Telecom Regulations in India: DOT and TRAI

Telecom industry in India is amongst the heavily regulated sectors in the world.  The sector is primarily regulated by the Indian Telegraph Act, 1885 and the Indian Wireless Telegraph Act, 1933. Under the Acts, Central Government is the exclusive authority for establishing, maintaining and working telegraph and wireless telegraphy equipment and has the authority to grant licenses for such activities.

Telecom Regulations Overview

Until the year 1985, Department of Posts was the exclusive governing body for telecom-related activities in India. Likewise in the same year, Department of Telecommunications (“DoT”) was created and telecommunications was separated from the ambit of Department of Posts. Till 1990’s the Indian telecom sector was owned and controlled by the Government. In the year 1994, the union government introduced National Telecommunications policy (NTP) and the telecom sector was soon liberalized permitting private ownership. Until 2013, only 75% FDI was allowed with 49% under automatic route and above it under the approval route. Finally, via press note 6 of 2013 series 100% FDI was permitted into the sector with 49% under the automatic route.

The Telecom Regulator:

Telecom Regulatory Authority of India (“TRAI”) is an autonomous statutory body established under Telecom Regulatory Authority of India Act, 1997 (“TRAI Act”). Initially, TRAI exercised both regulatory and dispute resolution functions. In the year 2000, TRAI Act was amended to establish the Telecom Dispute Settlement Appellate Tribunal (“TDSAT”) to solely deal with telecom disputes.

TRAI is the sole authority in fixing tariffs and rates for telecom services. TRAI has the power to issue recommendations with respect to various telecom related issues. Such recommendations made by the TRAI are not binding on the Central Government. However, the Central Government has to mandatorily ask for recommendations from TRAI with respect to need and timing of new service provider and terms and conditions of the license to be granted to the service provider.  Further, Information Technology Act, 2000 has indirect application to some telecom and internet related issues, particularly surveillance rights of the Government.

Telecom Commission:

Telecom Commission (“Commission“) is the highest decision-making body. All recommendations by TRAI are to be approved by the Commission for implementation. The Commission consists of a Chairman who is secretary to Government of India in DOT and four full-time members, who are ex-officio Secretaries to the Government of India in Finance, Production, Services, & Technology departments. The part-time Members of the Commission are CEO, NITI Aayog, Secretary (Department of Economic Affairs), Secretary ( Department of Electronics & Information Technology) and Secretary (Department of Industrial Policy & Promotion).

TDSAT Overview:

TDSAT has been established to deal exclusively with disputes between:

1. The licensor and a licensee.
2. Service providers.
3. Service providers and groups of customers.
4. Against certain orders of TRAI.

Any party aggrieved by the order of TDSAT can file an appeal only before the Supreme Court of India. TDSAT comprises of a Chairman and two members who hold the office for a term of 3 years. TDSAT chairman must have been in the post of chief justice of a High Court or as a judge of the Supreme Court. The other two members must have been in the post of Secretary to the Indian government for a period of 2 years or must have extensive knowledge in the field of telecommunication, commerce, industry, and technology.

Telecom Regulations | License:

License to permit telecommunication services is issued solely to Indian domiciled companies. Foreign companies can operate telecom services through the license issued to their Indian subsidiaries.  DOT issues following types of license:

1. Unified License (All Services)
2. Access Service (Service Area-wise)
3. Internet Service (Category-A with All India jurisdiction)
4. Internet Service (Category-B with jurisdiction in a Service Area)
5. Internet Service (Category-C with jurisdiction in a Secondary Switching Area)
6. National Long Distance (NLD) Service
7. International Long Distance (ILD) Service
8. Global Mobile Personal Communication by Satellite (GMPCS) Service
9. Public Mobile Radio Trunking Service (PMRTS) Service
10. Very Small Aperture Terminal (VSAT) Closed User Group (CUG) Service
11. INSAT MSS-Reporting (MSS-R) Service
12. Resale of International private Leased Circuit (IPLC) Service

[These various licenses will be discussed in detail in another post]

As the government liberalised telecom regulations in 1900’s to permit private players two types of licenses were introduced: Cellular Mobile Telephone Service (CMTS) license and the Basic Telecom Service (Basic) license. In the year 2003, Unified Access Service Licensing (UASL) regime was introduced by DoT on the recommendation of the TRAI. The UASL clubbed CMTS and Basic services and permitted a service provider to offer both fixed and/or mobile services under the same license, using any technology. The country was divided into 23 service areas, 19 telecom circles and 4 metro circles for the purpose of implementing unified access services (UAS). Licenses are awarded by an auction conducted by DOT. The validity of UASL is twenty years.

Telecom licensing requirements are as follows:

1. Entry Fee: Telecom licenses are granted through an auction conducted by DoT. Any entity which is not holding spectrum in a given bandwidth range prior to the auction is required to pay an entry fee of INR. 15 crore to participate in the auction (fee as per the last auction).
2. Net worth: As per last auction terms, the license applicants are required to show a net worth of INR.100 crores per Service Area. The applicant company is required to have a minimum paid up equity capital equal to one-tenth of net worth.
3. Technical Standards: The equipment used by the company shall comply with the standards set by Telecommunications Engineering Center, DOT or in absence such regulations the equipment shall.
4. Security Related: The Chief Information Officer / Chief Information Security Officers, and in-charge of GMSC, MSC, Soft-Switch, Central Database, ILD Gateway, VSAT Hub, INSAT MSS-R Hub, PMRTS Central/Base Station, Gateway, Switches and System Administrators and administrators of similar telecom equipment shall be Indian. The majority of directors on the board of the Licensee company are required to be Indian citizens.  In the absence of mandatory TEC standard, the Licensee may utilize only those equipment and products which meet the relevant standards set by International standardization bodies, such as, ITU, ETSI, IEEE, ISO, IEC etc.
5. In addition to holding a valid UL, a separate specific authorization and license are required from the Wireless Planning Commission wing of the DOT for the operation of the Wireless element of the Telecom Service.
6. Any telecom service provider who is awarded a license through auction is required to pay an annual license fee which is 8% of ‘adjusted gross revenue’ in addition to bidding amount.

Telecom Regulations | Penalties:

Part-IV of the Indian Telegraph Act prescribes penalties. The penalty for operating a telegraph without permission is a fine of up to INR 500. Under Sec 20-A the penalty for breach of license condition is a fine of INR 1000; and a further fine of INR 500 for every week of continuation of the violation.  Under Indian Wireless Telegraphy Act, 1933, whoever possesses any wireless transmitter without a license is punishable with an imprisonment of up to 3 years or a fine of INR 1000 or both.

As these penalties are fairly low under the regulations, clauses for heavy penalties for breach of telecom licenses are included in the license agreements with telecom providers. Under the current license regime, penalties for breach of a license can be up to INR 50 crore / INR 500 million.

Telecom Industry – Key Shareholding

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Deals in Telecom Sector:

1. In 2007, UK based mobile operator Vodafone bought 67% stake in the then fourth largest mobile operator Hutchison Essar for a deal worth $13.1 billion.
2. In 2017, Idea Cellular and Vodafone announced a $23 billion merger leading to Vodafone Idea Limited. The merger concluded in September 2018 creating the largest Telecom operator with a 42% share of active subscribers.
3. On 14 September 2016, Reliance Communications and Aircel announced the merger of their mobile network operations. The merger was later called off citing legal and regulatory hurdles.
4. In October 2017, Airtel acquired the subscribers of debt-laden Tata Docomo in “debt-free cash-free” merger.
5. In December 2017, Mukesh Ambani-promoted Reliance Jio has entered into a definitive agreement to buy the wireless infrastructure assets of his younger brother Anil Ambani-promoted Reliance Communications. The deal was pegged close to Rs 24,000 crore.
6. In May 2018, Airtel bought Telenor India in a no-cash deal with a liability to pay the outstanding spectrum payments of Rs 1,650 crore.

**Similarly, Cable television and broadcasting in India is regulated by Cable Television Networks (Regulation) Act, 1995, Cable Television Networks Rules 1994, Policy Guidelines for uplinking from India, Policy Guidelines for downlinking of Television Channels, Guidelines for obtaining DTH license, Prasar Bharti (Broadcasting Corporation of India) Act 1990, and Sports Broadcasting Signal (mandatory Sharing with Prasar Bharti) Act 2007.