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. 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.