6 Waves of Telecom Reforms in India – the last being the most impactful and transformational

In summary, the last wave of reforms under the dynamic and visionary leadership of the present Hon’ble Minister Shri Ashwini Vaishnaw have been the most comprehensive ever in this sector.

First Wave — 1994 – ‘97:

National Telecom Policy (NTP) 1994 was formulated for the purpose of opening the Indian markets for foreign direct investment (FDI) as well as domestic investment in the telecom sector. The Policy also aimed at providing ‘world class’ telecom services and development of an indigenous capacity in India. (See Box)

NTP ‘94 paved the way for private sector participation. This industry had been so far an entirely Government controlled monopoly – both in provision of telecommunications services and manufacturing of equipment.

The policy recognized the need and importance of private sector for economic development and to bridge the resource gaps. NTP ‘94 envisaged the provision of basic or fixed line telephone services by private companies. This would compete with the then Department of Telecom (DoT) which ran the networks – and which later became Bharat Sanchar Nigam Limited (BSNL). This Policy paved the way for the establishment of an independent regulatory body; separation of DoT’s operational, policy setting, and ministerial functions.

It was only partially successful in encouraging private sector participation in mobile and basic telephone services as well as other value-added services (VAS). Licenses were granted to eight Cellular Mobile Telephone Service (CMTS) operators. Two licenses were granted in each of the metropolitan cities based on the concept of a “beauty parade”. Most eligible are selected on the basis of defined criteria.

Telecom reforms in India have had a checkered history. For those of us who have been associated with the telecom sector for past more than 3 decades both from within and outside of the Government, these reforms have come in waves. Each time the reforms addressed crucial issues, supporting the sector and enabling the industry towards growth and change. These waves have often ebbed and flowed in a single continuum.

This was followed by the second phase of implementation in December 1995 — through a competitive bidding process.

The country was divided into 19 circles (roughly equal to a single State, excluding some states like North East which were combined into a single Circle and the four metro cities). These were categorized into category A, B and C circles on the basis of the potential of each circle to generate revenues and the economic profile of the State.

A total of 34 licenses 18 Telecom circles were issued to private companies. Two licenses were granted to CMTS in each service area. Competitive bidding resulted in highly inflated bids and license fee commitments by the bidders. These ultimately led to defaults and unsustainable results.

A review was initiated by the Atal Bihari Vajpayee Government in 1998 and through a series of High Level Committee reports and decisions – many new reforms were initiated. Among them was the setting up of an independent Telecom Regulatory Authority of Indian, (TRAI) through an Act of Parliament in the year 1997.

The Second Wave — 1999

The second wave of telecom reforms was in-built in the failure of private sector participation due to their over-commitment in the amounts bid for CMTS and Basic Service licenses. Many licensees defaulted in payment of license fee and made a representation to the Government for relief against the high license fee for the survival of the telecom industry. In order to save the industry, the Government of the day , in consideration of the representations of the Licensees offered a new package, known as the migration package , provided for in “National Telecom Policy 1999 , giving an option to the licensees to migrate from fixed license fee to revenue sharing fee. Thus the second wave of reforms saved the health of the private Telecom Operators by absolving CMTS and Basic Service Operators from the liability to pay committed huge amount of license fee to a license fee based on revenue share model, contours of which were outlined in the migration package letter of DoT dated 22.07.99 and which all these licensees accepted unconditionally and migration package became effective from 01.08.99. The license fee as percentage of gross revenue under the license was payable w.e.f. 01.08.1999. The Government was to take a final decision about the quantum of the revenue share to be charged as license fee after obtaining recommendations of TRAI fixing 15% of the gross revenue of the Licensee as provisional license fee. Migration package provided that the gross revenue for the purpose of computation of license fee would be the total revenue of the licensee company excluding the PSTN related call charges paid to DOT/MTNL and service tax collected by the licensee on behalf of the Government from their subscribers. Definition of Gross Revenue also became source of dispute between Operators and DoT which led to judgments of Supreme Court in 2011 (AUSPI Judgment) and in 2019 (AGR Judgment) in favor of DoT which became reason for reforms in the year 2021. Migration package also took away right of CMTS and Basic Service Operators from operating in an exclusive regime of limited number of players in a service area and gave right to Government for introducing any number of players . This in fact led to third wave of telecom reforms.

The Third Wave 2001-2004

BSNL was issued licenses for provision of CMTS as third operator in various parts of the country. Further, 17 fresh licenses were issued to private companies as fourth cellular operator in September/ October, 2001, one each in 4 Metro cities and 13 Telecom Circles. CPP regime , introduced in the year 2003, catalyzed the proliferation and growth of mobile telephony services. Introduction of Unified Access Service License regime in the year 2004 with the migration path for existing CMTS and BSOs to UAS license and licensing new players for UAS license at the entry price determined in the year 2003 for the fourth CMTS license subject to availability of spectrum increased the competition in the market which led to competitive tariffs and further growth in mobility services in India.

The last wave of reforms under the dynamic and visionary leadership of the present Hon’ble Minister Shri Ashwini Vaishnav (2021 onwards) have been a game changer as they not only provided the necessary liquidity to operators but also eased operational hurdles that were a bottleneck for the industry. This boosted the Ease of Doing Business in the sector.

The Fourth Wave 2010-2013

While the third wave ensured competitiveness in the market by the issuance of more licenses and allocation of spectrum to provide 2G services, however, it restricted the use of spectrum to offer advanced technologies. Operators holding 800 MHz spectrum band could only offer the CDMA services, whereas technologies were available to provide high speed internet services through CDMA EVDO. The restriction put in place to use the spectrum allocated administratively along with the license did not allow the country to experience advance technological services for a long time.

Government held first ever spectrum auction for 2100 MHz (3G spectrum) and 2300 MHz (Broadband Wireless Access Spectrum) in the year 2010 paving the way for delinking spectrum allocation from grant of license and issue of a new license regime subsequently in the year 2013 post extensive consultation with the Regulator TRAI and post policy formulation in form of NTP 2012. National Telecom Policy-2012 (NTP-2012) recognized the evolution from analog to digital and the need of convergence between various services, networks, technologies and overcome the segregation of licensing and regulatory framework to improve the affordability, delivery of multiple services and enhanced access. Hence, after considering the TRAI Recommendations, DoT framed the new Unified License Regime (UL Regime) which delinked the allocation of spectrum from license, formed one single license under which for various services, operators are allowed to obtain the respective service authorization e.g. Access Services, Internet Services, National Long Distance, International Long Distance etc. While there is no mandatory requirement for the operators to migrate to the UL, however, DoT has done away with the issuance of individual service specific licenses and all new applicants for any service license henceforth were required to obtain Unified License only wherein existing operators were required to migrate to UL upon expiry of their existing licenses . Thus, the fourth wave introduced one single Unified licensing framework encompassing all the telecom services and set forth auction as a method for allocation of access spectrum in the country.

The Fifth Wave-2018

After considering the recommendations of TRAI on Virtual Network Operators (VNOs), DoT, on 31.08.2018 issued the guidelines for Grant of Unified License (Virtual Network Operators). With the introduction of VNO, DoT further delinked the delivery of services from the network services and introduced the regime to facilitate those entities who intend to deliver services using networks of other operators (termed as Network Service Operators). While the fourth wave delinked the spectrum from the license, fifth wave was one step further towards the convergence where same network can be used to provide various services independent of network layer which allowed one set of operator to deliver the services and another distinct set of operators can own the network used to deliver such services. Another important milestone to increase traction for UL-VNO licenses was allowing lease line/bandwidth charges and the charges paid by the VNO licensees to the TSP/NSOs as deductions treating it as pass through charges while calculating license fee. This had a significant advantage to small UL-VNO Licensees leading to substantial increase in the UL-VNO licenses.

The Sixth Wave 2021 onwards

While the telecom sector went through many structural reforms, the legacy issues related to the disputes on license fee calculation, definition of Adjusted Gross Revenue (AGR) and lack of clarity in the license conditions continued to trouble the balance sheets of operators.

Entry of new operators with pure 4G play the data service rates in the telecom sector reduced substantially. This led to intense competition and exit of many players by way of mergers or insolvency proceedings.

The judgment on AGR in the year 2019 further added to the financial distress of the sector with the clear danger of and the sector was looking at another exit thereby reducing to 2+1 (2 private players and 1 PSU).

However, Govt. recognized the importance of the telecom sector, more so, during its performance in meeting COVID-19 challenges which lead to huge surge in data consumption due to online education, Work from Home, interpersonal connection through internet-based applications, virtual meetings etc. and Government approved major structural and procedural reforms to further boost the proliferation and penetration of broadband and telecom connectivity along with strengthening the financial position of the sector.

These reforms included reduction in Bank Guarantees against License Fee and other levies, rationalization of interest rates, removal of penalties, spectrum auction-related reforms, promotion Ease of Doing Business, SACFA related reforms, KYC simplification, simplification of OSP guidelines, discontinuation of wireless operating license, exemption of License fee for M2M Application Service providers and only simple registration is required, removal of NOCC charges, surrender of the spectrum is permissible after 10 years, VSAT backhaul connectivity for cellular networks and Wi-Fi access points etc. To address the liquidity requirement of the operators, Government further provided relaxation in terms of a moratorium period for payment towards AGR judgment and spectrum payouts, etc.

The sixth wave of reforms has been a game changer as it not only provided the necessary liquidity to the operators but also eased various operational issues thereby boosting the Ease of Doing Business in the sector.

Despite a series of waves in telecom reforms, there is still a need for another wave to take the sector into another orbit, strengthen B2B players and relax compliances for B & C Category Licensees.

DoT has already started consultation to revamp the legal framework of the telecom sector and is geared towards ensuring that the regulatory framework is in sync with the global best practices with the aim to create a framework that will be a win-win for all stakeholders.

DoT should keep in mind that the “same service same rule” principle should apply while finalizing the new legal framework. Keeping pace with technology advancements and addressing the needs of a changing market and evolving business models is imperative.

In summary, the last wave of reforms under the dynamic and visionary leadership of the present Hon’ble Minister Shri Ashwini Vaishnaw have been the most comprehensive ever in this sector.

By Praveen Sharma

Praveen Sharma is Head of Regulatory Affairs at Tata Communications Limited (erstwhile VSNL).

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