Domestic leased circuits (DLCs) have traditionally been a core offering in India’s enterprise connectivity landscape. These are dedicated private telecom links that connect two or more locations within the country and are leased by organisations that require secure, high speed and uninterrupted data transmission. Enterprises, banks, government institutions, data centres and information technology (IT)/IT-enabled services firms rely on DLCs to support connectivity between offices, operational hubs and data infrastructure, especially for use cases where reliability, latency and service assurance are critical. In the Indian context, such services are currently provided by national long-distance operators and access service providers under the unified licence framework.
The tariff regulation for DLCs dates back to the Telecommunication Tariff Order (TTO), 1999, when the Telecom Regulatory Authority of India (TRAI) prescribed distance-wise, cost-based ceiling tariffs for specific bandwidth capacities. As the market evolved, the authority undertook a review in 2004-05 and subsequently restructured the tariff framework through the 36th Amendment to the TTO in 2005, significantly reducing the earlier ceiling tariffs, in line with changing cost structures and technological progress.
Over time, the demand for leased circuits grew alongside the increase in enterprise data usage and digital network requirements. Therefore, a subsequent review process was initiated in 2014, following which TRAI amended the TTO through the 57th and 58th Amendments in July-August 2014. At the time, the leased circuit market was heavily dependent on operators with extensive fibre backbone networks and DLCs functioned as the primary backbone connectivity product for enterprises, internet service providers (ISPs), etc.
However, the ecosystem has changed considerably since the last major tariff intervention. Over the past decade, India has seen significant fibre expansion, enhanced data consumption and increasing backhaul requirements, driven by 4G and 5G network densification. The enormous growth of data centres, cloud platforms and digital service providers on the back of rapid technology adoption has further increased the demand for high-capacity and resilient connectivity.
Against this backdrop and after more than a decade since the last substantive tariff rationalisation, TRAI issued a consultation paper in January 2026 to reassess the existing DLC tariff framework. A look at the key issues under consideration…
Tariff framework revision
A key focus of TRAI is the need to revisit the existing tariff framework for DLCs, in view of the significant changes in market conditions, technology and provisioning economics since the last revision in 2014. The regulatory body has noted that widespread fibre deployment, the adoption of high-capacity transmission technologies such as dense wavelength division multiplexing and ethernet-over-fibre and the growing demand for bandwidth-intensive enterprise connectivity have altered the cost dynamics of leased circuit provisioning. As a result, TRAI is examining whether the current ceiling tariff framework, which is based on earlier cost assumptions, capacity benchmarks and network conditions, continues to remain relevant in a fibre-led and data-intensive environment.
TRAI’s consultation paper specifically questions whether the bottom-up fully allocated cost (BU-FAC) methodology adopted in 2014 remains appropriate for computing ceiling tariffs for point-to-point (P2P) DLCs in the current market context. TRAI has sought detailed stakeholder inputs on the key parameters to be used for tariff modelling in the present context, including return on capital employed, useful life of transmission equipment and optical fibre, utilisation levels of optical fibre cable systems, number of lit fibre pairs and the allocation of costs across local lead and trunk segments. TRAI also explores whether alternative costing approaches, such as long-run incremental cost or other contemporary pricing models, should be considered alongside, or in place of the existing methodology and whether separate ceiling tariffs or differentiated cost frameworks may be required for local lead and trunk segments, given the evolving provisioning architecture of DLC networks. Furthermore, TRAI has sought inputs on how key cost components such as network deployment costs, capacity utilisation and operational efficiencies should be incorporated into the tariff determination process.
Transparency, competition and equitable access
Another important focus of the consultation paper is improving pricing transparency, strengthening competition and ensuring affordable access to DLCs across different user segments and regions. TRAI has noted that DLCs are a key input for ISPs, enterprises and digital service providers and any inefficiencies in pricing or provisioning can directly impact the cost of downstream connectivity and digital services. In this context, the regulator is examining whether the current market structure and pricing practices support fair competition and efficient access to backbone connectivity.
At the same time, TRAI highlights significant variations in effective tariffs across routes and geographies. While competitive urban corridors with strong infrastructure presence often witness aggressive price negotiations and lower tariffs, remote, hilly and low-competition regions tend to face higher tariffs due to higher deployment costs and infrastructure constraints. TRAI is, therefore, assessing whether a uniform ceiling tariff framework remains adequate or if a more nuanced approach is required to ensure affordability and balanced competition across regions. The consultation paper also seeks views on the need for standardised tariff reporting and disclosure mechanisms, particularly in light of prevalent discounting, customised pricing and bundled service offerings in the DLC market.
The paper also notes that tariff variations are influenced by customer profiles, procurement practices and route-specific cost factors. It highlights that the DLC market is largely enterprise-driven, with buyers typically adopting tender-based procurement processes and evaluating service providers on the basis of pricing and service-level commitments. Moreover, last-mile connectivity challenges and geographical constraints in certain routes can increase capital expenditure requirements, often leading to customised tariff structures, including combinations of one-time and recurring charges.
Evolution of DLC services and treatment of P2P and VPN-based circuits
The consultation paper highlights the evolving nature of DLCs’ services, particularly the increasing shift from traditional P2P circuits to virtualised private network (VPN)-based and managed connectivity solutions. TRAI noted that DLCs are no longer being provisioned only as dedicated links but are increasingly offered as managed services with defined performance commitments such as assured bandwidth, uptime and latency. This shift reflects changing enterprise connectivity requirements and more service-oriented provisioning models.
In this context, the authority is examining whether the existing definition and regulatory treatment of DLC services remain appropriate, especially as enterprises increasingly adopt flexible and scalable VPN-based connectivity solutions. TRAI’s consultation paper, in particular, looks at the cost and service differences between P2P and VPN-based DLCs and whether the continued regulatory forbearance for VPN-based circuits remains justified. TRAI is, therefore, seeking views on whether such services should be brought within a ceiling tariff framework to ensure greater regulatory consistency across comparable connectivity offerings.
Reference to 6 GHz backhaul spectrum charges
A distinctive issue raised is whether spectrum charges for radio backhaul links, particularly in the 6 GHz (lower) band, should be used as a reference point for determining ceiling tariffs for DLCs. TRAI has noted that it had previously recommended spectrum charges of Rs 75,000 per carrier per annum for P2P links in the 6 GHz (lower) and 7 GHz bands, which are widely used for radio backhaul provisioning.
Further, TRAI observes that while radio spectrum-based transmission has certain operational advantages such as lower cost and easier deployment, it also has limitations in terms of bandwidth and latency when compared to optical fibre networks. However, in scenarios involving limited capacity and coverage requirements, radio links may form a part of DLC provisioning, thereby making spectrum-based cost benchmarks potentially relevant for tariff assessment.
Accordingly, TRAI has sought stakeholders’ views on whether the spectrum charges for a P2P link of 28 MHz paired bandwidth in the 6 GHz (lower) band should be considered as a reference for computing DLC ceiling tariffs, and if so, what multiple of backhaul link charges may be appropriate. The consultation paper further raises the question of whether such a reference should be applied to the local lead segment, trunk segment or on an overall basis within the tariff framework.
Conclusion
TRAI’s consultation paper signals a transition phase for the DLC segment, where regulatory policy is gradually aligning with the operational realities of high-capacity networks, managed services and enterprise-led demand patterns in India’s digital infrastructure landscape.
Going forward, the direction of the DLC market will largely depend on how TRAI reconciles the gap between legacy regulatory structures and present-day provisioning realities. From an industry standpoint, stakeholders are likely to closely watch how TRAI addresses the regulatory treatment of DLCs as these aspects directly influence pricing flexibility, competitive positioning and long-term investment decisions. If the final framework incorporates technological efficiencies and evolving service models while maintaining safeguards for affordability and fair access, it could lead to a more balanced market structure.
Harshita Kalra
