to enter themobile market. MTNL’s license or its terms were unavail-able. TRAI refused to allow MTNL to provide mobileservice. Again, the government argued that TRAI had nojurisdiction on the matter and moved the High Court.

A new set of issues emerged after private sector opera-tions began in full swing. The operators faced huge costs.In particular, the investments required to set up infrastruc-ture were huge, as were the license fees bid by operators.The entry costs for customers to use the service were low,but charges paid by users to make and receive calls, were

prohibitive. The operator estimates for minutes of usagewere wrong. The revenues from the services were nowhereclose to meeting license fee commitments that the pro-spective operators had bid.

Defaults in license fee payments began soon after the initialpayments required for obtaining the licenses were made.Virtually every company defaulted in its payments. In somecases, the operators obtained permission from DoT todelay pending payments.

Some failures of the government too compounded theoperators’ worries. There were frequent and long delays inproviding clearances and permissions for radio frequen-cies and rights of way that are so critical for setting upinfrastructure. Operators claimed that these delays wreckedtheir business plans.

The licenses for Internet Service Providers (ISP) seemedto upset the basic operators. The license conditions envis-aged a fee of one rupee for becoming an ISP and permit-ted ISPs to set up infrastructure to provide last mile accessto the subscriber if none existed. Basic service operatorsargued that the ISP license infringed their exclusive right toset up fixed infrastructure.

The operators approached the government and courts forrelief.

The operators asked the government to compensate themfor losses that they said were the result of the government’sdecisions. The operators proposed moving from the licensefee regime (that in this case meant paying fees they had them-selves bid) to a revenue sharing regime where an agreed shareof all revenues could be given to the government.

In the courts, private basic telecom operators sought topersuade the courts that the breach of their rights by ISPlicenses had undermined their businesses and made themunviable and led to default in license fee payments. Cellularoperators, on the other hand, argued that the delays by thegovernment had made their businesses unviable. Both setsof service providers claimed substantive damages.

5

Introduction

In 1998, there was bitter litigation between the govern-ment and private operators. A veritable who’s who of In-dian legal luminaries argued telecom cases in the Delhi HighCourt . The government stand was upheld in the case ofMTNL’s entry as well as in the claims of damages lodgedby the private operators.

Meanwhile, the government had asked two agencies, inquick succession, to report on industry issues. First, ICICIwas to examine the industry’s performance and report onthe need for a license extension for cellular services. Sec-ond, the Bureau of Industrial Costs and Prices (BICP) wasasked to review the viability of private cellular operations.Both accepted that the industry faced problems and gov-ernment support was required. ICICI said a 10-year li-cense was unattractive for operators and lenders; and rec-ommended an extension of the license period to 15 years.The BICP report was never made public, but is said tohave accepted the operators’ case about delays. However,it is said that the report did not totally support the privateoperators’ demands.

The new Minister of Communications took office in 1998.He made no secret of his scepticism relating to the opera-tors’ pleas for relief from pending license fee payments.He sent letters to all license fee defaulters in January 1999asking them to pay 20 percent of their outstanding licensefee payments and to securitise the balance 80 percent duesby February 15, 1999 or face punitive action. This deadlinewas later extended to February 28, 1999.

TRAI also faced familiar challenges in 1999, when it ruledthat cellular service rentals must rise by 200 percent, buttariffs for mobile calls must fall to less than half of theirprice of Rs. 16.80 per minute. This was necessary for theviability and affordability of cellular services. In the sametariff order, TRAI also announced the move to a systemof charging where the originator alone paid for the call(the so called Calling Party Pays or CPP regime). In Indiaand a few other countries, the system in place requiredboth, originating and receiving parties to pay.

The government, basic operators (whose subscribers wouldnow pay more to contact mobile users) and some consumeragencies again challenged TRAI’s authority to deal with thisissue. They argued that CPP dealt with interconnection rev-enue sharing that formed a part of the license agreement.TRAI had no jurisdiction over this. TRAI lost again.

By late 1999, the courts’ decisions raised serious concernsabout the role and powers of TRAI. In particular its abil-ity to ensure fair play in the market place was seriously inquestion if it was not to be able to intervene in decisionson who played in the field and by what rules. The success-ful challenge to the CPP regime was also a sign that TRAIlacked the powers to enforce technically adequate and fairpriced interconnection to all players in the telecom market,arguably, the most important function regulators carry out.

In response to concerns of private operators and inves-tors about the viability of their businesses, a high poweredgovernment committee led by Deputy Chairman, Plan-ning Commission was announced by the Prime Minister inlate 1998. The committee was asked to make recommen-dations for a new telecom policy and for resolving issuesfacing basic and cellular operators.

The government group prepared a draft National TelecomPolicy in early 1999. The policy draft sought to addressmany of these concerns. In a move unprecedented forgovernment processes in the sector, more reminiscent ofTRAI consultative processes, the document was made avail-able on the Internet for wider feedback on the proposals.

The Prime Minister took charge of the Ministry of Com-munications in August 1999. A formal announcement ofthe New National Telecom Policy (NTP-99) was made inApril 1999. The move to a revenue sharing regime fromthe license fee commitments made by operators was nowofficial. Unlimited competition would be allowed in allservices except those, like mobiles, which were dependenton spectrum availability. Technology restrictions were lifted.The controversy over BSNL/MTNL’s entry in cellular ser-vices ended by the document specifying that government

6

India’s Telecom Reform: A Chronological Account

operators would be the third mobile operators in theirareas of operation, which then could have only two pri-vate players each. The regulator would be strengthened. Inaddition, NTP-99 proposed the setting up of a USOF tosupport services in rural and other remote areas.

Following the announcement of the NTP-99, the govern-ment issued the so-called “migration package”, which laidout the terms and conditions to be met by operators wishingto move from the license fee regime to a revenue sharingagreement with the government. The package envisagedthat any operator could move to the new regime on thepayment of an entry fee, which would be equal to thedues that would have been payable by the operators until31st July 1999. The percentage of revenues to be sharedwith the government would be decided later. The opera-tors would accept unlimited competition. Importantly, theywould need to unconditionally withdraw all pending liti-gation against the government. All migrating operatorswould need to lock in their existing share holdings for fiveyears. Migration to revenue sharing would not be permit-ted to either operator if even one of the two private op-erators providing a service in the Circle did not wish tomigrate. All operators signed up.

The promise in the NTP-99 to strengthen the TRAI was imple-mented in a remarkable way. In early 2000 the governmentissued an ordinance to amend the TRAI Act 1997. TRAI’spowers relating to tariffs and interconnection, deemed bycourts to be limited, were restored in full. Even the govern-ment would have no right to overrule TRAI in these twoareas. TRAI was reconstituted with new members. The man-date to adjudicate disputes between the service providers as

well as between service providers and the government wastaken away from TRAI and handed over to the proposednew body, the Telecom Dispute and Settlement and Appel-late Tribunal (TDSAT). It would no longer be necessary forthe government to refer to the Chief Justice of the SupremeCourt of India, if the former wished to remove any TRAImember as long as the member concerned was given anopportunity to be heard. This last provision was a clear signthat the government was not comfortable with what it feltwas an overly independent regulator.

NTP-99 had also referred to the government’s intentionto restructure the DoT. In September 1999, we saw thedivision of DoT into two parts. DoT was responsible forpolicy, planning, licensing etc. and the Department of Tele-communications Services (DTS) for operations (fixed lineand mobile service providers in India excluding Delhi andMumbai). The government also announced a plan tocorporatise DTS so that it functioned as a company. TheTelecom Commission is co-ordinating the functions ofboth DoT and DTS in accordance with the administrativeand financial powers vested with it.

Corporatisation came a step closer when DTS was brieflyconverted into the Department of TelecommunicationsOperations and then, in October 2000, the Bharat SancharNigam Limited was formed. The process, contentious foryears, was completed rather swiftly, in part, presumably,because it was decided, that the powerful engineering staffof DoT would continue to belong to the Indian TelecomService cadre and the government would continue to guar-antee their pensions.

7

ConvergenceConvergenceConvergenceConvergenceConvergence

The NTP-99 also spoke of the convergence of commu-nications technologies and the need to have a policy thatcould exploit it advantageously.

On August 11, 2000, the government received the draftreport of Sub-Group on Convergence. The group pro-posed a Convergence Law and suggested a common regu-latory body for India for content and carriage, i.e., broad-casting and telecommunications. The report received amixed response from sector players and experts. This wasin part, because it did not, as it was perhaps not mandatedto do so, deal with the large number of extremely conten-tious licensing issues that would result during the move toa converged policy environment in which carriage andcontent would be treated in an integrated manner.

It was surprising to notice the relatively low profile man-ner in which the Information Technology Act 2000 waspassed. The Act gave legal sanctity to electronic transac-tions. It also created the office of Controller of Certifica-tion Authority (CCA) to regulate Certifying Authorities (CA)who would assign digital signatures and other instrumentsof authentication. The retiring Director of DoT’s Centrefor Development of Telematics (C-DoT) was appointedas the first CCA.

The Cabinet approved the Communications ConvergenceBill 2001 drafted by the committee. It also approved therepeal of The Indian Telegraph Act 1885, The Indian Wire-

2

Key RegulatorKey RegulatorKey RegulatorKey RegulatorKey Regulatory Issuesy Issuesy Issuesy Issuesy Issues

less Telegraphy Act 1933, Telegraph Wire Unlawful Pos-session Act 1950, The Cable Television Networks (Regu-lation) Act 1995 and the Telecom Regulatory Authority ofIndia Act 1997. The Bill, ambitious in intent, was unprec-edented in leaving no role for the government in licensing.However, experts criticised it for being too general andnot dealing with transition arrangements as also with issuesrelating to economic regulation. (The Bill was introducedin Parliament and was also reviewed by a ParliamentaryCommittee, but lapsed with the dissolution of the 13th

Lok Sabha before it could be made into law).

Related, indirectly at least, to the same issue of conver-gence, the government announced the merger of the Min-istry of Information Technology (MoIT) and Ministry ofCommunications (MoC) on December 22, 2001. The newentity is now called the Ministry of Communications andInformation Technology (MoCIT). The merger, muchdiscussed and debated, brought together MoC and MoIT.However, the Ministry of Information and Broadcastingwas left out of this attempt at dealing with the conver-gence of communications technologies.

Licensing and Regulation PostLicensing and Regulation PostLicensing and Regulation PostLicensing and Regulation PostLicensing and Regulation PostNTP-99NTP-99NTP-99NTP-99NTP-99

Within months of the new team of members of TRAItaking office, a series of decisions were taken, many ofwhich seem to reflect the message, explicit or implicit, aboutthe events that led to the dissolution of the previous body

8

India’s Telecom Reform: A Chronological Account

and the replacement of all but one members of the erst-while body.

The first instance of the new reality was a review by TRAIof the previous body’s recommendation, in late 1999.TRAI had then asked the government to allow open entry,in the national and international long distance services onpayment of a fixed fee. The review by the new body agreedwith the government view and favoured a limited number(3) of players and auction for these licenses. The new rec-ommendations were made three months after their takingoffice in February 2000 and reversed those made less thansix months earlier. This was ominous.

A major dent in the credibility of a body that had accom-modated the government position was to come just threemonths later. The government itself did a somersault onlong distance licensing. In mid July 2000, the Prime Minis-ter announced a decision that implied that the governmenthad chosen to accept the dissolved TRAI’s recommenda-tion on the subject, in toto.

More controversy followed and raised concerns about theindependence of the new TRAI. In November of its firstyear, the body issued a consultation document laying thegrounds for the introduction of a limited mobility serviceto be provided by basic operators in their Short DistanceCharging Areas (SDCAs) where local call rates apply. Thesubject of limited mobility, provided using fixed line wire-less infrastructure of basic service providers, had come upabout a year earlier. The government had told the regula-tor then that it considered such mobile services using ahandset unacceptable, since they would overlap with ser-vices of licensed cellular operators.

So there was widespread concern, especially among GSMcellular operators, when TRAI, in November 2000, issueda consultation paper on “Policy Issues Relating to LimitedMobility by use of Wireless in Local Loop Techniques inthe Access Network by Basic Service Providers”. The con-sultation paper had argued that the limited mobility ser-vice using WLL (F) - WLL (M) for short-distances wouldadd value to fixed line services and provide cheap mobil-ity to basic service users at fixed line prices. It argued that

the limited mobility services would have minimal impacton the cellular mobile services since the products wouldcater to different markets i.e., high and low end users.

The commercial opportunities and threats perceived bybasic and mobile operators were obvious. The divisionbetween the two camps, which had fought aggressivelyfor migration to revenue sharing a few months earlier, wassudden but bitter.

The TRAI consultation process in Delhi gave hints of anew politicisation of the licensing and regulatory process.The meeting attracted a diverse group that included pro-moters, local politicians and lawyers and remained unrulyfor most of its duration.

The cellular operators protested, as vigorously as basic op-erators supported the TRAI thinking on the issue. To thecellular camp, limited mobility services were unprecedented,virtually unheard of elsewhere and a back-door entry intotheir business and that too on the terms and conditionsspecified for basic fixed phone services for which the li-cense fees were a fraction of what they had paid. Thebasic operators were allowed higher revenue shares fromtheir long distance calls, since their local call business wasnot profitable. The cellular players were predominantlydependent on airtime charges for their revenues.

To the basic operators’ camp it was an attempt to block atechnology that allowed them to do more i.e., provide mo-bile services, than the fixed phone service they were licensedto provide. They claimed that the cell players had managed toblock competition in a market that they had postured to keepto themselves and extracted several concessions, such as theoption to set up mobile public phone services.

Nobody, including the government and TRAI, seemed tohave considered that virtually all basic operators, exceptHughes (which was eventually sold to Tatas) and possiblyHFCL (who had sold most of their interests in the Gujaratmobile license earlier), were also running mobile cellularbusinesses. It was a uniquely Indian phenomenon.

There were of course some pure mobile players such asHutch, BPL and a couple of smaller ones like RPG, Spice

9

who had much to lose from limited mobility. On the otherhand, private basic businesses had failed to take off in anysignificant manner and mobility offered a major opportu-nity to companies like Reliance who had acquired basiclicenses for almost the whole country post NTP-99. Thedispute was real.

TRAI issued recommendations on issues relating to “Lim-ited Mobility” through Wireless in Local Loop (WLL). Inthe “Access Network by Basic Service Providers” on 8th

January 2001, weeks after completing a hurried consulta-tion, TRAI recommended that WLL (M) service by fixedservice providers be permitted and that no additional feebe charged or tariffs changed.

The government was quick to act on the recommenda-tions. The guidelines for fixed services, which included lim-ited mobility services, were issued, complete with applica-tion forms for prospective operators, in a record threeweeks, on 25th January 2001. Such speed was not com-mon to the decisions generally taken by DoT on other issues.

These guidelines stated inter alia that “Basic Service Op-erator shall be allowed to provide mobility to its subscrib-ers with Wireless Access Systems limited within the localarea i.e., Short Distance Charging Area (SDCA) in whichthe subscriber is registered. While deploying such systems,the operator has to follow the numbering plan of thatSDCA and it should not be possible to authenticate andwork with the subscriber terminal equipment in SDCAsother than in which it is registered. The system shall also beengineered so as to ensure that hand over of subscriberdoes not take place from one SDCA to another SDCAwhile communicating.”

Cellular operators in particular complained bitterly and al-leged foul play. In response to the controversy followingthe TRAI recommendations, the government referred theissue of “limited mobility” to the Group on Telecom andIT Convergence (GOT-IT) for their recommendation inApril 2001. GOT- IT recommendations on WLL limitedmobility were sent to the Prime Minister later that month.The group found WLL (M) came within the purview ofNTP-99 and recommended sharing of long distance rev-

enues for WLL (M) to be brought at par with cellular mobileservices. It also recommended that SDCAs be divided intothree sub-categories – rural, semi-urban and urban - andthat each sub-category be covered in equal proportion foreach phase of the rollout prescribed, to qualify for alloca-tion of spectrum for WLL (M) services. GOT-IT recom-mended that allocation of the spectrum be inextricablylinked to performance and that the spectrum already allo-cated be forfeited in case of failure to meet subsequentrollout obligations. The group also proposed that existingfixed operators applying for new licenses give undertak-ings as well as performance guarantees to fulfil their obli-gations within a defined time frame.

Cellular operators considered GOT-IT’s recommendationsfar from acceptable since the group had not concededthat the services were illegal as GSM mobile operatorsinsisted they were. However, the recommendations on rev-enue sharing for long distance services and rural services ineffect, recognised their regulatory and commercial con-cerns. This was something that TRAI had not done. TheGSM operators felt a victory of sorts.

The COAI approached TDSAT to challenge the licensingof limited mobility services. After months of extendedhearings on 15th March 2002, TDSAT dismissed the COAIpetition seeking to prohibit fixed service providers fromoffering any type of mobile services. It ruled that the in-troduction of WLL (M) services was a policy decision ofthe Government of India and was therefore not subjectto review by the Tribunal.

COAI challenged the TDSAT judgement on WLL (M) inthe Supreme Court less than a month later on 11th April2002. The Supreme Court gave its judgement in Decem-ber that year. While it did not stay the government deci-sion, it was scathing in its criticism of the TDSAT’s failureto deal with the issues before it. It was persuaded that theTribunal had full jurisdiction on the issues raised before itand had failed to consider them. It accepted that cellularplayers concerns about fairplay were real. The apex courtsent the matter back to TDSAT for review with particularfocus, on a level playing field i.e., fair competition aspectsof the move to allow limited mobility services.

Key Regulatory Issues

10

India’s Telecom Reform: A Chronological Account

In August 2003, TDSAT gave its judgement on the legalityof WLL (M) services. Its majority decision, – that of twoof its administrative members - accepted that the WLL (M)service was legal, but argued that the government’s decisionto allow it, was taken in unseemly haste. It said TRAI shouldhave levied additional fees. The minority judgement, that ofthe chairperson of TDSAT (and its only judicial member),said that the WLL (M) service is illegal and suggests impor-tant relevant information was not disclosed to governmentcommittees examining the legality of the service and that de-cisions were taken for extraneous reasons. Both judgementshad serious concerns about the decision-making processes atTRAI and by the government. TRAI was given four monthsto enforce limited mobility and levy additional fees on playersproviding the service.

After the completion of arguments and before the TDSATjudgement of August 2003, TRAI floated its hurriedly puttogether paper on the unification of fixed and mobile li-censes. The unification of the two types of services is jus-tified on the ground that the norm, internationally, is tohave convergence of all service licenses. On complaintsthat TRAI’s approach of limiting unification to fixed andmobile services only, TRAI issued a single page amend-ment seeking views on the unification of all telecom services.

So, in September 2003, TRAI undertook two parallel, andseemingly divergent, consultation processes. One open housesought views on unifying the licenses of fixed and mobileservices. A second open house meeting - on the same day insome cities - was held to seek views on what additional feeswere to be levied for limited mobility services being pro-vided in the market as the TDSAT had directed TRAI to do.

In October 2003, TRAI gave its recommendations, propos-ing an immediate merger of fixed and mobile licenses in thearea of operations of current cellular companies. It recom-mended that the government be paid additional fees, equiva-lent to the difference between those paid by fixed line and thefourth cellular licensees awarded. Service areas were to be asthose for erstwhile cellular operators. It recommended thatReliance must pay a penalty for offering de facto mobile ser-vices through call forwarding arrangements. Full unification,according to TRAI, is to be achieved in six months.

The government immediately accepted TRAI’s recommen-dations and issued guidelines for a new unified access ser-vice license (UASL) in November 2003. All fixed line op-erators paid fees for unified licenses shortly thereafter. Theaction to enforce the scope of licensed limited mobilityservices to SDCAs was left in abeyance till the decision tounify the licenses was taken in November 2003.

The sector seems to have arrived at a kind of “peace”after the government finally offered concessions of a twopercent reduction in revenue share payments to the out-witted cellular operators. The cellular operators have with-drawn all litigation. The sector is poised for a new phaseof growth and possibly less litigation in the coming months.The route to this stage though, has been controversial.

Universal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation Fund

NTP-99 had mooted the setting up of a Universal ServiceObligation Fund (USOF), to support rural services which,in view of their high costs and perceived low revenuepotential had difficulty in attracting investments. The pro-posal was to impose a levy on major telecom service pro-viders and for the proceeds to go to a USOF.

TRAI’s consultation paper on the arrangements for setting upand deploying the fund was released in July 2000. The TRAIrecommendations of 3rd October 2001 had proposed a“proxy model” approach where the government or the regu-lator would essentially compute costs. When DoT issued itsguidelines on Universal Service Obligation (USO) on 27th

March, 2002 and announced the creation of the USOF start-ing 1st April 2002, this model was rejected. The Fund is imple-menting an approach which determines service costs througha “negative auction”; bids are invited for the minimum sub-sidy and the selected operator would be required to provideservices in an area considered to be “net cost positive” i.e.,commercially unviable.

It is useful to summarise the USO guidelines according towhich:

i) “The funds created by the Universal Service Levy shallbe spent in rural and remote areas on both the public

11

access telephones or community telephones meant forpublic use and individual household telephones in nethigh-cost rural/ remote areas.

ii) The support from USOF will be provided to meetnet cost (i.e., cost minus revenue) of providing theuniversal service.”

Uncharacteristically, it was the government, and not theeconomic regulator, TRAI, that chose the approach ofallowing the market to determine the most efficient costfor delivering a service. Rakesh Mohan, a part-time mem-ber of the then TRAI had written a dissenting note in TRAI’srecommendations on the subject.

The retiring Secretary of the Department of Telecommu-nications was appointed the USOF’s first administrator.The resources of the fund come from a fixed levy, cur-rently five percent, mainly from operators of fixed, mo-bile communications services. The fund is now operative.An amendment to the Indian Telegraph Act 1885 wascleared by Parliament in December 2003, to allow fundsreceived under universal obligation to remain with theUSOF and not revert to the Consolidated Fund of India,as unutilised budgeted funds would ordinarily do in gov-ernmental organisations.

InterconnectionInterconnectionInterconnectionInterconnectionInterconnection

Interconnection is one of the most problematic areas in anenvironment with multiple operators competing with eachother. There is broad consensus in international regulatorycircles that new operators must be provided interconnec-tion to an existing network at a price, which is cost basedand is provided in a timely fashion. In India, interconnec-tion was a part of the license agreement that specified ac-tual amounts, if any, that each party could charge the other.This was a blessing in disguise.

The license agreement route to setting interconnection termsmeant that newcomers were saved most, though not all,of the interminable wait and negotiation to connect to the

incumbent’s network when they needed to get their ser-vices off the ground. The disadvantage was, of course,that the actual charges for interconnection in the licenseagreements were in most cases without a known basis. Inaddition, there was a tendency to confuse user tariffs and interoperator tariffs, i.e., interconnection charges. Thus some rela-tively technical decisions became the subject of often unin-formed debate and speculation. A case in point was the wayin which TRAI was made to revise its stand on the CPP re-gime for mobile services. The CPP regime was struck downby the High Court when it was first instituted on the groundsthat TRAI had no right to revise provisions of a license agree-ment between an operator and the government.

TRAI’s first intervention in this area was in November 1997when a set of principles and methodologies to be fol-lowed were posted for discussion.

TRAI’s first comprehensive tariff order in March 1999 stated:

“Through this Order, the Authority also wants to send asignal to investors in this sector about the direction oftelecom pricing reform, the main elements of which willbe: service providers, and through them customers, willbe provided enhanced flexibility for pricing and giving al-ternative tariff packages to customer.”

On the need for tariff rebalancing the document went onto say:

“The Authority has considered the pros and cons of un-dertaking tariff re-balancing now. It came to the conclu-sion that tariff re-balancing cannot be achieved in onestep, and further that the first step in this regard cannotbe postponed if the policy of introducing private ser-vice providers has to succeed. In fact, the Authority be-lieves that this should have been undertaken even beforeintroducing competition in this sector. The growth anddevelopment of this sector will not be sustainable with-out this reform”.

By this formulation, the Authority had set a clear agendafor the sector.

3 The Authority faced immediate opposition from the Minister for Communications, who directed that the whole order be kept inabeyance till further notice.

Key Regulatory Issues

12

India’s Telecom Reform: A Chronological Account

TRAI was able to bring down leased line prices dramaticallyto the tune of approximately 90 percent in some cases. This isimportant since these prices are key determinants of inter-connection costs, besides being of value to data service users.The rate-rebalancing process was begun in a small way3.

On September 1999, TRAI issued TelecommunicationInterconnection (Charges and revenue Sharing - FirstAmendment) Regulation 1999 and specified interim tariffsand the introduction of CPP for cellular services. The newtariffs entailed higher monthly rentals of Rs. 475 / Rs. 500for metros/circles respectively, but lower call charges anda terminating charge, of approximately Rs. 1.60 per minute,for calls to mobile phones, which was till then levied forcalls terminating on fixed line phones.

In a far-reaching move, on 17th January, 2000, the DelhiHigh Court quashed Clause 8 of the TelecommunicationInterconnection (Charges and Revenue Sharing) Regula-tion of May 28, 1999. The Court ruled that TRAI is notempowered to change the terms of interconnectionamongst service providers, since it is part of the licenseagreement of cellular operators. This raised questionsabout the relationship between new sector specific regu-lators, consumer interest and judiciary as well as the rolesand capacities of different agencies struggling to adaptthemselves to an increasingly market driven economy.

On 12th July 2002 TRAI issued the TelecommunicationInterconnection (Reference Interconnect Offer) Regulation,2002 (2 of 2002). The regulation mandates that serviceproviders with significant market power publish a Refer-ence Interconnect Offer

(RIO) “stipulating the various technical and commercialconditions including a basis for interconnect usage chargesfor origination, transit and termination. Following these,the new entrants can seek interconnection and agree uponspecific usage based charges.” All RIOs are to be approvedby the regulator.

The Telecommunication Interconnection Usage Charges (IUC)Regulation of 29th January 2003 was a comprehensive re-view of the interconnection charges. It provides estimates ofcosts of network elements involved in interconnection.

According to this TRAI document:

“The cost based monthly rental (including license fee) isestimated to be Rs. 424. Recent data from BSNL showsthat at present their recovery on account of monthly rentalis in the range of Rs. 165 to Rs. 175 per month. BSNL wascharging lower rentals for certain exchange capacity slabs.On that basis, a balance amount of Rs. 249 to Rs 259 permonth per DEL needs to be recovered through AccessDeficit Charge (ADC).”

IUC regulations thus envisage the levy of an additionalcharge, to recover from networks connecting to the fixedline networks, an access deficit, the revenue shortfall in pro-viding local calls at regulated prices. The amount of accessdeficit is estimated to be Rs. 13,000 crores.

The amount of the deficit and the nature of the calcula-tion are both contentious. The amount would seem todetract from the fact that the incumbent with considerablemarket power in the interconnection market is a hugelyprofitable company with profits of Rs. 9,000 crores. Thecalculations are based on the incumbent’s annual reports. Amajor concern is the conflict of interest, since the sourceof the data in question and the intended beneficiary of theADC payment are both BSNL. Another issue is that ADCpayments would be paid for all calls to basic operators,irrespective of whether they terminate in urban or rural,or profitable or unprofitable users.

These IUC regulations also envisage reciprocal paymentsfor terminating traffic on all networks including mobile.This removes an anomaly of the earlier regime when callsto cellular networks involved no payments of terminatingcharges to the latter.

As a result of the new IUC ruling, outgoing calls to mo-biles become expensive and incoming calls become free.Anomalies continue to exist between calls to WLL (M)and cellular services when they interconnect to the fixednetwork, but parity is retained when the calls are betweenthe two types of mobile services.

The new leadership of TRAI responded to concerns inthe IUC regulations of January 2003 by issuing a new con-

13

Key Regulatory Issues

sultation paper on IUC issues to seek further views onmodification of IUC, new estimates for ADC etc. Thisculminated with the issue of the new IUC regulation (2 of2003). On 29th October 2003 the access deficit, estimatewas reduced to roughly 40 percent from Rs. 13,000 croresto Rs. 5,000 crores. However, the deficit will now be re-covered from a wider range of service calls than thoseinvolving calls to fixed line phones, as envisaged earlier.This buffers some users from its impact, but mobile userscalling mobiles would need to pay more.

Spectrum ManagementSpectrum ManagementSpectrum ManagementSpectrum ManagementSpectrum ManagementSpectrum availability in India is arguably a bigger issue thesedays since mobile services that use wireless technologies hadlittle demand or indeed supply till 1995. Fixed line infrastruc-ture was the more dominant mode of connectivity and theneed for spectrum was limited. The agency dealing with spec-trum issues, i.e., Wireless Planning and Coordination (WPC)has been criticised occasionally for its relatively outdated andslow processes. However, its role has been less contentiousthan that of DoT with which it has a looser connection.WPC reports to the government through the member (Tech-nology) Telecom Commission, but otherwise works relativelyindependently of the DoT.

In the context of the telecom reform of the 1990s, the roleof the WPC started when mobile operators were first li-censed. They each had 4.5 Hz of spectrum allotted to them.

In 1996, the Telecom Commission approved an increasein frequency allocated in the 800/900 MHz band from 4.5MHz to 6.2 MHz in the four metros, to accommodate therapid increase in cellular subscribers.

This was followed by a waiver by the government onNovember 4, 1997 of an annual royalty charge of Rs. 1,200per cellular subscriber with prospective effect. The waiverwas later (1999) applied with retrospective effect for theperiod July 20, 1995 to August 27, 1997.

Mobile operators as well as some others have made sev-eral representations to the government in recent times, aboutthe small amount of spectrum available for services. The

delays in frequency allocation have come in for frequentcriticism. The government committee that conducted areview of telecom policy set up a Spectrum ManagementCommittee on December 16, 1998, to give its recommen-dations on the efficient and cost-effective management ofthe available spectrum.

The committee submitted its report in December 1998.Its recommendations included:

“It is noteworthy that the committee did not consider itpractical for the defence services to vacate any of the spec-trum in use by them, in any appreciable manner. Clearlythe committee does not agree with many private sectorplayers that the release of the spectrum by defence is bothfeasible and necessary.”

A major controversy erupted when the government took thecontentious move to introduce limited mobility services us-ing the WLL network of basic service licensees. DoT’s guide-lines for new fixed service licenses, announced in January 2001,envisaged the allocation of spectrum on a first come, firstserve basis. This was in direct contrast to the pricing schemesthat extract a premium for spectrum use by commercial play-ers. Cellular operators claimed to have paid orders of magni-tude more than for their licenses, which they claimed, werethe de facto price of the spectrum. They accused the govern-ment of favouring a rival service.

The bargain price of spectrum for fixed service to pro-vide limited mobility was sought to be highlighted whenSterling Infotech, the holder of the mobile license for TamilNadu, offered to pay the government Rs. 2,500 crores for5MHz spectrum in the 800/900 MHz band for all thecircles in India. This was several times more than the cor-responding price that fixed service providers would payfor the spectrum.

In January 2002, the Minister of Communications ap-proved the publication of the National Frequency Alloca-tion Plan (NFAP) so as to help optimal utilisation of thefrequency spectrum. Till this time, the NFAP has been seenas a security related sensitive document that was unsuitablefor publication.

14

India’s Telecom Reform: A Chronological Account

Meeting a long pending demand for spectrum by cellu-lar operators, WPC issued an order in February 2002 toallocate additional spectrum to cellular operators. Rulesproposed for the additional allocation of spectrum in-cluded:

• Allocation of additional spectrum of 1.8 MHz peroperator in the 1800 MHz band, taking the total allo-cated spectrum up to 2x8 MHz per operator;

• Cellular operators may apply for additional spectrumon reaching a subscriber base of four lakhs in the ser-vice area, but frequency will be allocated after the sub-scriber base has crossed five lakhs.

• Further additions to the spectrum are possible up to2x10 MHz per operator after reaching such subscriberbase as may be prescribed.

Spectrum Usage ChargesSpectrum Usage ChargesSpectrum Usage ChargesSpectrum Usage ChargesSpectrum Usage Charges

Up to 2x4.4 MHz - 2% of Adjusted Gross Revenues (AGR)

Up to 2x6.2 MHz - 3% of AGR

Up to 2x10 Mhz - 4% of AGR

TRAI, which is indirectly involved with spectrum manage-ment, but has been involved in the controversy relating tolicense fees paid for mobile services, has raised the impor-tant issue of the efficient use of spectrum. In late 2003,TRAI castigated mobile operators for using the spectruminefficiently.

In the coming days, spectrum pricing is likely to becomean even more important consideration for mobile opera-tors and as a consequence for the growing numbers ofusers of their services.

15

A Theoretical Model of Subcontracting for High Quality

The absence of a well thought-out initial plan and strategycomes through clearly as the main reason for much of theproblems that arose in India’s telecom reforms. This inturn was linked to confusion with regard to three distinctobjectives - promoting new investment, efficiency throughcompetition and fiscal concerns - which influenced deci-sion-making at various stages of the process.

The relationship between the DoT and the regulatory agencyintroduced through reforms was another area of weaknessthat contributed to uncertainties and delays. It is noteworthythat clarity on the basic issues was eventually brought aboutonly through the recommendations of task forces and groups(reporting to the Prime Minister) culminating in NTP-99.

But further problems cropped up on account of the entry ofnew wireless-based technologies, in particular, the way thisentry was handled. This led to disputes and eventually to rene-gotiations of the terms of licenses already awarded for fixedline and mobile services, a process that again turned out to bemessy. As a partial fall-out, moves towards consolidationthrough mergers and acquisitions have also come about.

These developments notwithstanding, the process of reduc-tion in tariffs was initiated by the regulator and was soon

ConclusionConclusionConclusionConclusionConclusion

3

taken over by the forces of competition. This commenced inthe period covered in the report but only gained greater mo-mentum subsequently. Inflows of investments into the sector(including volumes of FDI) and resurgent economic growthhave combined with the fall in tariffs to generate an accelerat-ing increase in subscriber numbers. The recent trends (De-cember 2005/ January 2006) would take the country to thefirst place in telecom sector growth, worldwide.

In spite of the many setbacks to the process and the obvi-ous challenge of connecting the remaining largely ruralpopulation, the success of the telecom reform exercise isspectacular in many respects. It is most visible in the abun-dance of services, the absence of long waiting times and avastly cheaper and improved service with operators vyingfor consumer business, a contrast from the old days ofcorrupt monopolies. Perhaps the most important and vis-ible sign of this success is the growing number of urbanpoor using mobile phones to enhance their livelihoods,besides communicating with loved ones.

So much more could have been achieved, but what hasbeen achieved is extraordinary in comparison to the re-form initiatives in other sectors in India.

16

India’s Telecom Reform: A Chronological Account

Between December 2003 and December 2005, several fur-ther developments have taken place in the field of telecomreforms, of which the important ones are dealt with below.

Unified Access Service LicensesUnified Access Service LicensesUnified Access Service LicensesUnified Access Service LicensesUnified Access Service Licenses

On 13th January 2005 TRAI came out with recommenda-tions on a unified licensing system in the country in linewith the convergence of markets and technologies becom-ing a reality and forcing a realignment of the industry. Ac-cording to the recommendations, a service provider mayprovide the service that was earlier provided by anothertype of service provider. A single service provider cannow offer telecommunication, cable and broadcasting ser-vices. The Unified Licensing Regime (ULR) is designed toencourage the free growth of new applications and ser-vices leveraging on the technological developments in In-formation and Communication Technology (ICT). Un-der ULR, operators would pay six percent of their ad-justed gross revenue (contribution to USOF at five per-cent plus administrative cost of one percent) as license fee.The recommendations also include the proposal to allowniche operators to serve rural areas with a phone densityof less than one percent. Niche operators would pay noentry fees. The recommendations envisage the migrationof existing service providers to the ULR to be optionalfor current operators. However, after a period of five yearsit shall be mandatory for all telecom operators to migrate tothe ULR. It is important to mention that these recommenda-tions are pending with the government and yet to be accepted.

EpilogueEpilogueEpilogueEpilogueEpilogue

4

Universal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation FundUniversal Service Obligation Fund

The USO Fund was constituted in 2002 and an adminis-trator was appointed. The Fund envisages auctions ofsubsidies to operators who will serve rural areas. Theguidelines issued by the USOF envisage subsidies to suc-cessful bidders for providing a variety of rural lines e.g.,village public phones, second phone lines, high speedinternet centres as well as replacement of VPTs based onMobile Access Rural Radios (MARR) technology. USOFsubsidies have been awarded for providing a second VPT,termed rural community phone, in 46,253 villages ofpopulation exceeding 2,000 and for private householdphones in 1,685 SDCAs (roughly equivalent to a revenuetaluka) that were identified by the administration as ‘unre-munerative’ in terms of telephone usage and revenues.However, TRAI has recently argued that the USOF ap-proach, were it to be completely successful, would resultin a rural tele-density of only four percent. A comprehen-sive rethink is required, especially to ensure that wireless tech-nologies and infrastructure can be adequately supported, toreplicate the huge success of mobiles in urban areas.

Access Deficit ChargeAccess Deficit ChargeAccess Deficit ChargeAccess Deficit ChargeAccess Deficit Charge

The ADC regime came into effect from 1st May 2003 forcompensating the Fixed Service Providers (FSPs), but pre-dominantly BSNL, the incumbent and main provider offixed lines in India, for meeting the revenue deficit arisingout of providing services below costs, i.e.,

17

(a) filling the gap between ‘affordable’ monthly rentalsand the cost based monthly rental,

(b) financing of free calls and

(c) local tariffs charged below the cost of their provision.All long distance calls except those involving basic tele-phone subscribers at both ends, (with minor excep-tions) are subjected to ADC.

ADC was levied on a per minute basis. Revised reducedrates of ADC were brought into effect on 1st February2005. The ADC regime was controversial and raised manyquestions about its methodology and fairness from affectedprivate operators. The total amount of compensation wasbrought down to Rs. 5,341 crores. According to TRAI,this revision was necessitated mainly due to

(a) an increase in the base for generating the ADC amountdue to the huge increase in mobile subscribers and theconsequent higher minutes of usage and

(b) falling per line capital cost resulting through new tech-nologies. One more revision of ADC charges (23rdFebruary 2006) has brought down the amount of ADCto Rs. 3,335 crores and changed the method of charg-ing from the earlier per minute basis to one whereoperators would pay a percentage of their revenues.

For long distance calls, however, the earlier per minutepayments would continue, but at a considerably lower rate.TRAI envisages merging the ADC regime with the USOlevy by year 2008-09.

Long Distance TLong Distance TLong Distance TLong Distance TLong Distance Tarifarifarifarifariffsfsfsfsfs

Domestic STD charges (rupees per minute for distancesbeyond 200 kms) came down from Rs. 4.80 in March2003 to Rs. 3.60 in March 2004 and later to Rs. 2.40 byMarch 2005. International long distance calls during thesame period have fallen from Rs. 24 to Rs. 7.20. The effec-tive charge for mobile users was reduced from Rs. 2.40 toRs. 1.20 during the same time. The reduced ADC, increasedcompetition, expectations of increase in the subscriber baseand in the minutes of average usage have been the mainfactors contributing to falling tariffs.

Opening of InterOpening of InterOpening of InterOpening of InterOpening of Internet Tnet Tnet Tnet Tnet Telephonyelephonyelephonyelephonyelephonyand Further Liberalisation ofand Further Liberalisation ofand Further Liberalisation ofand Further Liberalisation ofand Further Liberalisation ofNational Long Distance ServicesNational Long Distance ServicesNational Long Distance ServicesNational Long Distance ServicesNational Long Distance Services

In December 2005, the government also announced a vir-tually free entry, at a vastly reduced fee of Rs. 25 million, toIndia’s long distance telephony services, both national andinternational. Along with this came the removal of earliercontrols on Internet telephony, meeting a long-standingdemand. The removal of restrictions on Internet telephonyis likely to especially help future rural subscribers, since amuch larger proportion of their calls in long distance.

Pan India TPan India TPan India TPan India TPan India Tarifarifarifarifariffsfsfsfsfs

On 14th June 2005, the Minister of Telecom and IT an-nounced that the government operators would offer apackage in which a customer could make a one minute callto anywhere in India or a three minute local call for onerupee. This brought to fruition the minister’s often-statedgoal for customers to have access to a One India tariff,irrespective of distance. The One India tariffs however,do envisage additional monthly rentals and do not comewith ‘free calls’, which were included in the basic consumertariff package. Subscribers have the option to change overto this One India tariff.

Subscriber Growth andSubscriber Growth andSubscriber Growth andSubscriber Growth andSubscriber Growth andPenetration levelsPenetration levelsPenetration levelsPenetration levelsPenetration levelsAt the commencement of economic reforms in 1991, thecountry had a total of about five million telephones and awaiting list of nearly two million and an overall telephonepenetration level of a little over half of one percent perhead of population. Access to telephony was confined al-most entirely to the urban areas. Here also, the waiting listdid not correctly reflect the pending demand as potentialapplicants were discouraged by the long waiting period,the stipulated application fee that would remain locked inand the poor quality of service. By 2003-04, the numberof fixed line phones had crossed 40 million and cellularmobile phone subscriber numbers were rising so rapidlythat they overtook the fixed line subscribers in 2005. At

Epilogue

18

India’s Telecom Reform: A Chronological Account

the end of December 2005, the total subscriber base hadgrown to 124.85 million, made up of 48.93 million fixedlines (including fixed WLL phones) and 75.91 million

mobile connections. Average penetration touched 11.43 perhundred, with urban tele-density of 23 percent and ruralpenetration of two percent.

19

ChrChrChrChrChronology of Indian Tonology of Indian Tonology of Indian Tonology of Indian Tonology of Indian Telecom Reforelecom Reforelecom Reforelecom Reforelecom Reformmmmm

1990, December: A high level committee headed by Dr. M.B. Athreya was set up to recommend the most appropriateorganisational structure for the management of telecom ser-vices in the country. The committee recommended that theDoT be split into four corporate entities, value added ser-vices should be thrown open to competition by public orprivate enterprises, co-operatives etc. Small entrepreneurs mustbe encouraged in installation, cabling, closed user networksand subscriber premises work, for greater efficiency andemployment generation. Importantly, policy and regulationshould be separated from operations.

1991-1993: The beginnings of private sector participationin telecom services. The sub-sector of ‘value added ser-vices’ was opened up to private investment in July 1992.These included:

Cellular Mobile Radio Telephone

Radio Paging

Electronic Mail etc. services

1992, January 20: DoT invites technical bids for cellularmobile telephone services in Delhi, Mumbai, Calcutta andMadras.

1992, July: Value added services opened to private invest-ment by DoT. These include e-mail, voice mail, 64 Kpbsprivate data services, audio text and video text services,radio trunking services, cellular mobile services, radio pagingservices, and video-conferencing.

1992, October 12: The Minister of Telecommunicationsannounces the list of metro cellular licensees. The metro

cellular operators - Bharti, Essar, Hutchison Max, BPL,Modi Telstra, Usha Martin, Skycell and RPG win licencesfor cellular services in metros.

1993, May: As part of the ongoing reform process, theMinistry of Communications requests ICICI to recom-mend terms and conditions for the private sector’s entryinto India’s telecom services and to study the necessarychanges required in the telecom sector and recommendmodalities for constituting an independent Telecom Regu-latory Authority.

1993, October: The G.S.S. Murthy Committee submits itsreport on the licensing of public switched telephone networks.

1994, January: ICICI submits its report on the setting upof a Telecom Regulatory Body for India.

1994, May 13: National Telecom Policy (NTP-94) wasannounced.

1994, June 13: ICICI Telecom Working Group report onentry conditions for basic telecom services suggests theoptimal level for entry of private players should be a Sec-ondary Switching Area (SSA).

1994, November 10: ICICI Telecom Working Groupsubmits final report on the process for the selection ofnew operators for basic services.

1994, November 29: On the basis of re-evaluation as perthe directions of the Supreme Court, on a petition by oneof the operators, DoT orders a change in the cellular op-erator for Mumbai. Hutchison Max signs licence forBombay.

Appendix IAppendix IAppendix IAppendix IAppendix I

20

India’s Telecom Reform: A Chronological Account

1995: Working fixed lines cross 10 million, annual fixedline growth crosses 20 percent.

1995, January 16: Tenders invited for cellular services inthe rest of India.

1995, March: Paging services debut in India.

1995, March 15: The Gupta Committee makes recom-mendations regarding the restructuring of DoT.

1995, May 27: DoT issues clarifications and announcesseveral changes in the original tender conditions of the basicservices. Tender opening date extended to June 23, 1995.

1995, June 07: DoT receives 33 bids for mobile servicesin 18 telecom circles. No bidders for Andaman & Nicobarand Jammu and Kashmir circles.

1995, June 23: 81 bids received for fixed line (basic) ser-vices in 20 Circles. No bids for Jammu and Kashmir.

1995. August 05: DoT opens financial bids for cellularmobile services.

1995, August 15: VSNL begins public Internet access inselected cities.

1995, August 23: Modi Telstra launches the first cellularoperation in the country in Calcutta.

1995, November 2: The government announces that nocompany may retain more than three A and B Circlelicences.

1995, December 1: Second round of bidding for basicservices in 13 Circles.

1995, December 12: DoT issues 34 licenses to 14 compa-nies for operating cellular services in the 18 telecom Circles.

1996, January 1: Bids for basic services opened. Only sixcompanies participate in the bidding. Only five Circles outof 13 receive acceptable bids.

1996, March 12: Letter of Intent awarded to highest bid-ders in the second round of bidding.

1996, March 15: Third round of bidding for basic ser-vice licenses for nine Circles.

1996, May: Draft Interconnect Agreement released byDoT. Discussions begin with mobile operators.

1996, July 23: TRAI Bill introduced in Lok Sabha.

1996, October: Mobile licenses issued to two operatorseach in 20 Circles.

1996, November: DoT allows assignability of cellular li-censes, meeting the demand of financial institutions.

1997, February: India signs Telecommunications BasicServices agreement at World Trade Organisation (WTO)allowing companies with up to 25 percent foreign equityaccess to most parts of its telecom market. It signs up fora regulatory reference paper that forms part of the agree-ment, but its commitment does not include important com-petitive safeguards relating to state owned and other in-cumbents, independent regulators and issues such as inter-connection and spectrum fees.

1997, March 18: TRAI Bill, 1997, a modification of theprevious Bill presented a year ago, passed by the Lok Sabhaand the Rajya Sabha.

1997, March 25: TRAI is set up with three members.

1997, March 26: COAI approaches TRAI against DoT’sorder that hikes the price of fixed to mobile calls.

1997, April: Mobile services commence in non-metroCircles.

1997, April 25: TRAI quashes DoT’s PSTN to mobiletariff order.

1997, September 12: DoT gives clearance for nationalautomatic roaming.

1997, October 10: MTNL indicates intention to enter intocellular services in its GDR Prospectus.

1997, November 3: Cellular operators seek TRAI inter-vention to stop MTNL’s plans to offer mobile services.

1997, November 19: Private operators permitted to maketheir licenses assignable in favour of the lenders.

1997, December 4: Consultation paper on numbering plan.

21

Chronology of Indian Telecom Reform

1998: Mobile phones cross one million.

1998, January 9: DoT commissions the Bureau of Indus-trial Costs and Prices (BICP) to assess the viability of theIndian cellular industry .

1998, January 12: DoT gives clearance for national andinternational roaming.

1998, January 15: DoT announces the policy for ISPs, nolimit on the number of licenses. Fee to be one rupee.

1998, February 17: TRAI rules that the government mustseek a recommendation from TRAI before issuing a li-cense to a new service provider, even though the recom-mendation would not be binding on the government.

1998, March 2: MTNL files a petition in the Delhi HighCourt challenging the TRAI order restraining it from en-tering cellular services in Delhi and Bombay.

1998, April: The ICICI Report concludes that on a 10-year license, cellular telecom projects are not attractive foreither the lender or the promoter. Recommends extensionof the license period to 15 years while maintaining the sameNPV. The government rejects the report on the groundsthat ICICI is an interested party.

1998, June 4: Bharti launches India’s first private sectoroperated basic services in the Madhya Pradesh Circle.

1998, July 16: The Delhi High Court, holds that the powerof the government to grant or amend a license is not sub-ject to the recommendation of TRAI, nor are these rec-ommendations mandatory in nature.

1998, October 8: DoT announces extension of the cellu-lar license period from 10 to 15 years for Circle operators.

1998, October 24: The Prime Minister announces that “anew Telecom Policy will be formulated within the nextthree months”

1998, November 9: BICP submits report on the financialviability of cellular phone services.

1998, November 20: A Group on Telecommunications(GoT) is set up by the Prime Minister under the chairman-

ship of Shri Jaswant Singh to make recommendations onthe proposed New Telecom Policy and issues relating toexisting licensees of basic and cellular services and TRAI

1998, November 26: Apex Industry Associations consti-tute the Group on Telecommunication (InGoT) to pro-vide a co-ordinated response to the government’s GoT.

1998, December 21: TRAI floats a consultation paper onthe viability assessment for license fee determination.

1998, December 24: Report of the Spectrum ManagementCommittee under the Chairmanship of Lt. Gen. P Gokharn.

1999, January: TRAI expanded by adding two newmembers.

1999, January 23: The government issues a Draft Discus-sion Paper on the New National Telecom Policy.

1999, January 25: The Ministry of Communications, sendsletters to all license fee defaulters asking them to pay up 20percent of their outstanding license fee or face punitiveaction.

1999, March 9: The TRAI Telecommunications TariffOrder increases the monthly rental for mobile services toRs. 600 (from Rs. 156) and lowers the peak ceiling tariffrate to Rs. 6 (from Rs. 16.80) per minute. The Order alsoproposes the implementation of CPP regime.

1999, March 26: New National Telecom Policy 1999announced.

1999, May: TRAI says tariff rebalancing be phased in overa three-year period.

1999, May 22: DoT issues disconnection notices to theKoshika Telecom and Aircel Digilink, for failure to clearlicense fee dues.

1999, July 6: Union Cabinet clears the migration of exist-ing licensees to NTP-99.

1999, July 15: TRAI’s consultation paper on competitionin domestic long distance communications.

1999, July 29: Private operators formally accept DoT’smigration package for transition to NTP-99 and agree to

22

India’s Telecom Reform: A Chronological Account

withdraw all litigation pending against the DoT / Gov-ernment of India.

1999, July 30: The settlement is challenged through a Pu-bic Interest Litigation.

1999, August: The Prime Minister takes over charge ofthe Ministry of Communications and clears move to arevenue sharing regime.

1999, August 10: Delhi High Court rules that the existinglicensees can migrate to the new policy as per the packageapproved by DoT.

1999, August 31: TRAI releases a consultation paper onCalling Party Pays for Mobile Services.

1999, September: Division of DoT (for policy, planning,licensing etc.) and DTS (fixed line and mobile service pro-vider in India excluding Delhi and Mumbai); the govern-ment announces plan to corporatise DTS.

1999, September 15: Notification by the governmentgiving MTNL a provisional amendment to its CMTSlicense.

1999, September 17: TRAI issues an order for the com-mencement of CPP for cellular mobiles from1st October’ 1999.

1999, October 13: Petition challenges TRAI’s jurisdictionto propose CPP.

1999, December: The government sets up a Group ofMinisters on Telecom and Information Technology (GoT-IT) headed by the Finance Minister.

1999, December: Private ISPs allowed to set up satellitegateways.

1999, December 13: TRAI recommendations on “Intro-duction of Competition in National Long Distance Com-munication” proposing open entry on nominal fees.

2000, January 17: Delhi High Court rules that TRAI isnot empowered to change the terms of interconnectionamongst service providers, since it is part and parcel ofthe license agreement of cellular operators.

2000, January 24: The TRAI Act is amended to includethe need for the body’s recommendations before new li-cences are issued. TRAI is the sole authority to fix tariffs aswell as terms and conditions of interconnectivity betweenservice providers.

2000, February: TRAI (Amendment) Ordinance 2000promulgated to bifurcate its role between two entities –regulator (TRAI) and adjudicator (TDSAT).

2000, March 1: Birla AT & T and Tata merge cellularoperations.

2000, May: Reconstituted TRAI and separately carvedTDSAT start functioning.

2000, May 15: Newly reconstituted TRAI revises recom-mendations on the opening up of national long distanceto private competition to suggest that the number of play-ers be restricted to four in addition to the incumbent. Rec-ommends bidding for licences.

2000, May 23: TRAI releases consultation paper on issuesrelating to the introduction of CPP for cellular mobileservices.

2000, June: Department of Telecom Operations carved outof Department of Telecom Services to operate the network.DTS to manage state owned telecom companies.

2000, June 9: Information Technology Act 2000 passed.

2000, June 23: TRAI recommends that mobile serviceproviders pay 17 percent of adjusted gross revenues aslicence fees.

2000, July 15: Prime Minister announces the opening upof national long distance operations to unrestricted com-petition.

2000, August 9: DoT permits CMSPs to share infrastruc-ture with other service providers and allows directinterconnectivity between licensed CMSPs and any othertelecom service provider.

2000, August 11: Sub-group on convergence set up withFali Nariman as convenor, submits final draft report onproposed Convergence Law. Suggests a common regula-

23

tory body for India for content and carriage i.e., broad-casting and telecommunications.

2000, August 13: Guidelines for opening of NLD an-nounced.

2000, August 31: TRAI issues recommendations on basicservice licenses and suggests open entry with fees rangingbetween Rs 10 million to Rs one billion depending on typeof Circle, (ref: Appendix II for details of Circle types) “toweed out non-serious players”. Recommends variable rev-enue shares for FSPs.

2000, September 7: DoT recommends a three-tier rev-enue share license fee structure for CMSPs as below:

20 percent p.a. for metros,

15 percent p.a. for Circle A & B service areas,

10 percent p.a. for other (Type C) Circle service areas

2000, October 1: Corporatisation of DoT by the forma-tion of BSNL.

2000, October 24: Recommendations of TRAI on theinduction of a fourth mobile operator.

2000, November 3: TRAI issues consultation paper onPolicy Issues relating to Limited Mobility by use of Wire-less in Local Loop Techniques in the Access Network byBasic Service Providers.

2001: FDI almost doubles to over Rs 8000 crores postNTP-99 and there is a move to revenue sharing from fixedlicense fees.

2001, January 5: Fourth cellular operators license guide-lines announced by DoT.

2001, January 8: TRAI recommends that FSPs be allowedto offer, “limited mobility” within the SDCA.

2001, January 18: BSNL announces a concessional tarifffor its subscribers for calls up to a distance of 200kilometres.

2001, January 23: COAI approaches the Telecom Dis-pute Settlement and Appellate Tribunal (TDSAT) against

TRAI recommendations allowing limited mobility servicesusing WLL.

2001, January 25: DoT announces FSP guidelines, whichinclude the right to offer “limited mobility” servicesthrough WLL.

2001, March 20: TRAI writes to DoT referring to thestipulation in the TRAI recommendations on WLL (M)that envisage that the Mobile Switching Centre (MSC)should not be used for WLL based mobility.

2001, March 23: DoT issues guidelines for allocation of spec-trum on a first come, first serve basis for FSP licensees.

2001, March 27: Letters of Intent issued by DoT to pri-vate fixed operators Tata Teleservices, Reliance Commu-nications and HFCL InfoTel to offer fixed and limitedmobile services.

2001, April 24: TDSAT sets aside TRAI order onconcessional tariffs saying TRAI had violated the principlesof natural justice since BSNL was not given a hearing priorto issue of orders.

2001, June 29: Bidding begins for fourth cellular servicelicense slot in 21 Circles.

2001, July 19: DoT challenges jurisdiction of TDSAT onmatters relating to spectrum charges.

2001, July 31: The winners for the fourth cellular licenseare announced.

2001, August: Opening of NLD service to competition.

2001, August 27: Communications Convergence Bill 2001approved by Cabinet.

2001, September 25: DoT issues amended license agree-ments for existing cellular operators to reflect their migra-tion to NTP-99.

2001, November 11: Bharti Telesonic signs NLD Tele-phony license.

2001, November 12: TRAI submits recommendations onopening up of International long distance to privateparticipation.

Chronology of Indian Telecom Reform

24

India’s Telecom Reform: A Chronological Account

2001, November 23: TRAI Issues consultation paper onIntroduction of Internet Telephony.

2001, December 21: Bharti Telesonic, India’s first privatenational long distance operator announces a steep declinein the price of mobile-to-mobile long distance calls.

2001, December 22: Ministry of Information Technol-ogy and Ministry of Communications merge to createMinistry of Communications and Information Technol-ogy. Ministry of Information and Broadcasting left out.

2001, December 28: BSNL responds to the STD tariffcut announced by IndiaOne (Bharti Telesonic) and announcesan even sharper cut of up to 62.5 percent in STD tariffs.

2002: Internet subscriptions cross one million.

2002, January 5: Minister of Communications approvesNational Frequency Allocation Plan (NFAP) for optimalutilisation of frequency spectrum.

2002, February: Tata acquires management control ofVSNL after the government sells the major part of itsstake in VSNL.

2002, February 20: TRAI submits recommendations onintroduction of Internet Telephony (IT).

2002, March 15: TDSAT rules that the introduction ofWLL (M) services is a policy decision of the governmentand consequently not subject to review by the Tribunal. Itdismisses COAI petition seeking to prohibit fixed serviceproviders from offering any type of mobile services.

2002, March 21: ISPs allowed to provide the service onpayment of additional license fees. However, incoming IPcalls may not be terminated on the phone network.

2002, March 27: DoT issues guidelines on Universal ServiceObligation (USO). Announces the creation of Universal Ser-vice Obligation Fund (USOF) starting April 1, 2002.

2002, April 1: Opening of International Long Distanceservice to competition; VSNL monopoly ends.

2002, April 5: TRAI issues consultation paper on Refer-ence Interconnect Offer (RIO).

2002, April 11: COAI challenges TDSAT judgment onWLL (M) in the Supreme Court.

2002, April 18: DoT issues notification for spectrum us-age charges for microwave access and backbone.

2002, July 19: Bharti launches International long distanceservice.

2002, October 7: BSNL appeals to TDSAT against TRAI’splan to forbear cellular tariffs.

2002, October 19: BSNL launches countrywide cellularmobile services.

2002 December: Mobile phones cross 10 million.

2002, December 17: Supreme Court sets aside the TDSATjudgement on WLL (M) and remits the matter to the Tri-bunal for reconsideration, with special emphasis on thequestion of a level playing field. The Supreme Court saysTDSAT had not exercised its full jurisdiction.

2002, December 28: Reliance lnfocomm launches WLL(M) services.

2003: Internet subscribers cross three million.

2003, January 7: BSNL slashes STD rates for over 500kilometres.

2003, February 10: COAI approaches TDSAT objectingto the provision of WLL (M) services outside the SDCAby Tata Teleservices and the advertisement of roamingfacilities by Reliance Infocomm.

2003, February 21: TRAI’s recommendations on the is-sue of fresh licenses to cellular mobile service providers(CMSPs) says more players are feasible only if additionalspectrum is available.

2003, February 24: Cellular operators approach TDSATagainst TRAI to protest what they regard are iniquitoustariffs, in comparison to those for limited mobility.

2003, April 8: TDSAT rejects the government’s claim onprivilege of disclosing official documents relating to intro-duction of WLL (M) services.

25

2003, May 15: Consultation paper on IUC issues seeksfurther views on modification of IUC, new estimates forADC etc.

2003, July 16: TRAI’s consultation paper on Unified Li-censing for Basic and Cellular Mobile Services.

2003, August 8: TDSAT pronounces split (2 – 1) judge-ment on the legality of WLL (M). Majority decision of thebody’s two administrative members accepts WLL (M) ser-vice is legal, but says government decision to allow it wastaken in unseemly haste and further that TRAI should havelevied additional fees. Dissenting minority judgement (thatof the Chairperson of TDSAT, its only judicial member)says WLL (M) service is illegal and that decisions weretaken for extraneous reasons.

2003, October 27: TRAI recommendations on “WLL(M) issues pertaining based on Hon’ble TDSAT’s order”stipulate additional entry fees for WLL (M) players based

Chronology of Indian Telecom Reform

on difference in fees paid already and those bid for andpaid by the fourth cellular operator in the relevant operat-ing area.

2003, October 27: TRAI’s recommendations on unifiedlicensing proposing immediate merger of fixed and mo-bile licenses in area of operations of current cellularlicenses.

2003, October 29: TRAI reduces access deficit estimatefrom Rs 135 billion to Rs 53 billion.

2003, November 11: DoT issues guidelines for UnifiedAccess Services licenses. All fixed line operators allowedto migrate to a Unified Access Services License on pay-ment of a fee.

2003, November 14: Unified licences granted to telecomoperators Reliance, Tata Teleservices, Shyam Telecom andHFCL.

26

India’s Telecom Reform: A Chronological Account

Expert studies attribute the high incidence of rural pov-erty in India to:

(a) lack of proper income generating activities and op-portunities in villages,

(b) Inadequate infrastructure facilities and

(c) Ineffectiveness of existing government agencies in thefields of health, education, agriculture extension ser-vices etc.

Information and Communication Technology is a tool thatlends itself to addressing all the three areas, so as to realisethe goal of speedy alleviation of poverty.

Government programmes aimed at addressing rural pov-erty fall into three broad categories:

(a) Providing basic infrastructure in rural areas, e.g. settingup new schools, health facilities, rural roads, drinkingwater supply and electrification,

(b) Promoting rural industries, increasing agricultural pro-ductivity and providing rural employment and

(c) Policies aimed at providing productive resources thatin turn help raise the incomes of the poor.

Problems of design, implementation and monitoring andoverall inadequacy of resources undermine the effective-ness of these programmes.

On the design side, centralised planning leads to the samepolicies being applied in different geographic areas with-

out taking into account variations in agro-climatic condi-tions, skills of rural population, access to social infrastruc-ture and literacy levels. On the other hand, decentralisedplanning also lacks effectiveness where it is not supportedby regional databases and tools for spatial planning.

With regard to implementation, problems are posed by amultiplicity of agencies involved in the process. Lack ofco-ordination among different government departmentsimplementing such programmes dilutes the benefits de-rived at the grass root level. Lack of co-ordination is oftencaused by want of reliable communication systems.

The other main hurdles of programme implementation arethe unwillingness of programme workers to stay in the fieldand lack of proper supervision. The records maintained byprogramme workers are suspect, because they are not up-dated through actual contacts with the target population.Manual reporting systems have also been ineffective due tothe enormity of data, adding up to difficulties in monitoringlarge programmes. These problems compound the inherentdrawback posed by inadequacy of resources.

Effective poverty alleviation strategies, on the other hand,are characterised by micro level planning, effective supplyof credit to the poor, improved management of govern-ment run poverty alleviation programmes and buildingnetworks of self-help groups amongst the rural poor withthe active involvement of local non-governmentalorganisations. Grass root intervention is identified as a nec-essary factor of poverty alleviation.

InforInforInforInforInformation Communication Tmation Communication Tmation Communication Tmation Communication Tmation Communication Technologyechnologyechnologyechnologyechnologyand Poverty Alleviationand Poverty Alleviationand Poverty Alleviationand Poverty Alleviationand Poverty Alleviation

Appendix IIAppendix IIAppendix IIAppendix IIAppendix II

27

Information CommunicationInformation CommunicationInformation CommunicationInformation CommunicationInformation CommunicationTTTTTechnology (ICT) as a Technology (ICT) as a Technology (ICT) as a Technology (ICT) as a Technology (ICT) as a Tool forool forool forool forool forPoverty AlleviationPoverty AlleviationPoverty AlleviationPoverty AlleviationPoverty Alleviation

Telephony provides the basic infrastructure for applicationsdenoted by the term ‘Information Communication Technol-ogy’ (ICT), in particular, the use of Internet-basedprogrammes. ICT is now identified as a key element of pov-erty alleviation in rural areas. Five channels of ICT’s impact onrural poverty have been identified and discussed. These are.

i. Access to Information and Knowledge: ICT enables the poorto have access to information and knowledge regard-ing government policies, which in turn results in thevoices of the poor being heard in decision-makingfora. Further, by providing infrastructure for network-ing of the rural poor, it enables them to get connectedto the mainstream, participate in public affairs, organiseand mobilise. It improves the service delivery of edu-cation, agricultural extension and other public servicesand most importantly, health, through facilities like tele-medicine that link hospitals to the rural poor, reducingthe incidence of referral cases in rural areas.

ii. Improves the Market Connectivity: ICT increases connec-tivity to the market that would facilitate the realisationof economic benefits in terms of getting suitable pricesfor rural produce and also creating employment op-portunities. Market information on prices of agricul-tural outputs and inputs, as well as the consumer prod-ucts required in rural areas, protects people from ex-ploitation by middlemen. Industries located in ruralareas, or dependent on rural produce (such as sugar)maintain the smooth, timely flow of inputs and in turnmeet market requirements of their output.

iii. Accountability and Good Governance: ICT facilitates bettermonitoring of public administration, social servicesand development programmes. Information has of-ten been described as one of the most effective toolsin the hands of citizens. It not only helps them fightcorruption and arbitrary exercise of power in the struc-tures of government, but also to participate in gover-nance. Communication facilities help better governance

by fostering better relations between the public ad-ministration and citizens. Similarly cheaper governancethrough replacement of paper by electronic means ofexchanging information can be achieved by commu-nication facilities. Governance can also be made moreeffective by reducing the response time of the gov-ernment to local issues.

iv. Creation of New Income Generating Activities: ICT increasesproductivity and extends the sphere of economic activityin rural areas. Communication facilities, combined withinformation technology, create new economic activitiesand opportunities for the educated rural youth (e.g., astourist guides, ICT service centre operators, data pro-cessing professionals and content developers etc.). It alsoincreases the efficiency in performing existing activitiesby reducing the costs of transactions and processes. Thusthe efficiency, especially of small business units in ruralareas, is increased with the use of ICT.

v Empowerment of Women: A further crucial contributionis that information technology benefits women by im-proving access to information, which may lead to theirempowerment and participation in economic andcommunity activities.

Critical Success Factors andCritical Success Factors andCritical Success Factors andCritical Success Factors andCritical Success Factors andComplementary MeasuresComplementary MeasuresComplementary MeasuresComplementary MeasuresComplementary Measures

A few critical success factors and complementary mea-sures needed to ensure the optimal impact of ICT in pov-erty alleviation require attention. As with other measurestowards this end, effective design and management of theoperational models of the ICT facilities themselves makefor one critical factor. Developing adequate technical in-frastructure viz., electricity, widespread use of computersand a legal framework that would support e-transactionshave also been identified as critical factors, dependent inturn on providing sufficient funds for setting up and main-taining the ICT facilities.

A set of complementary factors has also been identified inliterature (World Bank 1999) for an effective ICTprogramme for alleviating rural poverty. These are .

Information Communication Technology and Powerty Alleviation

28

India’s Telecom Reform: A Chronological Account

a. Basic Literacy and e-literacy: Basic education and knowl-edge of information technology among the ruralpopulation are keys to exploiting the benefits of ICT.

b. Role of NGOs: Given the present status of the ruralpopulation in India, NGOs have a key role in educat-ing and organising rural communities. They can alsocontribute to the development and deployment oflocally relevant contents/services and making use ofthese services.

c. Rural Access Roads: The information on market condi-tions need to be supported by rural access roads, whichin turn help make use of the information accessedthrough communications.

d. Availability of Energy: Energy, either conventional ornon-conventional, needs to be available in the villagesin order to provide reliable and uninterrupted com-munication facilities in the villages.

e. Micro-credit schemes: Properly structured micro-creditschemes are required in order to help the populationtake up income generation activities with the help ofknowledge acquired through ICT.

f. Legal, Institutional and Regulatory Framework: Lack of thisframework could result in the lack of consumer confi-dence that will undermine the usage of these facilities.

g. Content, applications: Information on livelihood or di-rect earnings makes people flock to ICT facilities.Therefore, applications of ICT that lead to incomegeneration are a must for inducing people to use ICTfacilities.

h. Process re-engineering: Various departments of the gov-ernment need to undergo a considerable processreengineering exercise to improve their own informa-tion processing methods and quality of services to in-troduce e-governance and citizen-centric services.

It can be observed that there is some overlap in the criticalsuccess factors and complementary factors. Regardless ofclassification, both sets of factors have a bearing on theuse of ICT facilities for poverty alleviation. It would also

be observed that basic telephony could contribute to theprovision of some of the complementary factors like lit-eracy (by making village postings more attractive to quali-fied teachers) and access roads (by facilitating better imple-mentation and maintenance).

Finally, the shift of population away from agriculture is anindex of economic growth and poverty reduction. This shifthas been very slow in India and the share of population de-pendent on agriculture was estimated at 52 percent in 2003. Asignificant contribution that communications can make to-wards the object of growth with poverty alleviation is in fa-cilitating a speedier shift of agricultural population to pro-ductive employment in small and medium towns.

Recent Initiatives in the FieldRecent Initiatives in the FieldRecent Initiatives in the FieldRecent Initiatives in the FieldRecent Initiatives in the Field

There are both private and public initiatives to use ICTsfor socio-economic purposes. Among the private initia-tives, Indian Tobacco Company’s (ITC) ‘e-choupal’ projecthas attracted wide notice. The main objective of this projectwas to create a single point of contact for the farmers andsuppliers of both agricultural inputs and consumer prod-ucts initially and eventually to turn them into e-commercehubs in rural areas. In accordance with these objectives, ‘e-choupals’ were designed to work as a combination of anInternet kiosk, village gathering place and e-commerce hub.‘e-choupals’ are now functional in the states of MadhyaPradesh, Uttar Pradesh, Andhra Pradesh and Karnataka.Further expansion is also taking place.

Also notable among non-government initiatives is the ‘n-Logue’ scheme promoted by the Indian Institute of Tech-nology, Madras. Internet centres set up under this projectin some southern states cater to village needs in areas ofmedicine, education, animal husbandry and bank credit.

Among the public initiatives, the Gyandoot project wascommissioned in the Dhar district of Madhya Pradesh inJanuary 2000 by the district administration. Providing agri-culture market information and interfacing the district ad-ministration with ordinary people are the main objectivesof this project. The services offered by the village outlets

29

(‘Soochanalyas’) are applications for pensions, governmentschemes and grievances of citizens. The content was pre-pared in the local language. The experiment was not com-pletely successful; bureaucratic problems eroded theproject’s impact in respect of the goals it set out to achieve.However, similar experiments have been initiated in sev-eral other states on a pilot basis. The schemes inMaharashtra, Rajasthan and Kerala are well reported.

Another notable experiment done by the central govern-ment is the Community Information Centre (CIC) Projectthat was started in January 2000 as a measure to speed upeconomic development in the north-east region. The mainobjective of the project was to help the north-eastern states

to join the national socio-economic mainstream by pro-viding internet connectivity and making the delivery ofcitizen services efficient. In addition to Government toCitizen services, CICs provide Internet access and e-mail,printing, data entry and word processing and training fa-cilities for the local population. An enlarged scheme thatwould extend to the whole country has also been an-nounced.

These facilities are bringing the remote and backward ar-eas of the country closer to the national mainstream throughefficient and faster information flow. The issue of thesustainability of these models in the long run has also beenexperimentally tested.

Information Communication Technology and Powerty Alleviation

30

India’s Telecom Reform: A Chronological Account

Appendix IIIAppendix IIIAppendix IIIAppendix IIIAppendix III

Type A, B, C Circles (For Award of Licenses)

Type A Circle Type B Circle Type C Circle

Andhra Pradesh Haryana AssamGujarat Kerala BiharKarnataka Madhya Pradesh Himachal PradeshMaharashtra Punjab OrissaTamil Nadu Rajasthan North East

Uttar Pradesh (East)Uttar Pradesh (West)West Bengal

31

Tabl

e 1.

Num

ber

of D

irect

Exc

hang

e Li

nes

(DEL

s)(A

s on

31s

t Mar

ch)

Cir

cle/

Met

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91-9

292

-93

93-9

494

-95

95-9

696

-97

97-9

898

-99

99-2

000

2000

- 01

2001

-02

2002

-03

And

aman

00

00

3757

5077

6818

8272

1577

324

463

3007

633

034

& N

icob

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ndhr

a34

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3798

9244

3170

5090

2764

7305

7973

2610

0042

311

6741

915

7239

922

2748

728

3841

831

3154

4P

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shA

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4063

848

742

6020

373

653

8675

610

7051

1399

7716

1531

2119

0627

3068

3383

2842

0942

Bih

ar10

8756

1316

7016

6059

2032

4824

7316

2804

3134

5711

3990

9350

2221

6274

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1796

7568

42C

hhat

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rh*

00

00

00

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025

8196

Guj

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4507

9949

6762

5760

3765

8224

7807

3191

5563

1130

647

1292

440

1547

828

1921

850

2398

691

2833

880

Har

yana

1113

937

1298

8415

3227

1950

2024

2028

2945

1435

7106

4283

9552

4565

6420

0179

4194

9838

96H

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3363

640

658

4768

858

697

8004

611

0258

1455

0518

1886

2251

0328

5130

3468

9143

5642

Pra

desh

Jam

mu

and

2880

331

809

3437

841

627

4661

052

598

7296

489

362

1078

6313

0021

1735

3322

2811

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khan

d*0

00

00

00

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3725

33

Kar

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ka33

2253

3750

4343

4456

5079

9552

7201

7836

9710

1917

610

8401

913

5508

417

0513

921

6158

325

8672

4

Ker

ala

2602

6130

5605

3778

0543

6741

6440

0368

1234

8875

7212

2768

314

6468

518

2940

022

5655

526

9058

4

Mad

hya

2098

6027

8156

3506

9345

2657

5412

7662

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7178

4415

2955

518

7490

323

3179

329

7690

611

4551

1P

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sh

Mah

aras

htra

3646

6243

1798

5026

9261

0976

7667

3498

4698

1290

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1136

1095

952

1263

118

3643

422

Nor

th E

ast-I

2688

132

384

4158

450

271

5896

075

393

1006

4311

6479

1515

9519

5396

2446

7016

9437

Nor

th E

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00

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Select Telecom Statistics

32

India’s Telecom Reform: A Chronological Account

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33

Year Local PCOs Trunk PCOs1 STD/ISD PCOs Highway PCOs Total2

1993 100,526 20,436 41,391 0 61,827

1994 117,416 21,384 57,119 1,781 80,284

1995 143,002 0 87,543 2,010 89,553

1996 161,424 0 116,532 2,694 119,226

1997 184,291 0 157,333 3,554 160,887

1998 210,495 0 213,385 4,060 217,445

1999 243,052 0 272,989 4,639 277,628

2000 287,994 0 355,390 5,567 360,957

2001 361,196 0 490,505 8,374 498,879

Table 2. Status of Public Telephone(As on 31st March of each year)

1. Trunk PCOs have been merged into Local PCOs after 19942. Totals of PCOs with STD facilitySource: Indian Telecommunication Statistics 2002

Year No. of Annual Waiting List Total Demand Annual Growthended DELs (Supply) Growth (Million) (Supply + Total

31 March (Million) (Percent) Waiting List) Demand(Million) (Percent)

1991 5.07 10.6 1.96 7.04 11.61992 5.81 14.5 2.29 8.1 15.11993 6.8 17 2.85 9.64 191994 8.03 18.1 2.5 10.52 9.11995 9.8 22.1 2.15 11.95 13.61996 11.98 22.3 2.28 14.26 19.31997 14.54 21.4 2.89 17.43 22.31998 17.8 22.4 2.71 20.51 17.71999 21.59 21.3 1.98 23.58 152000 26.51 22.8 3.68 30.19 28.12001 32.44 22.3 2.92 35.35 17.12002 37.70 16.2 1.69 39.39 11.42003 40.75 8.1 1.81 42.56 8.12004 43.23 6.1 1.79 45.02 5.7

Table 3. Telephone Supply (Fixed Line Telephones – PSUs And Private)

Source: Indian Telecommunication Statistics 2002Department of Telecom Annual Reports

Select Telecom Statistics

34

India’s Telecom Reform: A Chronological Account

1.Source: www.coai.com,2.Source: www.exhange4media.com

Year

1997-98 794,232 25,0001998-99 1,070,603 150,0001999-00 1,599,364 350,0002000-01 3,107,449 650,0002001-02 5,478,932 1,130,0002002-03 10,480,430 1,699,0002003-04 (Sept.) 18,306,142 2,942,000

InternetSubscribers

MobilePhones

Table 6: Status of Mobile Phones and InternetSubscribers

Table 5: Villages Covered by Village Public Telephones

As on31 March 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Number 185,136 216,632 267,832 310,687 340,640 374,605 408,922 468,862 514,287 521,468Source: NCAER Centre for Infrastructure Data Base

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Inflow 21 161 2,228 9,876 22,328 40,084 42,211 45,097 84,806 95,621

Table 4: FDI Inflow (Year-Wise) (Aug 1991 to December 2002 (Rs.in Millions)

Source: DOT Annual Report 2002-03

35

ReferencesReferencesReferencesReferencesReferencesAsian Development Bank (2001) Information and

Communication Technology (ICT) Strategies for DevelopingCountries, Executive Summary of Proceedings, 21-27 February,Singapore.

Bhatnagar, S., and Schware, R. (eds.)(2000) Information andCommunication Technology in Development: Cases fromIndia, Sage Publications.

Department of Information Technology (2005) E-Governance:Driving the Vision of the NCMP, Vision & Approach,Presentation made at 8th National e-Governance Conference,3rd-5th February, Bhubaneswar, India.

Hanna, Nangy K. (2003) Why National Strategies are Needed forICT-Enabled Development, ISG Staff Working Paper, No.3.

Heeks, Richard (2004) E-government for Development, Causesof e-Transparency Success and Failure: Factor Model, Universityof Manchester, UK

Telecom Regulatory Authority of India (2004), “Growth ofTelecom Services in Rural India: The Way Forward”,Consultation Paper No.16/2004.

Website of Gyandoot http://gyandoot.nic.in/

Website of ITC E-Choupals, http://www.itcportal.com/sets/echoupal_frameset.htm

World Bank (1999) Knowledge for Development, WorldDevelopment Report 1998/99, Oxford University Press

About the Series EditorsAbout the Series EditorsAbout the Series EditorsAbout the Series EditorsAbout the Series Editors

Aasha Kapur Mehta is Professor of Economics at the Indian Institute of Public Administration, New Delhi and leads theChronic Poverty Research Centre’s work in India. She has a Masters from Delhi School of Economics, an M.Phil fromJawaharlal Nehru University and a PhD from Iowa State University, USA. She has been teaching since 1975, initially ata college of Delhi University and then at IIPA since 1986. She is a Fulbright scholar and a McNamara fellow. Her areaof research is now entirely focused on poverty reduction and equity related issues.

Pradeep Sharma is an Assistant Resident Representative and heads the Public Policy and Local Governance Unit inthe India Country Office of United Nations Development Programme (UNDP). A post-graduate from University of EastAnglia (UK) and Doctorate from Jawaharlal Nehru University, he has held several advisory positions in the Governmentof India and has taught economic policy at LBS National Academy of Administration, Mussoorie. He has severalpublications to his credit.

Sujata Singh is an Associate Professor at the Indian Institute of Public Administration. She completed her doctoralstudies in Public Administration and Public Policy at Auburn University, USA. Her primary research interests are in thearea of Comparative and Development Administration, Public Policy Analysis, Organizational Theory and Evaluation ofRural Development Programmes.

R.K. Tiwari is Senior Consultant, Centre for Public Policy and Governance, Institute of Applied Manpower Research,Delhi. He was formerly Professor of Public Administration at the Indian Institute of Public Administration (IIPA), NewDelhi. He received his education at Gwalior, Allahabad and Delhi. He has undertaken a number of research studies inDevelopment Administration, Rural Development, Personnel Administration, Tribal Development, Human Rights andPublic Policy. He has conducted consultancy assignments for the Department of Posts and in the Ministry of RuralDevelopment, Government of India; and for the Government of Orissa and the Narmada Planning Agency, Governmentof Madhya Pradesh. He has published several books.