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Indian Telecom Sector: Regulation, Licensing, Disputes, and FDI


Introduction

  • The Telecom Sector in India is the second-largest in the world telecommunications market with over 1151 million wireless subscribers.

  • Telecom Sector contributes around 6% of the total GDP of the country and the analysts predict this figure to go up in coming years.

  • The growth in technology from 1st Generation (1G) to 4th Generation (4G) during past years has resulted in the booming of the telecom sector in terms of usage, usability space, provision of high-speed internet, etc. This boom is predicted to continue as the 5th Generation is on the cards and will probably be launched at the end of 2021.

  • Currently, the telecom operators are paying an astonishing 30% of their revenues in taxes and levies for spectrum licenses and operational license fees.

  • The Indian Telecom Sector is presently being regulated by the Telecom Regulatory Authority of India (TRAI).

 

Telecom Regulatory Authority of India (TRAI)

  • TRAI was set up as a statutory body to regulate the telecommunications sector by the Government of India under Section 3 of the Telecom Regulatory Authority of India Act, 1997.

  • The idea behind setting up an independent body for the Telecom sector was to create a suitable environment for the growth of the telecommunication market in India and help India to compete with the global telecom operating companies.

  • The TRAI has a Chairman along with two full-time and not more than two part-time members, all appointed by the Government of India. Only the persons who have previously served as Secretary/Additional Secretary under Union/State Government and possessing special knowledge of the sector can be nominated as members of TRAI.

  • As Indian Telecom Sector was facing several challenges and there was a lack of functional clarity, the government thought of organizing a dispute settlement mechanism in the country. As a result, Telecom Disputes Settlement Appellate Tribunal (TDSAT) was set up in 2000 under an amendment to the previous Act.

 

Challenges faced by Telecom Sector in India

The Spectrum

  • The mobile operators require a spectrum to provide telecom services to subscribers and enhance the performance. As compared to developed economies, India lags in the availability of the spectrum.

  • The sky-rocketing cost of the spectrum in India’s spectrum auction process also forces the telecom companies to raise prices for their services.

  • Furthermore, the situation is further worsened as India’s defense services and ISRO are demanding reservation in the spectrum which could lead to pushing back for the launch of 5G services in India.

Lack of Infrastructure

  • If the operators plan to expand their networks to rural/semi-rural regions of the country, the initial fixed cost is humongous.

  • The reasons for this are the lack of basic infrastructure like roads, power lines, etc., low literacy rate, lack of required skills in the rural population.

Lack of Fixed Line Penetration

  • A fixed-line network is the web of telephone lines traveling through metal/optical wires nationwide.

  • As compared to developed countries, the fixed-line penetration in India is quite low. The number of towers in India that are connected to fiber networks is 25% as compared to over 70% in developed economies.

Delayed rollout of innovative products and services

  • The government policies and regulations aren’t that liberal as developed countries and have created an unfavorable environment.

 

Licencing Regime in India

The Indian Telegraph Act 1885 and the Indian Wireless Telegraph Act 1933 are the tools of governance in terms of the grant of telecom licenses.

  • According to these Acts, the Central Government has the exclusive authority to establish, maintain, and work out telegraphs, and wireless telegraphy equipment, and to grant licenses for such activities.

  • The 1885 IT Act defines “Telegraph” as any appliance, instrument, material, or apparatus used or capable of use for transmission or reception of signs, signals, writing, images, and sounds or intelligence of any nature by wire, visual, or other electromagnetic emissions, Radio waves or Hertzian waves, galvanic, electric or magnetic means.

  • In November 2003, a new Licensing regime called Unified Access Service License (UASL) was introduced which permitted an access service provider to offer both fixed and/or mobile services under the same license, using any technology. It came into being in 2013.

  • In June 2012, the National Telecom Policy was issued to simplify the licensing framework, and to strive for the creation of One Nation-One License across services and service areas.

 

Differential Licensing in Telecom Sector of India

  • In May 2019, the Department of Telecommunications (DoT) stated that the National Digital Communications Policy 2018, under its ‘Propel India’ mission, has a vision of reforming the licensing and regulatory regime to fast track the investments and innovation and promote Ease of Doing Business.

  • Enabling unbundling of different layers through differential licensing is one of the action plans for fulfilling the strategy.

  • For that, the Telecom Regulatory Authority of India (TRAI) was requested to furnish recommendations and seek stakeholders’ (telecom operators) inputs on possible benefits and measures.

  • Although it’s a far-sighted idea, various telecom operators have collectively opposed the move to introduce differential licensing via unbundling of various layers (infrastructure, network, services, and application layer).

 

FDI in Telecom


  • FDI (Foreign Direct Investment) up to 100% is allowed in Telecom Services Sector.

  • Out of this, 49% can be through automatic route whereas remaining 51% can be done through government route subject to observance of licensing and security conditions by the licensee as well as investors as notified by the Department of Telecommunications (DoT) from time to time.

  • The responsibility for providing approval for the 51% share is with Foreign Investment Promotion Board (FIPB) and Government’s consolidated FDI Policy

 

Conclusion

As the Telecom sector is very crucial for the ‘Digital India’ initiative and will play a key role in bringing the next wave of digitalization, the government should actively facilitate shared infrastructure with new policies and legislations. Tax relaxations and consortiums for network development and management are the other solutions that can be implemented by the government.