Telecom

Business 5

Overview of Telecom SectorIntroductionTelecommunications An Infrastructure sectorTelecommunication depends on Technology & Legal framework regulating the Telecom sector of India.

2Overview of telecom sector (1)Telecommunications has been recognized the world-over as an important tool for socio-economic development for a nation.It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy.Overview of telecom sector (2)It has become especially important in recent years because of enormous growth of information technology and its significant potential for the impact on the rest of the economyThe Telecom Sector, which has the multiplier effect on the economy, has a vital role to play in economy by way of contributing to the increased efficiencyOverview of telecom sector (3)The available studies suggest that income of business entities and households increases by the use of telecom services. Thus it contributes to the growth in GDPIn recent times, country has emerged as one of the fastest growing telecom markets in the world, particularly by the unprecedented growth in mobile telephony. This high growth rate has been achieved in major part due to sharp fall in tariffsOverview of telecom sector (4)The rapid growth in Indian telecom services has prompted major global manufacturers of telecom equipment to consider investing in India, paving the way for extensive provision of modern communication services in rural areas and also provide a strong boost to government revenues. Overview of telecom sector (5)With the successfully concluded auctions of the 3G and BWA spectrum, this growth is set to become even more pronounced. Indian telecom has become the second largest wireless network in the world after China

Snap Shot of Telecom Sector

Indian Telecom market is one of the fastest growing markets in the world.It is the second largest network in the world after China.Over 18 million connections are being added every month.

Services in Telecommunications (1)Land line or fixed network telephone servicesGSM cellular telephone services (Mobile phone services)Wireless in local loop mobile telephone servicesInternet ServiceElectronic Mail Service

9Services in Telecommunications (2)V Sat Communication ServiceRadio Paging serviceVoice mail servicesData servicesE-commerceGlobal mobile personal communication servicesWireless broadband communicationBroadcasting

Legal Framework Indian Telegraph Act 1885, and rules made thereunderThe Wireless Telegraphy Act 1933 and rules made thereunderThe telegraph wires (Unlawful Possession) Act 1950, and the rules made thereunderThe Cable Television Network (Regulation) Act 1996, and the rules made thereunderThe Telecom Regulatory Authority of India Act 1997, and the rules made thereunder11Telegraph, Telecommunication Services and Wireless CommunicationTelegraph

The Indian Telegraph Act 1885, only defines the term telegraph; it does not define telecommunications services or provide for any standard for the provisions of telecommunication services The main focus of the Telegraph Act 1885 is to govern the establishing, operating and maintaining of telegraphs and thereby it covers each form of telecommunication service under it.Telecommunication ServicesThe definition of the term telecommunication services is defined in 2(k) of the Telecom Regulatory Authority of India Act 1997

Wireless CommunicationAny means of transmission, omission or reception of signs, signals, writing, images and sounds or intelligence of any nature by means of electricity magnetism, conductors between the transmission and receiving apparatus.12Why TRAIThe entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.Continue..TRAIs mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society.One of the main objectives of TRAI is to provide a fair and transparent policy environment, which promotes a level playing field and facilitates fair competition.

Continue..In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the AuthorityContinue..The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAIThe Telecom Regulatory Authority of India (TRAI)TRAI is to supervise the functioning of different telecom service providers and their activities can be regulated in accordance with provisions of the said Ordinance.Original Functions of TRAI Need & Timing for introduction of new service providerTerms & Conditions of license to a service providerRevocation of license for non-compliance with its terms and conditionsMeasures to facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such servicesTechnological improvements in the services provided by the service providers:Type of equipment to be used by the service providers after inspection of equipment used in the networkMeasures for the development of technology and any other matter relatable to telecommunications industry in general:Efficient management of available spectrum

17TRAIRegulatory Functions of TRAI are:Ensure compliance of terms and conditions of licenseFix the terms and conditions of inter-connectivity between the service providers, irrespective of the terms of the license issued prior to the TRAI amendment Act 2000:Ensure technical compatibility and effective inter-connection between different service providers:Regulate arrangements amongst service providers for sharing their revenue derived from providing telecommunication servicesLay down the standards of quality of service to be provided by the service providers to ensure the quality of service conduct periodic and survey of such service provided by the service providers so as to protect the interest of the consumers of telecommunication serviceLay down and ensure the time period for providing local and long distance circuits of telecommunication between different service providersMaintain register of interconnection agreements and of all other matters as may be provided in the regulationsEnsure effective compliance of universal service obligation

18National Telecom PoliciesIn 1991, telecom equipment manufacturing was opened to private sector and. In July 1992, private investment was allowed in the sub-sector of value added services

Electronic mailVoice mailData servicesAudio text servicesVideo text servicesVideo conferencingRadio pagingCellular mobile telephone19National Telecom Policy 1994National Telecom Policy 1994 (NTP 1994) was a broad statement of objectives to bring into focus the requirement for promoting the development sector in India through private participation.

Basic Services Foreign equity restricted to 49%Cellular Services Foreign equity restricted to 49%Radio Paging - E-mail

20

Key features of the NTP 99

Strengthening of Regulator.National long distance services opened to private operators.International Long Distance Services opened to private sectors.Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisagedContinue..Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.Department of Telecommunication Services (DTS) corporatised in 2000.Spectrum Management made transparent and more efficient.

New Telecom Policy 1999The requirement for a new policy framework due to the unsatisfactory implementation of the National Telecom Policy 1994, is recognised in the New Telecom Policy 1999, which states: The government recognizes that the result of privatization has so far not been entirely satisfactory. While there has been a rapid rollout of cellular mobile networks in the metros and states with currently over 1 million subscribers, most of the projects today are facing problems. The main reason , according to the cellular and basic operators are unable to arrange financing for their projects and therefore complete their projects. The New Telecom Policy 1999 sought to create a new regulatory framework for the various telecom service providers and towards that end specifically characterized the various service providers as follows:

Cellular mobile service providers, fixed service providers were collectively characterized as access providers Radio paging service providers Public mobile radio trunking service providers National long distance operatorsInternational long distance operatorsOther service providersGlobal mobile personal communication by satellite service providersV-SAT based service providers

GMPCSGMPCS is a personal communication system providing transnational, regional or global coverage from a constellation of satellites accessible with small and easily transportable terminals. Whether the GMPCS satellite systems are geostationary or non-geostationary, fixed or mobile, broadband or narrowband, global or regional, they are capable of providing telecommunication services directly to end users. GMPCS services include two-way voice, fax, messaging, data and even broadband multimedia.RADIO PAGING SERVICESApager(often called abeeper) is a simple personaltelecommunicationdevice for short messages. A one-way numeric pager can only receive a message consisting of a few digits, typically a phone number that the user is then requested to call. Alphanumeric pagers are available, as well as two-way pagers that have the ability to send and receive email, numeric pages, andSMSmessagesWhat is PMRTS?Public Mobile Radio Trunking Service (PMRTS) is an instant, two-way mobile (radio) communication service that allows a group of people to communicate with each other, even if some or all of them are on the move. When radio channels are trunked, it means that your radios automatically get a free 'path', at the press of a button, to communicate with each other.Migration package The New Telecom Policy 1999, was immediately sought to be implemented for the existing licensees. The government offered, what came to be known as the migration package in accordance with the terms of which the existing cellular and basic service licensees would migrate from the regime established pursuant to the National Telecom Policy 1994 to one being sought to be established under the New Telecom Policy 1999. Some of the main terms of the migration package that had been reported were as follows:the licensees were required to pay a one-time entry fee and thereafter a license fee as a percentage share of the gross revenue of the licensee under the license.The duopoly regime for licenses was terminated and replaced by a multiple player market.The shareholder lock-in period was extended from three years from the effective date, to five years from the effective date.The license period was extended to 20 years.

3G Cellular TechnologyOne of the main developments of technology in relation to cellular telephony has been the development of what has come to be popularly referred to as 3G Cellular Technology. 3G Cellular technology indicates the ability to provide a cellular service customer with multimedia communication on his cellular telephone using the cellular service providers network.Using 3G technology it would be possible for a cellular user to access the internet, receive multimedia messages and even have movies and other live multimedia feeds transmitted and shown on the phone. Guidelines for infrastructure service providers category-I (IP-I)The applicant must be an Indian company, registered under the Companies Act 1956.There is no restriction on the level of foreign equity in the applicant company.The registration for IP-I shall be on a non-exclusive basis without any restriction on the number of entrants.The applicant company shall make its own arrangement for Right of Way.The IP-I registered company shall provide dark fibers, right of way , duct space, towers on lease or rent out or sale basis to the licensees of the telecom services on manually agreed terms ad conditions.

Guidelines for Infrastructure Service Providers category-II (IP-II) In order to ensure that the application submitted by the applicant company is considered, the following criteria should be satisfied;The applicant must be an Indian company, registered under the Companies Act 1956.The foreign equity in the applicant company will not exceed 49 per cent at any time during the entire license period

In case the applicant is not found to be eligible for grant of license for IP-II, the applicant will be informed accordingly where after , he can file a fresh application removing the deficiencies. The applicant company shall make its own arrangements of right of way (RoW). However , the Central Government will issue necessary notification on request bringing the IP-II licensees for the purpose of placing telegraph lines under Part III of the Indian Telegraph Act 1885.An IP-II licensee can lease or sell or rent out end-to-end bandwidth to the other licensees of telecom services on mutually agreed terms and conditions, subject to the restrictions issued by TRAI under the TRAI Act 1997.An IP-II licensee has to provide the infrastructure in a non discriminatory manner. V-SAT Service In accordance with the New Telecom Policy 1999, the government of India has allowed grant of license on non-exclusive basis to Very Small Aperture Terminal (VSAT) service provider for a 20 years extendable one time by 10 years. The commercial VSAT service provider can offer the service on commercial basis to the subscribers by setting up a number of Closed User Group (CUG) where as in the captive VSAT service, only one CUG can be set up for the captive use of the licensee.

Level Playing Field and Interconnection Allocation of FrequencyThe Right of WayThe main Clearances include service clearance, WPC license, SACFA Clearance Essential Requirement for Telecom NetworkThe value of any telecom network is only when it is able to provide subscriber with ability to communicate with subscriber of existing network. This is only possible through interconnectivity between the two network the terms of interconnection should encourage economic and efficient use of investment in telecom sector in terms of:

Level Playing Field and InterconnectionLevel Playing Field and InterconnectionEncouraging efficient entry and exist of messages between the networks.Encouraging efficient build or buy decision to be taken by service provider for efficient use of resources, providing appropriate incentives to various service provider to invest innovate increase quality reduce cost of providing services. Maximize benefit to subscriber to networks of service provider.Interconnection can be categorized as being two types:Access interconnection is when two provider agree to provide to each other the facility to allow call to originate from there networks and end on other network.Transit interconnection comprises an interconnection between two networks for conveying a call or signal but not for originating and terminating the call.

Level Playing Field and InterconnectionAnother important issue relating to interconnection is that of interconnection pricing.When interconnection costs are low , the new entrant has less incentive to build its own network- to lay its own cables, establish new links where existing network already exists.Upon obtaining a license from the WBPC wing of DOT, a licensee has to obtain the approval of standing advisory committee on frequency allocation (SACFA) for each of the sites at which the licensee intends to established a fixed station and antena for undertaking telecommunication using frequency so allocated Allocation of FrequencyService License:- for undertaking the establishment, operation and maintenance of telegraph under s.4 of Telegraph Act.WPC License:- For allocation frequency that can be used by telecom network.SACFA Clearance: This is site specific approval for placing or establishing wireless equipment at specific site.

The Main ClearancesA telecommunication network require the acquisition of easementary right to lay down the telecommunication wires or optical fibre cable or other form cableUnder telegraph Act, 1885 the telegraph authority has power to place and maintain a telegraph line under, over, along or across and post in or upon an immovable property.The new telecom policy 1999 clearly deals with the aspect of right of way but does not provide a structured delegation of power of telecom authority to the licensee under provision of telegraph Act, 1885.

The Right of WayFinancing of telecommunication projects has certain distinct issues due to nature of the infrastructure sector.In telecom sector, the construction period carries for almost entire period since network need to constantly grow to achieve greater subscriber penetration.The viability of telecom project depends on its ability to achieve subscriber penetration levels.

ISSUES RELATING TO FINANCINGISSUES RELATING TO FINANCINGViability of Network plan, Project plan, and consumer and revenue projections. The plan provide network rollout by the project company and plan providing the implementation of entire project by project company is critical in telecommunication sector. The consumer and revenue projection are directly dependent upon roll out of network and implementation of the project. Lenders to link reimbursement of debt to development of network.ISSUES RELATING TO FINANCING2. Project Cost The projected cost of various phases of telecommunication project would be critical factor in terms and condition of financing as in every financing, the lenders would be analyzing the basis for the projection of project cost. 3. Technology The lenders would be looking at technology of the network. If technology is too outdated or is at risk of being outdated, there may be specific conditions that may be imposed by the lenders. If technology is too advanced the lenders may require majority of network to be built on tested technology.

ISSUES RELATING TO FINANCING3. TechnologyThe type of technology to be used would be clear dependent on cost of technology and ability of potential market to absorb such cost.The Iridium project was to have single mobile number throughout the globe even in most remote areas. It failed in India because it was too expensive for its limited market.4. Rights of WayThe cost of obtaining the rights of way and the time frame within which these rights can be obtained by the project company would be crucial factor for cost of project and time frame of implementation, ability to achieve service penetration and generate sufficient revenues.ISSUES RELATING TO FINANCING5. Debt, debt redrawn and debt repaymentBased on project details the lenders would have to determine the extent of exposure that they are willing to undertake, the conditions precedent to the drawdown of debt, the debt repayment schedule that they want to impose.It assumes more importance in telecommunication sector owing to specific features and risk that may be associated with given project.Lender Security The most valuable assets of telecom company are: 1. The license granted to it by licensor 2. The frequency allocated to it by the WPC(WIRELESS PLANNING & COORDINATION ) Wing of the DOT.The regime under telecom licenses does not provide any comfort to lenders.The Tripartite Agreement between the licensor, the licensee and the lender agent to licensee(which had to be an Indian bank or NBFC).The tripartite agreement sought to provide a step in right to the lenders to a licensee and to that extent, curtail the powers of the licensor to terminate the telecom license and make it mandatory for the licensor to first provide an opportunity to the lenders to either ensure the settlement of the default of the licensee or substitute the licensee with another entity that meets the qualifications required by the licensor.Issues relating to Termination of LicenseThe provisions for ISP states as follows:10.5.1 in the event of termination of the license, the licensor may procure upon such terms and conditions and in such manner as deemed appropriate, the required resources that will make up for those not installed, not delivered or not brought into commission so as to enable provision of service and the license shall be liable to the licensor for any extra cost for such corrective effortsIssues relating to Termination of License2. Whenever the license is terminated or not extended, the licensor may, in order to ensure continuity of service takes such step as necessary, include the following:Permit the DOT/ MTNL or its successor to take over; orIssue license to another Indian company for running the service.During the period when Termination of License is pending the quality of service to the subscriber shall be maintained, if service quality is not maintained it will be treated, as breach of license condition and will be dealt with as such including recovery of damages BANDWIDTH AGREEMENTThe term Bandwidth Agreements is generic term used to describe agreements for procuring capacity or such specific services in relation to telecommunication network.

The structure of bandwidth agreements and dark fiber sale agreements are essentially those of agreements providing a flexible framework in accordance with which a party can procure a specific service or a bouquet of services from the relevant telecommunication network . Generally certain important provisions of a Bandwidth agreement would include Scope of service : The agreement would provide the obligation to provide specific services generally defined in the schedule . The level of bandwidth being procured from a network is usually described as the available data transfer rate.Description of network : The agreement would provide the specific nature of the relevant telecommunication network and obligations of the service provider in relation to the operation and maintenance of the network.Interconnection and interface with customers equipment : The agreement would provide a framework for the interconnection between the telecom network and the customers network and would provide the manner of interface between the equipment of the two networks.d) Price, billing and payment: The commercial heart of the agreement will, as in all agreements, be clearly identified.e) Limitation of liability: The service provider would not want to be liable for loss of data or other related direct or consequential losses. A specific cap on the liability would generally be agreed to. ASPECTS FOR A NEW FRAMEWORK The following could be stated to be some of the important aspects that would be covered by any legal framework that is sought to be introduced.Providing framework for the provision of telecommunication services.Promoting convergence in order to ensure a technologically advanced telecommunication system in India.Facilitating interconnection between networks on the basis of commercial understanding under a regulated framework,Regulations, planning and allocation of frequencies.Providing a suitable framework for the protection of lenders concerns.Providing the principles of determination, revision and collection of tariffs.Enabling licensing to obtain the required clearances within a specific time frame so as to avoid lengthy delays.Establishing dispute settlement mechanism between all parties involved in the implementation of telecommunication projects. The Communication Convergence Bill 2001The information Communication and Entertainment Bill 200 was replaced by the Communications Convergence Bill 2001 .The Communication Convergence Bills objective is to promote, facilitate and develop in an orderly manner the carriage and content of communication and establish an autonomous regulatory body to be known as the Communication Commission of India having wide ranging powers.The bill seeks to provide a uniform regulatory framework for all types of broadcasting, telecommunication and information technology services. The bill also propose to replace the large number of categories of licenses with the following five broad categories to enable services providers to offer a range of services within each category. To provide or own network infrastructure facilities. This shall include earth stations, cable infrastructure, wireless equipments, towers, ducts and pits used in conjunction with other communication infrastructure and distribution facilities including facilities for broadcasting distribution.To provide network application services. This shall include public services, fixed links and mobile linksTo provide network application services. This shall include public switched telephony, global mobile personal communication by satellite, internet protocol telephony, radio paging services, public mobile trunking services, public switching data services and broadcasting. To provide content application services. This shall include satellite broadcasting, subscription broadcasting, terrestrial free to air television broadcasting and terrestrial radio broadcasting .To provide value added network application services.

Universal Service Obligation Fund

Another major step was to set up the Universal Service Obligation Fund with effect from April 1, 2002. An administrator was appointed for this purpose. Subsequently, the Indian Telegraph (Amendment) Act, 2003 giving statutory status to the Universal Service Obligation Fund (USOF) was passed by bothHouses of Parliament in December 2003.

56Continue..The Fund is to be utilized exclusively for meeting the Universal Service Obligation and the balance to the credit of the Fund will not lapse at the end of the financial year. Credits to the Fund shall be through Parliamentary approvals. The Rules for administration of the Fund known as Indian Telegraph (Amendment) Rules, 2004 were notified on 26.03.2004.

Continue..The resources for implementation of USO are raised through a Universal Service Levy (USL) which has presently been fixed at 5% of the Adjusted Gross Revenue (AGR) of all Telecom Service Providers except the pure value added service providers like Internet, Voice Mail, E-Mail service providers etc. In addition, the Central Govt. may also give grants and loans.Continue..An Ordinance was promulgated on 30.10.2006 as the Indian Telegraph (Amendment) Ordinance 2006 to amend the Indian Telegraph Act, 1885 in order to enable support for mobile services, broadband connectivity, general infrastructure and pilot project for new technological developments in rural and remote areas of the country. Subsequently, an Act has been passed on 29.12.2006 as the Indian Telegraph (Amendment) Act 2006 to amend the Indian Telegraph Act, 1885.

Continue..USFO has initiated action to bring mobile services within the ambit ofUniversal Service Obligation Fund (USOF)activities. Under this initiative, 7387 mobile infrastructure sites are being rolled out, in the first phase, across 500 districts and 27 states of India. This scheme will provide mobile services to approximately 0.2 million villages which where hitherto deprived of the same.Continue..As on 30thJune2010, 7183 shared towers have been set up under the First Phase of the scheme. TheUSOFof DOT has proposed to set up about 10,128 additional towers in order to extend the mobile coverage in other uncovered areas under the Second Phase of the Scheme.

THANK U!