Digital connectivity infrastructure (DCI) has assumed increased importance with various government initiatives and stakeholder discussions around it. DCI, which includes wireless, wired and satellite technologies, plays a catalytic role in modern-day economic development. Its criticality was underlined during the Covid-19 pandemic when it emerged as a backbone for the functioning of the economy. DCI also contributes the successful implementation of government schemes under Digital India, the Ayushman Bharat Digital Mission and the Smart Cities Mission. The National Digital Communications Policy, 2018 places significant emphasis on digital infrastructure and envisages unbundling of the four major layers of digital communication – infrastructure, network, services and applications – through differential licensing as one of the strategies towards achieving its Propel India mission.
Globally, countries have aligned their telecom licensing framework to improve resource utilisation, reduce capex, attract investments and strengthen the service delivery segment by segregating the infrastructure/network layer and the service/application layer. Such a framework simplifies the licensing process and lays the groundwork for robust DCI.
To this end, the Department of Telecommunications (DoT) had sought the recommendations of the Telecom Regulatory Authority of India (TRAI) for the terms and conditions of a new “telecom infrastructure licence” which may permit the licensee to establish, maintain and operate all equipment for wireline access and radio access and transmission links, except the core equipment and holding of spectrum. TRAI has released a consultation paper on the “Introduction of Digital Connectivity Infrastructure Provider (DCIP) Authorisation under Unified Licence (UL)”. The paper explores a regulatory framework wherein companies providing towers/fibre, data centres and other DCI components will have to obtain a licence to be able to offer their services and operate in the country. A look at the key issues discussed in the paper…
Need for introduction of new DCIP licence
In India, the scope of the infrastructure provider category-I (IP-1) is limited to passive infrastructure. The creation of active infrastructure is permitted to licensed telecom service providers (TSPs) only. Sharing of active infrastructure is permitted among licensed TSPs. However, companies may often be unwilling to share their resources with competitors. At present, there are no neutral third-party entities which can create passive and certain network layers of active infrastructure. According to TRAI, the introduction of a new category of licensee that focuses on both active and passive DCI creation can enable increased sharing and bring down overall infrastructure development costs. Incentivisation of such entities through the exemption of any licence fees can further facilitate the speedy penetration of DCI in the country.
Scope of DCIPs
TRAI has suggested that the scope of the new DCIP licence should include establishing, maintaining and operating both passive and active infrastructure, equipment, and systems which are required for establishing wireline access network, radio access network (RAN) (excluding core network and holding of spectrum), Wi-Fi systems, and transmission links. However, modern networks lack well-defined boundaries between core and non-core networks. The positioning of core network elements is also evolving with technology and will be dynamic in nature. There can be various configurations wherein an element or functionality may be shifted from the core to the edge. To this end, TRAI has sought feedback from stakeholders as to which network elements would fall under the category of core network and would have to be excluded from the scope of DCIPs.
DCIP licence as part of UL regime
The promotion and acceleration of DCI in India would require a relatively lenient regulatory framework for DCIP licensees. As per the consultation paper, the DCIP licence can either be a standalone licence or made a part of authorisation under the UL regime. TRAI believes that in the second case, the arduous conditions of the entire Part-I of the UL would be applicable to such licensees and thus it may result in stricter regulation. However, TRAI suggests that the DCIP licence can be made part of the UL regime and generic conditions given in Part-I of the UL be overridden and exempted through specific conditions that be defined in Part-II in the respective authorisation chapters.
Further, TRAI states that a set of general broad principles need to be adhered to for effective implementation of a licensing and regulatory framework in any country. One such principle is that similar services should be subject to similar rules. For instance, the rules and standards applicable for the installation of RAN by an internet service provider or access service licensee under UL should also be applicable to DCIPs if they seek to establish such equipment. Therefore, there can be a strong argument in favour of making the DCIP licence an authorisation under UL. However, to ensure light-touch regulation, the terms and conditions in Part-II of the the ULshould have an overriding effect on those in Part-I.
Applicability of licence fee
TRAI proposes two views with regard to the applicability of licence fee for DCIPs. The first one states that licensees should be subjected to the same licence fee as is applied to other licensees, while the other suggests that the scope of work of the proposed DCIP does not permit it to provide services directly to customers. This way, their scope of work is more similar to that of IP-1s than TSPs who provide service directly to end-customers. Since a licence fee is imposed on entities providing services directly to end-customers, DCIPs that are only providing underlying network infrastructure to such licensees should not be subjected to a licence fee. This view of exempting DCIPs from licence fees can be further substantiated by the argument that DCI creation needs to be incentivised and more investment needs to be attracted. In the consultation paper, TRAI has sought stakeholder feedback on this view and its legal tenability.
In the consultation paper, TRAI seeks to identify the entities to which the proposed DCIP can lease, rent or sell its infrastructure. Assuming that these players are not liable to pay any licence fees, the regulator opines that they should be allowed to lease, rent or sell their infrastructure as a service to only those entities that are licensed under Section 4 of the Indian Telegraph Act, who will, in turn, use this infrastructure to provide services on which the government can earn licence fee. In this way, they will be placed at par with current IP-1s, who also do not pay any licence fee. According to TRAI, while suggesting the licensing framework for DCIPs, modern regulatory principles such as principles-based regulation rather than rule-based self-regulation, and ex post rather than ex ante regulations need to be applied. If DCIPs are allowed to provide services only to licensed entities, then the principal-agent relationship between the two can be used for self-regulation.
Another aspect highlighted in the consultation paper is the leasing or sharing of infrastructure between a DCIP and other DCIPs, TSPs and IP-1s. To promote infrastructure sharing, TRAI has proposed that active and passive infrastructure sharing among all licensees should be allowed for those network elements that they are permitted to install under their licence authorisation.
Imposition of entry barriers
The consultation paper also discusses the levy of entry barriers such as entry fees, performance bank guarantee (PBG), financial bank guarantee (FBG) and application processing fees applicable to DCIPs. TRAI argues that the entry barriers may be kept as low as possible as the entry of new players in the field will lead to creation of more DCIs in the country. However, since the DCIPs will operate across the country, it can be contended that they should be treated at par with players who operate at the national level. Accordingly, they will be subject to higher entry fees, PBG, FBG and application processing fees. TRAI has proposed that an entry fee of Rs 20,000 should be levied on DCIPs. It has also suggested imposing an application processing fee of Rs 15,000 for obtaining DCIP authorisation under UL.
With regard to the limits on penalty for DCIP authorisation, there can be a view that since DCIPs will operate at the national level, they should be subjected to similar amounts of penalties as other authorisations under UL that operate at the same scale. However, a counterview is that there would be many new smaller DCIPs that would emerge at the regional level and thus the penalty prescribed should be in line with authorisations that have a regional scope (state level and district level). In line with the second argument, TRAI has proposed a maximum penalty of Rs 2 million for DCIPs and sought stakeholders’ comments on the same.