One Year of Telecom Reforms — Starting September 2021 

The Telecom reforms have have laid a path for Ease of Doing Business in the industry. What is amazing is the speed and clarity of decision making and the leadership shown by the DoT leadership, under the vision of the Hon’ble Minister of Communications, Shri Ashwini Vaishnaw ji — realizing the vison of Hon’ble Prime Minister

In September last year (2021), the Government announced seminal reforms in the telecom sector. It aimed to liberate the sector from the shackles of past policy constraints and their challenges. These reforms heralded a new dawn in the Indian telecom industry. Its objective was to catalyse and impel growth. Telecom is a vital foundation and bedrock of the entire digital world. Most importantly, the reforms paved the way for maintaining a sustainable level of competition with three private and one state owned telecom operator – which was essential to serve a large market like India.

Apart from ensuring that the crisis in which industry found itself was addressed, the government used the opportunity to create a much broader and bolder framework for the industry, that would ensure Ease of Doing Business (EoDB) in the sector and the economy as a whole. EoDB reforms will encourage the industry to invest fearlessly and take decisions to support India’s digital ambitions.

What was at stake? Let us contextualize

India’s digital economy has entered a phase of exponential growth with digital solutions contributing to fast and inclusive growth by bringing more and more people online. India has the potential to become one of the biggest digital ecosystems in the world as the country moves towards achieving the USD 5 trillion GDP goal set by the Government.

Nevertheless, the reforms have shown a path to industry, and the Government hasn’t stopped on the reform journey yet. What amazes us is the speed of clarity, solid decision making and leadership shown by the DoT leadership, under guidance of Hon’ble Minister of Communications thus realizing the vison of Hon’ble prime Minister.

Next generation networks with technologies such as 5G will be the spine that will support India’s digital ecosystem and spur economic growth. A healthy telecom industry will also spur innovation and investments in allied industries like network equipment, smartphones, data centers, etc. and help create large number of jobs and contribute to India’s Aatmanirbhar vision.

Indian Telecom, in its 25+ years of journey, created a massive subscriber base of 1.2 billion Indians. Telecom Service Providers (TSPs) have rolled out close to 500,000 mobile towers, over 2.2 million BTSs, lakhs of KMs of fiber and thousands of microwave towers for connectivity. Thousands of distributors, hundreds of thousands of retailers and millions of resellers covering the length and breadth of the country.

As per an estimate by the GSMA Intelligence, in 2021, the firms in mobile ecosystem supported almost 3.4 million jobs and their activity indirectly supported the employment of more than 1.25 million people. The sheer number of people employed directly and indirectly, gives one an idea of how vast the impact of the industry has been on the Indian socio-economy as a whole – supporting jobs and families. Further, the 5G networks and services being rolled out, could benefit the Indian economy by over $455 billion between 2020 and 2040.

The report also says that the mobile ecosystem in India has contributed almost $17 billion to public funding, through direct taxes (VAT on handsets and services) and indirect taxes (e.g. corporation and employment taxes) in 2021.

According to industry estimates, the telecommunications industry has put in INR ~12,000 billion (or Rs 12 lakh crores) worth of investments with close to INR 5000 billion towards spectrum commitments and approximately INR 7000 billion of infrastructure spend.

The entire Digital India edifice of today is built upon the digital connectivity enabled by TSPs – this will also be the backbone and foundation for the digital future of our country. Hence a sustainable, healthy and progressive Telecom industry is a sine-qua-non for a healthy, resilient socio-economy.

Reforms and their impact on the industry

The government ushered in structural and procedural reforms plus relief measures for TSPs. While on the structural side, it rationalized definition of AGR, Bank Guarantees, interest rates at MCLR+2%, doing away with SUCs on future auctioned spectrum, and 100% FDI via automatic route among others; on procedural reforms it came out with measures such as annual auction calendar, KYC reforms with fee for e-KYC slashed to Re1/-, and permitting app based self-KYC, paper CAF forms replaced with digital storage, and SACFA clearance for telecom towers.

Further, it worked on liquidity requirements for the industry: allowed moratorium on AGR dues and spectrum purchased in auctions pre-2021, option to pay interest in deferment via equity.

ONE year down the reforms path

Documents, Procedures and Compliances through the procedural reforms related to KYC and SACFA, have eased the customer’s onboarding journey and cut down cost of compliance for industry.

Apart from ensuring that the crisis in which industry found itself was addressed, the government used the opportunity to create a much broader and bolder framework for the industry.

The digitization of paper customer acquisition forms or CAFs: Over the years, the industry built billions of customers and kept their ID proofs in physical copies, which accumulated through multiple subscriber re-verification exercises again creating huge volumes of paper records.

As per government estimates, the industry had 400 crore (or 4 billion) paper CAFs lying in various warehouses across the country. The cost and logisitics of keeping such large volumes of paper records is a burden for the industry. Post reforms, Airtel alone is now digitizing over 100 Crore CAFs, and once completed it would provide a huge reprieve in terms of cost of compliance and maintaining them in warehouses.

Post reforms, Airtel alone is now digitizing over 100 crore ( or 1 billion) customer acquisition forms, CAFs. Once it is completed it would provide a huge reprieve in terms of cost of compliance and storing them in warehouses.

e-KYC using Aadhaar: In a country where over 95% customers are prepaid, it is important to simplify the process of obtaining a new connection and keep cost of acquisition affordable so that all sections of the population stand to benefit from digitization.

The e-KYC — using Aadhaar based verification and customer onboarding at just Re 1/- per authentication, instead of Rs 20/- that was proposed earlier has benefited the industry too. With two biometric authenitications needed for every subscriber along with a yes / no confirmation, the total cost for every CAF used to be Rs 42 per activation.

Today the Aadhaar based activation method is robust and secure. Customers get instantly activated as the authentication happens in real-time at Rs 1 only.

At Rs. 42/- per subscriber – the TSPs would have been either subsidizing that cost of customer acquisition (as customers do not want to pay this) or using other methods like paper CAFs.

Another customer friendly reform was that allowed pre-paid to post-paid and post-paid to pre-paid migration of same customer, using the OTP method. Earlier migration would mean verifying the subscriber afresh though nothing would change except her ask to move to a different SIM (pre/post). With the OTP based process, it makes it hassle free not only for TSPs but more importantly for the customer, as no change in demographic details and eliminates need for physical KYC and documentation. The real impact is on ease of business process and also seamless service for the customer.

The simplification of standing advisory committee on radio frequency allocation or SACFA procedures, has had a huge impact on the time to roll out services. This has now made setting up and activating a telecom tower / site a breeze. The clearance of sites has now moved online – all the members of the SACFA committee can see the applications online and most of these sites are automatically cleared unless there is a specific problem. Sites for providing mobile coverage are cleared in a matter of days, compared to earlier times when it used to take months. Many lakhs of sites were pending clearances when the reforms were initiated. This has now reduced to a few thousand in less than a year. With auto clearances and a clear view of pending sites, the online process of SACFA clearance may seem like a small procedural change but it has an exponential and telescopic impact on the speed of roll out of services.

Faster clearances means faster compliances and a quick start of services. It also leads to increased revenue realization for both operators and government as services contribute to taxes to the exchequer.

Telecom Service Providers (TSPs) have rolled out close to 500,000 mobile towers, over 2.2 million BTSs, lakhs of KMs of fiber among others. A significant number of distributors and retailers.

Reducing the financial stress on licensees

The moratorium of upto four years in annual payments of dues arising out of the AGR judgement, and a four-year moratorium on spectrum purchased in past auctions (pre-2021) brought down the immediate liability of TSPs to manageable levels and provided much needed clarity for planned capex spends on network roll outs.

5G networks and services alone could benefit the Indian economy by over $455 billion between 2020 and 2040.

The rationalization of multiple Bank Guarantees across all licensed service areas to a more practical and pragmatic requirement to keep a single BG at significant lower levels than required earlier (80% against License Fee and other similar levies) has helped free-up crucial working capital funds.

It is not out of place to state that having huge BGs per LSA would block crucial credit lines of Telcos, would add-up any charges like margin money to keep the BGs current. The credit lines can now be put to more productive and efficient use for business needs like expansions and investments.

In previous auctions, the government required TSPs to submit BGs to secure their installment payments. This displayed an extreme lack of faith in the auction participants and begged the question, why would a TSP be allowed to participate in the auction if there were such doubts over their ability to pay? Thankfully, the government trusted a mature industry, and done away with this requirement completely.

While the AGR definition reform will help industry on a prospective basis, there are still some challenges that need clarity e.g. need to define ‘Telecom activities’ which should ideally be ‘licensed telecom activities’. It is desirable that Gross Revenue should be simple, comprehensive and not subject to conflicting interpretations and for purpose of License Fee charged as a percentage of revenue should only include revenue received/receivable directly from the customer(s) on account of provision of licensed telecom services.

Nevertheless, the reforms have shown a path to industry, and the Government hasn’t stopped on the reform journey yet. What amazes us is the speed of clarity, solid decision making and leadership shown by the DoT leadership, under guidance of Hon’ble Minister of Communications thus realizing the vison of Hon’ble prime Minister.

In-fact, outside of September reforms government has taken some more steps in bringing EoDB for TSPs. Let us look at two recent examples:

The pleasant surprise in just concluded 5G auction

The 5G spectrum auction witnessed ~71 percent of the total 72,098 MHz of spectrum getting sold, garnering $19 billion for exchequer. But it is the action post auction, which was a pleasant surprise.

This time - the auction concluded on August 1st, harmonization process was over by August 4th and Airtel received its letter of allocation on August 17th, within hours of clearing its dues. This is a first for the industry.

In earlier auctions, the process of release of spectrum could take months due to harmonization issues, even after TSPs had made their payments towards spectrum. This delay meant TSPs losing precious time value of their investments, delayed network roll-out and consumers left waiting for faster, better connectivity. In recent 5G auction, the government alacrity ensured that the entire process of harmonization and allocation was completed within days.

The Government along-with 5G spectrum, also allocated critical E-band spectrum that is essential for 5G backhaul to carry massive data traffic.

Rights of Way (RoW):

Right of Way rules were always complicated. Permissions for laying ducts, cables and setting up towers cut across multiple jurisdictions at the Centre, States and municipal bodies.

All of this has become simpler now under the PM Gati Shakti scheme. The government launched the Sanchar portal for facilitating RoW approvals. In August 2022, the government further amended the rules aimed at facilitating 5G network rollouts.

There was foresight and vision in doing this as these are critical for 5G, which requires massive network densification using small cells deployment – which are important for use of street furniture to provide coverage in densely populated and commercial areas of a city or town.

Setting up small cells requires timely permissions from agencies and authorities and a pricing mechanism that is equitable. That is precisely what the latest RoW reforms have done. With all states on board on online application process, and hopefully, on alignment of charges as well; India would soon see massive rollout of fiber, 5G infrastructure.

The Way Forward and Conclusion

As we complete the anniversary of the pivotal telecom reforms announced in September 2021, in totality, these have all delivered significant EoDB, and efforts in this direction must continue to making India truly Digital.

By Rahul Vatts

Chief Regulatory Officer (India & South Asia), Bharti Airtel. He is also Director – OneWeb India and Vice Chairman of Indian Space Association (ISpA).

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