For the Indian telecom sector, the year 2021 was an action-packed one from a policy and regulatory standpoint. The government introduced a slew of “big bang” procedural and structural reform measures to address some of the long-standing issues of the industry and alleviate the financial distress of telecom companies. The reform package included, among other things, a four-year moratorium on unpaid dues, elimination of spectrum usage charges (SUC) on auctions and permission for 100 per cent foreign direct investment through the automatic route. The government also sought to fast-track the launch of 5G services with an indigenous 5G test bed and laid the groundwork for 6G to take an early lead on the technology. Further, it unveiled a production-linked incentive (PLI) scheme to boost semiconductor manufacturing amidst global chip shortages. In another key move, the government finally nullified the retrospective tax amendment that had brought the Vodafone Group at loggerheads with it.
Significant activity was witnessed on the regulatory front as well, with the Telecom Regulatory Authority of India (TRAI) releasing its recommendations and consultation papers on several pertinent issues. Key among those were the regulator’s suggestions on the licensing framework for satellite-based connectivity and a roadmap to promote broadband connectivity in the country further. Moreover, TRAI initiated consultations on the nature, quantum and pricing of 5G airwaves for the next round of spectrum auction. It also sought industry views on improving the ease of doing business in the telecom sector.
tele.net takes a deep dive into the major policy and regulatory initiatives undertaken during the past year and the outlook for 2022…
Key policy moves
- Structural reforms: The government, in September 2021, announced the much-awaited policy decision to exclude non-telecom revenue, although on a prospective basis, from the definition of the adjusted gross revenue (AGR). This means that operators can now retain a much bigger pie of their revenues and leverage the same to clean their books and undertake investments to ramp up their networks. Further, the government reduced the performance and financial bank guarantee requirement of telecom operators by 80 per cent, thereby unblocking the cash that operators earlier needed to keep with banks to furnish bank guarantees. The government also reduced the interest rate on delayed payments of licence fee and SUC from the State Bank of India’s marginal cost of lending rate (MCLR) plus 4 per cent to MCLR plus 2 per cent, and decided to do away with the imposition of penalty and interest on penalty on past dues. Several measures were also announced to enable operators to increase their spectrum footprint. Operators will not be required to furnish bank guarantees to secure instalment payments for auctions to be held henceforth. Further, the government abolished the SUC, increased spectrum tenure from 20 to 30 years and permitted operators to surrender spectrum after 10 years for the airwaves to be acquired in future auctions. To encourage spectrum sharing, the additional SUC of 0.5 per cent levied on such arrangements was also removed.
- Liquidity relief: The reform package also sought to help operators improve their liquidity position by enabling them to clear their past dues over an extended period. To this end, the government offered a four-year moratorium on past dues related to AGR and spectrum acquisitions, with an option to convert the due amount on these deferred payments to equity at the end of the moratorium period. Bharti Airtel and Vodafone Idea Limited (Vi) have opted for the four-year moratorium, while Vi and Tata Teleservices Limited also opted to convert their pending dues to government equity. With the move, the government will now hold around 35.8 per cent and 9.5 per cent stake in Vi and Tata Telecom respectively. Meanwhile, the government has clarified that it will only remain an investor in these companies and they would be run, as usual, by professionals.
- Groundwork for 6G: Even as the country awaits the commercial launch of 5G services, the government has set the ball rolling to prepare for the roll-out of the next generation of wireless services, 6G. To this end, it constituted a technology innovation group (TIG) in December 2021 to co-create and participate in the development of a 6G technology ecosystem globally through increased participation in 6G standards development at international standard-setting bodies. The TIG comprises members from the government, academia, industry associations and the Telecom Standards Development Society of India. Taking a cue from the government, telecom operators have also started looking towards 6G. Leading the pack is Reliance Jio Infocomm Limited, which recently collaborated with Finland-based University of Oulu for developing 6G-enabled products in defence, automobiles, industrial machinery, consumer goods, urban computing and autonomous traffic.
- Boost to semiconductor manufacturing: To develop a sustainable manufacturing ecosystem for semiconductors, a key component of most telecom and electronic products, the government, in December 2021, approved a PLI scheme that envisages an investment of Rs 760 billion in semiconductor production over the next five to six years. The programme aims to provide attractive incentive support to companies engaged in the production of silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics and sensor fabs. Under the scheme, the government will extend financial support of up to 50 per cent of the project cost on a pari passu basis to eligible applicants. Further, the central government will work closely with state governments to establish technology clusters with requisite infrastructure in terms of land, semiconductor grade water, high quality power, logistics and research ecosystem. Moreover, the government extended the tenure of the PLI scheme for large-scale electronics manufacturing, with a focus on mobile phones, by a year until 2025-26.
- Viability gap funding (VGF) for BharatNet: In order to facilitate the roll-out of the BharatNet project, the union cabinet approved its implementation through the public-private partnership mode in villages in 16 states. The cabinet also approved a total outlay of Rs 294.3 billion for the project in these states, with a VGF of Rs 190.41 billion. Additionally, the cabinet approved the extension of BharatNet to cover all the inhabited villages in the remaining states and union territories.
- Expansion of internet services in the Northeast and rural areas: In August 2021, the Universal Service Obligation (USO) Fund signed an agreement with Bharat Sanchar Nigam Limited (BSNL) to improve the availability of high speed internet access in the north-eastern states. Under the agreement, the USO Fund would extend financial support to BSNL for three years for hiring 10 Gbps international bandwidth from Bangladesh Submarine Cable Company Limited, Bangladesh, for providing internet connectivity to Agartala. Further, in November 2021, the government approved the USO Fund scheme for provisioning of mobile services in the uncovered villages across five states – Andhra Pradesh, Chhattisgarh, Jharkhand, Maharashtra and Odisha. Under this project, 4G-based mobile services will be provided in 7,287 uncovered villages – 44 districts across the five states. The estimated cost of implementation is around Rs 64.66 billion, including operational expenses for five years and the project is expected to be completed within 18 months.
Amongst other policy measures, the Digital Communications Commission approved the norms to provide easy access to spectrum for outdoor testing of new technologies. Further, the Department of Telecommunications (DoT) amended licence regulations to allow active infrastructure sharing among telecom operators, including core networks. DoT also amended commercial very small aperture terminal (VSAT) licence rules to enable the use of satellite connectivity to provide backend connectivity for mobile networks. Through this amendment, VSAT operators will be able to provide backed connectivity for cellular mobile services through satellite using VSAT to access service providers. Additionally, the DoT allowed the use of VSAT services for setting up Wi-Fi hotspots with backed connectivity. The government also amended the Indian Telegraph Right of Way (RoW) Rules to prescribe various terms and conditions for laying overhead optic fibre cable (OFC). The RoW Rules were earlier applicable to only underground OFC and mobile towers.
Key regulatory moves
- New broadband roadmap: TRAI, in August 2021, unveiled a new roadmap outlining several measures that need to be taken to improve broadband connectivity in the country. These included a revision in the minimum download speed of wired broadband to 2 Mbps from the present 512 kbps, licence fee exemption to companies providing internet connectivity and a pilot direct benefit transfer programme to fuel data usage among rural users. TRAI also recommended providing backhaul connectivity on optical fibre using the BharatNet network through service level agreements with operators.
- Recommendations on satellite-based low-bit-rate connectivity: To boost the use of satellite communications, TRAI recommended that all satellite frequency bands be used for providing satellite-based low-bit-rate connectivity. Further, it suggested that for internet of things and low-bit-rate applications, the relevant service licensees may be allowed to provide satellite connectivity for all kinds of network topology models, including hybrid, aggregator and direct-to-satellite. TRAI also suggested that for security reasons, service licensees should be mandated to establish their earth stations in India, corresponding to the chosen foreign satellite system. It further recommended that DoT put in place a comprehensive, simplified, integrated, end-to-end coordinated, single-window online common portal for all agencies involved in granting approvals or permissions related to satellite communications.
- Separate authorisation for access network providers: In August 2021, TRAI suggested creating a different authorisation mechanism for access network providers who plan to offer network services on a wholesale basis. This, as per TRAI, is necessary to differentiate licence authorisation for access network providers and virtual network operators (VNOs) seeking and entering into pacts with network providers. Under the proposed mechanism, the access network provider would not be permitted to provide services to end-customers directly. The scope of the access network provider would be limited to establishing and maintaining the telecom network and selling network services on a wholesale basis to VNOs for retail purposes. As per the regulator, the access network provider should also be permitted to provide/share its network resources to/with telecom service providers who are licensees and vice versa. Further, TRAI has recommended that like unified licence operators, access network providers also be permitted to acquire spectrum through auctions, subject to the prescribed caps and allowed to enter into spectrum trading and sharing arrangements with other players. Further, they should also have access to backhaul spectrum, numbering resources and the right to interconnection.
Among other key initiatives, TRAI initiated the consultation process towards putting in place a regulatory framework for the establishment of data centres, content delivery networks and interconnect exchanges in India, with a view to attracting investments in the data centre market and ensuring ease of doing business in the sector. It also issued a consultation paper on improving ease of doing business in the telecom and broadcasting sector, seeking views on making all permissions online and setting up a single-window clearance system that will coordinate with other ministries involved in granting permission to a telecom or broadcast player. Meanwhile, TRAI also proposed eliminating unstructured supplementary service data-based mobile banking and payment services rate to boost digital infrastructure inclusion of feature phone users.
With the government planning to hold the second round of spectrum auction later this year, TRAI also initiated consultations around the pricing and quantum of 5G spectrum to be auctioned in the 526-698 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz, 3300-3670 MHz and 24.25-28.5 GHz bands.
More reforms on the anvil
During the past one year, the government announced several policy measures to infuse a fresh lease of life in the country’s telecom sector. However, most of the reform measures announced are prospective in nature and it remains to be seen if they can provide immediate relief to the industry. A keenly watched development would be the impact that these reforms have in raising the appetite of telecom players in the next round of auctions. In auctions held in March last year, the government managed to sell only 37 per cent of the total airwaves put on sale because of high reserve prices. Moreover, no spectrum was sold in the 700 MHz band, which is considered one of the premium sub-GHz bands for deploying 5G networks. 5G airwaves will be put up for sale again in the next spectrum auction and the subsequent 5G spectrum footprint of operators will have significant ramifications on the roll-out of the next generation of wireless services in the country.
Meanwhile, the government is planning to soon bring a second set of reforms for the industry with the aim of overhauling the laws governing the sector. The government is exploring ways to allow companies to merge, expand and operate without multiple bureaucratic approvals. Further, the government aims to put in place a stable policy framework to facilitate the acquisition of land, electricity usage and other inputs involved in the provision of telecom services.
Industry experts feel that with a series of proposed and already announced reform measures, the government has done its bit in rescuing the beleaguered telecom sector. The onus is now on the telecom companies to bring the sector out of the woods.