In 2017, the policy discourse in the Indian telecom sector was predominantly centred on the changing competitive landscape of the telecom market and the deteriorating financial health of operators. The year began with the much-publicised difference of opinion between the Telecom Regulatory Authority of India (TRAI) and the Telecom Commission, which was initiated with the latter writing to the regulator regarding a significant dip in service providers’ revenue during the October-December 2016 quarter, and the resultant fall in licence fees and spectrum usage charges. The commission attributed this to the extension given by TRAI to Reliance Jio Infocomm Limited (RJIL) for its free introductory offer. TRAI, on the other hand, dismissed these claims stating that the promotional offers are not responsible for the deteriorating financial situation of the industry and several factors affect the sector’s commercial health including the lack of policy reforms.
To look into the financial turmoil in the sector, the government, in May 2017, formed an interministerial group (IMG) comprising officials of the telecom and finance ministries. The IMG’s role was to examine the systemic issues of viability and repayment capacity of operators, and submit recommendations for the revival of stressed assets in the sector at the earliest.
Later during the year, the government set the ball rolling for the new National Telecom Policy, 2018 (NTP, 2018). It formed 13 working groups to deliberate on the new policy framework, the draft of which is expected to be issued soon. The new policy is expected to focus on providing affordable internet access to citizens, boosting local manufacturing and facilitating the adoption of next-generation technologies such as internet of things (IoT), machine-to-machine (M2M) communications and artificial intelligence. Further, the policy would include measures that will help improve the financial health of the industry.
Meanwhile, TRAI released its recommendations on several key issues and some important consultation papers during the past year, providing the much-needed clarity to industry players. A look at the key policy and regulatory moves during the past year…
Key policy moves
- Imposition of 18 per cent GST on telecom services: The past year saw the nationwide roll-out of the goods and services tax (GST), which replaced all the major indirect taxes in the country. The GST Council decided to impose an 18 per cent tax on telecom services, a move that evoked sharp reactions from the industry. In the pre-GST regime, telecom services attracted a 15 per cent tax. The finance ministry contended that under the GST regime full input tax credit, which is as much as 2 per cent of the industry’s turnover, can be availed of by telecom service providers. However, the industry argued that the increase in the GST rate for telecom services would be far more than the effective increase in tax credit. The industry also opposed the denial of credit on telecom towers. Taking cognisance of industry concerns, the Department of Telecommunications (DoT) has now urged the finance ministry to consider reducing the GST rate on telecom services to 12 per cent.
- Boost to domestic handset manufacturing: To promote indigenous manufacturing of mobile handsets and their subassemblies, the government in May 2017 approved the phased manufacturing programme (PMP), a roadmap for locally assembling parts used in mobile phones. Under the PMP, the government identified 12 new parts used in handsets to be manufactured domestically. Further, in December 2017, the government increased the basic customs duty on mobile phones from 10 per cent to 15 per cent, making imported phones more expensive than domestically produced ones.
- Hiving off of BSNL’s tower assets into a separate company: In September 2017, the Union cabinet approved a proposal to hive off Bharat Sanchar Nigam Limited’s (BSNL’s) mobile tower assets into a new unit, which will be wholly owned by the operator. Currently, BSNL owns 66,000 of the total 442,000 towers in the country. The approval to form a dedicated tower subsidiary will allow the operator to monetise its telecom tower infrastructure by increasing external tenancies.
- Formation of a high-level group on 5G: Unable to keep pace with global trends in 3G and 4G deployment, the government made concerted efforts for ensuring the early roll-out of 5G services in India. In September 2017, it formed a 22-member committee comprising officials from DoT, the Ministry of Electronics and Information Technology (MeitY) and the Department of Science and Technology, industry representatives and academicians to evaluate and approve the roadmap for a large-scale 5G roll-out in India by 2020 and the development of relevant 5G use cases. The panel has been tasked with creating a research ecosystem for the formulation of intellectual property rights, standards and proof-of-concepts through research projects, public-private partnership projects, test beds and pilot roll-outs. A corpus of Rs 5 billion has been allocated for research and development in this space.
Besides these policy moves, the Telecom Commission in October 2017 approved TRAI’s proposal of allowing telecom operators to share in-building infrastructure such as optic fibre cables and ducts. Further, DoT launched the Tarang Sanchar web portal for sharing information on mobile towers and electromagnetic field emission compliance. It also allowed telecom operators to deploy their switching equipment anywhere in the country instead of restricting them to circles through an amendment to the unified licence conditions. In addition, DoT made it mandatory for telecom operators to get their telecom equipment tested and certified by authorised agencies as per the specified norms from October 1, 2018 onwards.
Key regulatory moves
- Reduction in IUC: In a major move, TRAI decided to reduce the interconnect usage charge (IUC) rate to Re 0.06 per minute from the previous Re 0.14 per minute with effect from October 1, 2017. Moreover, the regulator decided to abolish IUC completely from January 1, 2020, moving to the bill-and-keep regime. The regulator’s decision elicited a strong reaction from incumbent operators such as Bharti Airtel, Idea Cellular and Vodafone India. They claimed that even the earlier rate of Re 0.14 per minute was inadequate to cover costs. These operators had proposed an increase in the IUC to Re 0.30 – Re 0.35 per minute to safeguard their revenues. RJIL, on the other hand, welcomed the move saying that due to the adoption of IP-based technologies, the cost of voice has come down to a fraction of a paise and the benefit must be passed on to customers.
- Introduction of a graded penalty system for call drops: In August 2017, TRAI introduced a graded penalty system for call drops with financial disincentives of up to Rs 1 million per circle per quarter for telecom operators that fail to meet voice quality benchmarks for three consecutive quarters. Under the previous quality of service rules, the penalty on call drops was Rs 50,000 per violation. Under the new rules, operators are levied a penalty incrementally for not meeting call drop parameters set at five different levels – the first being above 2 per cent and the last being above 11 per cent. The regulator also fixed the benchmark for radio link timeout technology allegedly used by telecom operators for masking call drops.
- Recommendations on net neutrality: In November 2017, TRAI released its much-awaited recommendations on net neutrality, reiterating its support for open and non-discriminatory access to the internet. The regulator suggested the prohibition of practices such as blocking, degrading, slowing down and granting preferential speeds or treatment to any content. While it kept content delivery networks and certain specialised services out of the net neutrality framework, it did not exempt the majority of IoT services. TRAI also urged the government to form a multi-stakeholder body for the monitoring and enforcement of its guidelines. Notably, the US officially repealed its net neutrality law in 2017, allowing internet service providers to explore content prioritisation.
- Improvement in ease of doing business: As part of its recommendations for improving the ease of doing business in the telecom sector, TRAI proposed a faster and time-bound system for approval of mergers and acquisitions, more options for conforming to spectrum holding limits post a merger and streamlining of the penalty levy process.
- Recommendations on sustainable telecommunications: In its recommendations on the approach towards sustainable telecommunications, TRAI suggested setting the target for the reduction of carbon emissions at 30 per cent by 2019-20 and 40 per cent by 2022-23, taking 2011-12 as the base year. Further, the regulator recommended that the targets should be reviewed in 2022-23 and operators should evolve a “carbon credit policy” in line with the carbon credit norms.
- Framework for M2M communications and cloud services: In its recommendations pertaining to spectrum, roaming and quality of service-related requirements in M2M communications, TRAI suggested that existing operators should be allowed to provide connectivity for M2M services. Further, it suggested that the government should identify critical services in the M2M sector and these services should be mandated to be provided only by connectivity providers using licensed spectrum. TRAI also released its recommendations on cloud services in India, suggesting the adoption of a light touch regulatory approach for cloud services.
- Public data offices: In July 2017, TRAI proposed a model of public data offices in order to bring broadband connectivity to price-sensitive consumers in Tier I and Tier II cities as well as rural areas. TRAI stated that these offices would be similar to public call offices, where companies will provide pay-as-you-go sachet-sized Wi-Fi facilities priced between Rs 2 and Rs 20, making internet access affordable for the public.
Besides these, TRAI released norms for network testing by new telecom operators, proposed a regulatory framework for internet telephony and issued draft regulations for mobile number portability. Further, the regulator conducted consultations on several pertinent issues such as local telecom equipment manufacturing; next-generation public protection and disaster relief communication networks; unsolicited commercial communication; data ownership; privacy and security; data speed under wireless broadband plans; regulatory principles of tariff assessment; information and communications technology (ICT) services for persons with disabilities; and in-flight connectivity.
Policy and regulatory outlook for 2018
The year has started on a positive note for the industry with the Telecom Commission accepting TRAI’s recommendations to ease the current spectrum holding caps. The commission has also approved raising the overall spectrum cap per operator in a telecom circle from the current limit of 25 per cent to 35 per cent. Further, it has proposed to scrap the current intra-band cap on operators that restricted them to hold only up to 50 per cent spectrum in a single band in a circle. The commission has also accepted the regulator’s suggestion to set a cap of 50 per cent on the combined spectrum holding in the sub-1 GHz bands, including the 700 MHz, 800 MHz and 900 MHz bands, in a circle. Meanwhile, it has accepted the IMG’s suggestion to extend the tenure of payments for auctioned spectrum from 10 years to 16 years and has decided to reduce the rate of interest on delayed payments from 14 per cent to 12 per cent. The commission has also recommended raising the FDI limit for all telecom services to 100 per cent via the automatic route.
Meanwhile, TRAI has released a consultation paper seeking stakeholders’ inputs on the formulation of the NTP, 2018. The regulator has also released the Telecom Interconnection Regulations, 2018, introducing rules for signing network connectivity agreements, provisioning of such connectivity amongst operators at initial stages, augmenting points of interconnection, levying applicable rates or charges, disconnecting ports, and imposing financial disincentives. The rules will come into effect from February 1, 2018.
Apart from the release of the NTP, 2018, several major policy decisions are expected to be made during the year. DoT is planning to remove the separate licence requirement for importing telecom equipment with a view to reducing the time taken in network roll-outs. Further, the government is soon expected to come out with regulations to allow telecom operators to enter into agreements for sharing of network-related infrastructure, thus significantly bringing down operational costs. The government is also in the process of preparing a roadmap for making India a hub for data analytics and a framework for cloud computing for enhancing cloud infrastructure and its usage in the country. Moreover, MeitY is gearing up for Digital India 2.0, which is likely to increase the digital economy from Rs 20 trillion currently to Rs 70 trillion by 2022.
On the regulatory front, TRAI is planning to begin a separate consultation process on the need for regulatory intervention in the over-the-top communication services space. TRAI is also expected to soon come out with recommendations to enable companies to locally conduct research in latest mobile telephony technologies such as 5G. Besides, the regulator will issue recommendations on data privacy, security and ownership and on making ICT services accessible for persons with disabilities. TRAI is expected to take additional steps to improve voice and data connectivity for mobile phone users. These include drive tests for measuring the quality of data services on a more extensive basis, on the same lines that it conducts tests for measuring the quality of calls being made on operators’ networks. Meanwhile, TRAI is likely to arrive at a decision regarding the sale of spectrum in various bands.
Puneet Kumar Arora