Rajat Asthana, Anubhuti Hiwase, Charan Preet Singh, Oli Ezhilan, Padmaja Sataluri, Thejas N and Vidyabharathi

This is part one of a two part series covering the development of the telecom sector and challenges associated with it, competitive concerns therein, and ways to strengthen domestic capability.

The weak financial positions of the market players today are in essence a symptom of regulatory uncertainty, corruption and Jio’s pricing disruptions

The turn of the millennium saw India leapfrog from the ‘Hindu rate of growth’ to one clocking GDP growth rates consistently above 5%. While a large part of this is rightly credited to the economic reforms in 1991, it is the telecom revolution of the late 90s that unleashed the bottlenecked factor markets in the Indian economy.

TRAI (2020) pegs the Indian telecom market subscriber base at 1195 million, 98% of which is wireless. The entry of Reliance Jio in 2016 has catapulted 4G technology. Today, 4G subscribers alone account for more than 75% of the wireless data subscriber base and over 86% of the wireless data consumption.

Institutional Framework of Indian Telecommunications

Entry 31 of the Seventh Schedule to the Constitution of India vests the Union with the management of ‘Posts and telegraphs, telephones, wireless, broadcasting and other like forms of Communication’. The sector today operates within the ambit of The Indian Telegraph Act, 1885, The Indian Wireless Telegraphy Act, 1933, and The Telecom Regulatory Authority of India Act, 1997.

The Second Schedule to the Allocation of Business Rules, 1961, lists the mandate of the Department of Telecommunications (DoT), Ministry of Communications, Government of India. 

The Digital Communications Commission (earlier named Telecom Commission) is the main telecom policy formulation and implementation body. Formed via an executive resolution in April 1989, the Telecom Secretary is the ex-officio Chairman of the Digital Communications Commission.

The Wireless Planning and Coordination (WPC) Wing is the National Radio Regulatory Authority. It is responsible for Frequency Spectrum Management, and issues licenses to establish, maintain and operate wireless stations. In coordination with the International Telecommunications Union, it develops and manages the National Frequency Allocation Plan.

The Telecom Enforcement, Resource and Monitoring (TERM) Cells are present in all licensed circles to enforce wireless transmission standards, and to monitor installations (Jain and Dara 2017).

The entry of private players into the sector necessitated an independent sectoral regulator. Subsequently, the Telecom Regulatory Authority of India (TRAI) was set up. It plays an advisory non-binding role with regard to matters like spectrum management, whereas it has a binding mandate in terms of quality of service standards and consumer welfare. At first, TRAI was given the legal mandate to exercise quasi-judicial functions. However, this amounted to a usurpation of judicial power according to the Supreme Court. Accordingly, the TRAI Act was amended in 2000 to create the Telecom Disputes and Settlement Appellate Tribunal (TDSAT).

New Telecom Policy, 1999 – Reform and Riot

The National Telecom Policy of 1994 allowed the entry of private operators into the telecom service segment through a licensing mechanism. Under this policy, the licensees paid a fixed license fee. Bhatia (2019: 147-148) has noted how low consumer base and market uncertainty had overburdened these service providers, and subsequent lobbying efforts resulted in the New Telecom Policy of 1999. This policy introduced a revenue-sharing arrangement, reducing the immediate obligations of the service providers.

The entire range of demand and supply-side policies brought about in conjunction with the New Telecom Policy of 1999, have been “pro-business in the garb of being pro-market”

Bhatia (2019: 145-147)

Universal Service Obligation

While that may be the case, one notable objective of the New Telecom Policy was that of explicitly recognising the Universal Service Obligation to achieve nationwide coverage, non- discriminatory access and widespread affordability of telecom services of a minimum quality. The ushering in of this new paradigm in telecom services created the need to complement the market’s Pareto-efficiency drive allocation system. The policy gave rise to the Universal Service Obligation Fund (USOF).

A Universal Access Levy (UAL), which is currently 5% of the Adjusted Gross Revenue, is paid by licensed telecom operators. The proceeds of the UAL are first credited to the Consolidated Fund of India. Thereafter, disbursal takes place from the Consolidated Fund of India to the USOF. An analysis of the Demand for Grants of the Telecom Department by PRS Legislative Research (2020) highlights two pertinent issues: –

1. As of FY 2019-20, over Rs 50,000 crore of UAL proceeds remains un-disbursed to the USOF.
2. Even in the sub-optimal amounts that are disbursed to the USOF, there is constant under-utilisation of funds.

These points can raise two convoluted arguments: why are we unable to utilise the existing funds in spite of clear digital divide, service gaps, and communication ‘black holes’? Further, if we cannot raise our resource utilisation capacity, then given the existing quantum of leftover funds, should efforts be made to reduce the cost of business?

Hence, the underutilization of the USOF represents huge opportunity costs on both ends.

The AGR Issue

While drawing up the revenue sharing arrangement, the New Telecom Policy of 1999 provided two decision making powers to the government (subject to TRAI’s non-binding recommendations) –

1. The percentage of revenue that would have to be shared with the government
2. The definition of revenue for this purpose

Legal history spanning 20 years through numerous petitions, disposals, orders, and appeals involving TRAI, TDSAT and industry bodies ‘ended’ through a Supreme Court verdict delivered in favour of the DoT in October, 2019. The apex court ruled that the contractual definition of revenue and therefore Adjusted Gross Revenue (AGR) would hold primacy over other statutory definitions (in Companies Act or elsewhere) or accounting standards. It further went on to explain that the TDSAT’s dispute settlement jurisdiction existed only between a licensor and a licensee. Further, in the exercise of this power, TDSAT was not competent to question the validity of the terms and conditions of the License Agreement, but only interpret them.

As a result of the order, the AGR demands of the DoT from Public Sector Undertakings (PSUs) became ‘valid’. PSUs like Power Grid, GAIL, were charged with dues of Rs 1.25 lakh crore and Rs 1.72 lakh crore respectively. These companies held telecom licenses to operate their vast electrical and pipeline networks, not by way of commercial service operation. However, in June 2020 the Supreme Court observed¹ that it would be incorrect for DoT to ask for AGR dues from PSUs holding telecom licenses. It distinguished between the nature of telecom as a core and non-core activity.

The judgement had a far-reaching impact on existing players like Vodafone-Idea and Airtel. Vodafone-Idea is now saddled with debt of around Rs 52,000 crore, while Airtel has dues of roughly Rs 34,000 crore. Dues from 13 other operators like Reliance Communications, Tata Telecommunications, Aircel aggregate to another Rs 60,000 crore.

Situating Competition Regulation

The weak financial positions of the market players today are in essence a symptom of regulatory uncertainty, corruption and Jio’s pricing disruptions. Bhatia (2020: 155) raises the curious case of Infotel Broadband Services Private Limited (IBSPL), which after winning Broadband Wireless Access (BWA) spectrum in 2010, saw its authorised share capital go from Rs 3 crore to Rs 6,000 crore. This is suggestive of a rigged auction by the Reliance Group and warrants a look at an increasingly relevant interface – that of competition law in various sectors.

Baldwin et al (2012: 114-116) highlight the potential benefits of competition laws as a good cross-sectoral regulatory instrument. They take New Zealand’s telecom sector as a good example of reducing market entry barriers and a lighter burden on the exchequer. Baldwin et al (2012: 115) go on to elucidate the problems associated with over-reliance on competition laws. Technology intensive sectors often rely on certain standardisation requirements, performance benchmarks and a degree of expertise, which cannot be accounted for by legislation meant to be broad and cross-sectoral. One of the other major challenges faced by the system is the unclear and often conflicting nature of the interface between the cross sectoral competition commission and the Independent regulators (Bhaskar 2018).

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This article is authored by a group of 7 candidates of Master of Public Policy (MPP ‘21) at the National Law School of India University, Bengaluru. The authors are: Rajat Asthana (Group Lead), Anubhuti Hiwase, Charan Preet Singh, Oli Ezhilan, Padmaja Sataluri, Thejas N and Vidyabharathi.

The group was mentored by Mr. Paranjoy Guha Thakurta, and is grateful for the same. The group can be contacted via Rajat at rajatasthana@nls.ac.in

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Endnotes

¹ In Re: Mandar Deshpande Suo Moto Contempt (C) Petition 1/2020

References

Baldwin, R., Cave, M. and Lodge, M., 2012. Understanding Regulation. New York: Oxford University Press, pp.105-136.

Bhaskar, V. (2018):” Challenges Faced by Independent Regulatory Agencies in India”. Indian Journal of Public Administration, 64(3), 404–426

Bhatia, Jai. “Crime in the Air: Spectrum Markets and the Telecommunications Sector in India.” In The Wild East: Criminal Political Economies in South Asia, edited by Harriss-White Barbara and Michelutti Lucia, 140-67. London: UCL Press, 2019. Accessed June 15, 2020. www.jstor.org/stable/j.ctvfrxr41.13

Jain, Rekha, and Rishabh Dara. 2017. ‘Framework for Evolving Spectrum Management Regimes: Lessons from India’. Telecommunications Policy 41 (5–6): 473–85. https://doi.org/10.1016/j.telpol.2017.04.002

PRS Legislative Research. 2020. “Demand for Grants 2020-21 Analysis (Telecommunications).” Budget Analysis. https://www.prsindia.org/sites/default/files/budget_files/DFG%20Analysis%202020-21%20-Telecom.pdf

TRAI. 2020. “Highlights of Telecom Subscription Data as on 29th January, 2020 (Press Release No.44/2020).” Press Release. https://www.trai.gov.in/sites/default/files/PR_No.44of2020.pdf

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The opinions expressed in this article are those of the author(s). They do not purport to reflect the opinions or views of NLSIU, Lokniti or its members.