aims presentation kolkata-tvr-final

8/3/2019 AIMS Presentation Kolkata-TVR-FINAL

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CHANGING MINDSETS:THE GREAT INDIAN TELECOM STORY

T V Ramachandran, Director General

August 25, 2007 @ IIM, Kolkata


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MOBILE MIRACLE

The transformation in telecommunications has accomplished what

our socialist policies couldn't empower the less fortunate.

Living in several centuries simultaneously

.Shashi Tharoor


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Devi Datt Joshi, in white checked shirt, jots down a cellphone order whilebuyers swarm around his cart in the Janak Puri neighborhood of Delhi.

the cell phone has allowed him to put his two sons ages 16 and 12 -- into schools where they will get a good education.

CELL PHONE TURNS OUT TO BE GROCER'S BEST BUY

.Washington Post


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CONTENTS

PROCESS OF LIBERALIZATION

INDIAN CELLULAR PHASE I (1994-1999)

INDIAN CELLULAR PHASE II (2000-2003)

INDIAN CELLULAR PHASE III (2004-2006)

INDIAN CELLULAR - PHASE IV (2007 & BEYOND)


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LIBERALIZATION BEGAN IN 1991

Upon Government initiative, the high-powered Athreya Committee

submitted its report. Highlights are:

Placing both policy & regulatory mechanisms under the TelecomCommission

Breaking up of DoT into zonal corporations under the Govt.

Setting up of a corporation, initially in public sector, to handlelong-distance networks

Allowing VAS to be provided by private sector

Indicating general liberalization in production of equipment giving

autonomy to R&D & training institutions.

New Economic Policy announced in July 1991


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PROCESS OF LIBERALIZATION UPSIDE DOWN

Undertaken in a inverted manner :

Private sector participation invited in 1992

National Telecom Policy (NTP) announced in 1994

TRAI set up in 1997

New Telecom Policy (NTP) announced in August 1999

Tariff Rebalancing carried out in 1999.

International practices dictate / conventional wisdom demands:

Deregulation should be preceded by enunciation of policy,setting up of a strong & independent regulatory authority &tariff rebalancing.

Indian model, perhaps the only one of its kind in the world


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NTP 1994

PSTN to Mobile Case

Setting up of TRAI

NTP 1999

Amendment of TRAI ACT


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Cellular opened up in 1992

Duopoly regime

GSM the mandated technology

Receiving Party Pays (RPP) system

10 year license

Metro Licenses awarded in 1994 through a beauty parade

Circle Licenses awarded in 1995 through single stage biddingprocess


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NATIONAL TELECOM POLICY 1994

NTP 94 recognized that telecommunication services of world-

class quality necessary to ensure success.

Also recognized, involvement of Private Sector crucial toachieve telecom goals since adequate funds not available withGovt.

Key Objectives of NTP 94

telecommunication for all and within the reach of all

provision of access to all people for certain basic telecom

services at affordable and reasonable prices


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UNILATERAL HIKE IN PSTN MOBILE TARIFF

DoT, the operator, introduced an exorbitant charge for calling mobile ~ 23

times more expensive than local fixed to fixed line calls. Calls to cellular phones completely un-affordable

Catastrophic blow struck at the very root of cellular operations by DoT, theoperator, in January 1997

In absence of Regulator, Cellular Operators Association of India (COAI)approached Delhi High Court

TRAI (Telecom Regulatory Authority of India) under the Chairmanship ofJustice S.S. Suri was set up on March 25, 1997.

High Court relegated the case to TRAI

TRAI heard the above case of high fixed to mobile tariffs and quashed DoTsPSTN to Mobile Tariff Order, on April 30, 1997.


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PROBLEMS WITH BOTH REGULATION & POLICY

Regulatory Issues

Both dispute settlement & regulation under the same Authorityled to many difficulties

Almost every order of TRAI challenged by the Government.

Industry could not move forward.

Policy Issues

NTP 94 objectives lost in actual implementationauction methodchosen to award licenses led to enthusiastic & ill-consideredbidding.

Resulted in a high cost structure exorbitant tariffs- not enoughtakers low market growth un-viability of the industry.


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PROBLEMS OF OPERATORS WERE RECOGNIZED

due to a variety of reasons including delays in subscriber take-up, lowsubscriberrevenues, delay in achieving financial closure of projects and on the

ground delays in obtaining requisite regulatory approvals, the actual financialperformance of most of these cellular operators have fallen significantly short oftheir original business plans.

- Excerpt from ICICI Report - June 1998

BICP report which has neatly summed up various omissions by DoT in meetingthe tender conditions. For instance, if the private operators fail to meet theirlicence fee obligation then the failure of the DoT to provide various clearanceswithin the stipulated time also needs to be considered with equal weight.

- Hindustan Times, January 14, 1999

...Cellular Mobile Telephone Services were introduced in India in metros in1995 and in the States in 1996. When the Global bids were called and thelicences were awarded, the financial markets in India were vibrant. They,however, collapsed by the time the commercial operations started in thestates

- Excerpt from letter to Honble Prime Minister dated9th June 1998, from around 40 Members of Parliament


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CHALLENGES OF PHASE I

High cost of licenses translated into high tariffs, low growth of themarket, limited rollout of networks, etc.

Policy maker & licensor - Department of Telecommunications (DoT)also an operator conflict of interest

TRAI set up, but ambiguity in its powers & jurisdictionled to severalorders of TRAI being challenged

Widespread litigation

Entry of MTNL (incumbent PTT in Delhi & Mumbai) into cellularchallenged on the grounds that policy was for duopoly

Operators challenged imposition of penalties for delayed network

rollout claiming that delays were on account of Government not givingtimely clearances

By end of 1998, cellular (& fixed) operators had defaulted onrolloutobligations, were unable to meet huge fixed license fee obligations & were

on the verge of bankruptcy and were engaged in several litigations

against the Government


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COURSE CORRECTION - I

On November 20, 1998, Prime Minister constituted a high powered InterMinisterial Group on Telecommunications (GoT) to look into :

Proposed New Telecom Policy;

Issues Relating to existing licensees & appropriate remedialmeasures within the framework of the New Telecom Policy

Issues relating to TRAI.

Industry Group on Telecommunications (InGoT) was set up onNovember 26, 1998. It represented all segments of the Indian telecomindustry and was the common platform for suggestions / recommendations tothe GoT.

The result of the above initiative was

1. Announcement of NTP 99 in March 1999 (effective April 1, 1999),

2. Migration of existing operators to the new regime in August 1999 &

3. Amendment of the TRAI Act in January 2000.


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NEW TELECOM POLICY 1999

NTP 99formulated in an open, transparent & consultative manner.

Draft discussion paper on Policy placed on the Internet & received>17,000 responses from a cross-section of stakeholders.

Preamble to NTP-99recorded the importance of telecommunications

The Government of India (Government) recognises that provision ofworld class telecommunications infrastructure and information is the key

to rapid economic and social development of the country. It is critical notonly for the development of the Information Technology industry, but alsohas widespread ramifications on the entire economy of the country. .Accordingly, it is of vital importance to the country that there be acomprehensive and forward looking telecommunications policy whichcreates an enabling framework for development of this industry.

Key objectives enunciated in the Policyincluded

provision of access, availability of affordable services, creation of amodern and efficient telecommunications; increased competition,level playing field, etc.


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NEW TELECOM POLICY 1999 - HIGHLIGHTS

High cost fixed license fee regime replaced with lower cost licensing structureviz. a fixed entry fee + revenue share mechanism

Greater degree of competition

Incumbent PTTs deemed to be 3rd cellular operator

Introduction of further competition based on need & timing and therecommendations of TRAI.

Flexibility in choice of technologies in access

Service providers could use utilize any type of network equipment,

circuit and/or packet switches, that meet the relevant ITU../ TEC

standards.

Separation of policy making, licensing & service provision functions ofDoT corporatization of DoT by 2001

Union Cabinet approved NTP-99, opined that it would be in publicinterest for NTP-99 to be uniformly applicable all over the country


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OPINION OF THE ATTORNEY GENERAL ON MIGRATION

Attorney General in his opinion noted that:

The 1994 Policy had failed to achieve its objectives

the expected network expansion had not materialized.

large capital resources had been invested by private licensees &

that their unviability was affectingboth the financial institutions whowere funding these projects, but also the viability of the telecomservice industryitself.

in light of the objectives of NTP-99 & having regard to the groundrealities and the prevailing situation engulfing the telecom industry,

migration of licensees from the 1994 Telecom Policy to NTP-99 waswarranted.

However, the transition to the new policy should be from aprospective date while fully realizing past dues and arrears.

MIGRATION PACKAGE OFFERED TO EXISTING


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MIGRATION PACKAGE OFFERED TO EXISTINGOPERATORS

Existing cellular (& fixed) operators offeredmigration package in July1999 whereunder

license fees dues upto July 31,1999 were to be paid & deemed asentry fee under new regime

annual license fee to be collected on a revenue share basis thereafter

licensees given a six-month extension of Effective Date on theirrespective licenses.

In return it was demanded that :

Existing operatorsgive up rights of operating in a regime with limitedoperators i.e. forego duopoly & accept a multipoly regime

operators would give up all their existing claims and withdraw all

litigations against the Government. All existing cellular (and fixed) operators accepted the migration package and

migrated to the new regime with effect from August 1, 1999.

Migration was thus a Settlement between Private Operators

& the Government


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MIGRATION PACKAGE CHALLENGED

The Delhi Science Forum filed a PIL in High Court

By offering migration package, Govt will lose huge amount of Revenues- Rs. 50,000 crores

Private Operators contended

Loss of revenues is completely notional as they would have failed tosurvive if they had continued to pay huge fixed license fees.

Move to revenue sharing has restored the viability of the industry and willbenefit all concerned - the operators, their subscribers & also theGovernment.

Delhi High Court passed an interim order:

Existing licensees be permitted to migrate to the new policy as per the

package approved by DoT, subject to the same being approved by theCouncil of Ministers after the constitution of the 13th Lok Sabha

With Retrospective Effect from November 1, 1999 Airtime Rates werereduced.


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Several ambiguities in the TRAI Act of 1997 lead to almost every

decision of the Regulatory Authority being challenged.

COAI actively involved in pursuit of an independent dispute resolutionmechanism.

COAI made submissions to the Ministerial sub-group set up to lookinto this issue.

TRAI ACT amended in January 2000. The amendment saw :

A bifurcation of the recommendatory and functional role of TRAI

Mandatory for Government to seek TRAI recommendations forintroduction of new service provider. However Government decision to befinal

TRAI given absolute powers on tariffs & interconnection

AMENDMENT OF THE TRAI ACT IN JANUARY 2000

AMENDMENT OF THE TRAI ACT SETTING UP OF


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AMENDMENT OF THE TRAI ACT - SETTING UP OFTDSAT

Institution of separate dispute settlement mechanism (TelecomDispute Settlement and Appellate Tribunal -TDSAT)

TDSAT empowered to adjudicate any dispute

between a licensor and licensee

between service providers,

between service providers and a group of consumers

appeal against directions, decisions & orders of TRAI

Institution of TDSAT is another unique Indian initiative, and asuccessful one.

Having an independent body to adjudicate over telecom disputesgave a tremendous boost to investor confidence in the sector


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WLL (M) Dispute

Introduction of CPP

Introduction of UASL


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By 2000 all existing operators had migrated & were offering services underNTP-99

Cellular licenses had been made technology neutrallicensees could useany technology, as long as it was digital

Incumbent PTT was in the process of entering the market as the third

cellular & also corporatizing into a separate entity

Accomplished in October 2002 with the birth of BSNL

TRAI had made recommendations for

introducing 4th operator into cellular through a multi-stage bidding

process (4th operator entered in 2001 @ entry fee of USD 345 Million)

Unlimited competition in fixed services at nominal entry fee of USD 105Million



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CHALLENGES OF PHASE - II

Fixed Operators allowed to offer limited mobility undertheir fixedservice license

Limited Mobility morphed into full blown cellular mobility

Introduction of WLL(M) created severe disturbances in the level playingfield

Cell operators paid a huge entry fee for their licenses, fixedoperators got right to mobility at nil entry fee

Cell Operators were on a RPP Regime while the fixed + mobile

operators gave free incoming calls

Fixed/Mobile operators enjoyed cross subsidy from long distancerevenuesno such benefit available to the cell operators

GOVERNMENT PERMITS FIXED OPERATORS TO


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GOVERNMENT PERMITS FIXED OPERATORS TOOFFER LIMITED MOBILITY

Cellular operators challenged the Government decision in TDSAT as :

Licenses were service specific both under NTP-94 & NTP-99 FSPs permitted use of WLL for last mile access, but only for fixed

services

FSP licenses prohibited them from offering any type of mobile services.

In response to an earlier query by TRAI, Government clarified that FSPscould not offer mobile services either under license or under policy.

Government decision created non level playing field for cell operators as

Fixed operators paid no additional fee for mobility

The fixed license had more advantageous terms & conditions as itallowed

Cross subsidy between local and long distance calls

Operated on a free incoming calls regime.

Taking advantage of the situation, two large business houses took

the opportunity to acquire pan India Fixed + WLL(M) licenses


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THE WLL(M) DISPUTE

January 2001 Cell Operators challenge WLL(M) in TDSAT

March 2002 - TDSAT Dismisses Petition of Cell operators

December 2002 - Supreme Court Upholds Appeal of Cell Operators,remands matter back to TDSAT for full de novo review

August 2003 - TDSAT delivers a split verdict, Chairman upholdsPetition, Member (in 2:1 majority) dismiss Petition

October 2003 - Cellular Operators again file appeal in SupremeCourt seeking to uphold Chairmans judgment

October 2003 - TRAI recommends unified access licensing,gives fixed operators option to migrate to full mobility

November 2003 - Government accepts recommendationsof TRAI, amends policy to allow unified access licensing

December 2003 Cell operators reach out of court

settlement with Govt., withdraw from Supreme Court

WLL(M) litigations were protracted and bitter & lasted almost three years.

Dispute went from the TDSAT to Supreme Court & back to TDSAT & back toSupreme Court


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COURSE CORRECTION -II

Over the period 2001 to 2003, a number of measures were introduced toredress the differential rules that were applied to cellular & limited mobilityoperators :

April 2001 - high powered Group on Telecommunicationsrecommended that WLL(M) no longer be entitled tocross subsidyfrom long distance revenues

May 2003 - CPP regime introduced for cell operators.

November 2003 - Telecom Policy was amended to allow fixedoperator to offer mobile services by migrating to a Unified AccessService License after payment of an additional entry fee

REMOVAL OF CROSS SUBSIDY FROM LONG


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REMOVAL OF CROSS SUBSIDY FROM LONGDISTANCE

To ensure fairer competition and at the same time to ensure services ataffordable rates, the Group is of the view that the present revenue sharingarrangement between FSPs & long distance carriers on the one hand andCMSPs & long distance carriers on the other hand, should not becontinued with those aspects of FSP services which have the advantage oflimited mobility. Since WLL limited mobile subscriber can be said to have thebenefit for some (but not all) of the benefits that accrue to regular cellularsubscribers, the sharing ratio for these two should be equalised. This

means that the present ratio of 60:40 for WLL subscribers should bereduced to 5:95 in respect of, but only in respect of, those subscribers whouse the facility of WLL with limited mobility through hand-held sets..

Report of The Group On Telecom & IT, April 27, 2001

Actioned by Regulator through it Interconnection (Charges and RevenueSharing) Regulation in December 2001, effective February 2002.

Anomaly on local calls continued to persist WLL(M) operators were onCPP while cell operators were on an RPP regime.


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INTRODUCTION OF CPP REGIME FOR CELLULAR

In 2003, Regulator introduced the Interconnection Usage

Charge Regulations under which it specified origination,carriage and termination charges applicable to different services

A corollary of the introduction of the IUC regime was theintroduction of a Calling Party Pays regime for cellular

services.

The new regime was finally made applicable from May 1, 2003

INTRODUCTION OF UNIFIED ACCESS SERVICE


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INTRODUCTION OF UNIFIED ACCESS SERVICELICENSES

October 2003 - Regulator recommend Unified Access Licensing.

Operator permitted to offer both fixed & mobile services

Fixed/WLL(M) operators allowed to migrate to UAS upon payment ofadditional fees

Cellular operators allowed to migrate at no extra cost

Recommendations note that largest WLL(M) operator flouting conditions,acting as cell operator from Day 1, recommends levy of penalty (delayedinterest) of ~ 107 million USD

November 2003 -Government actions above recommendation, amends

telecom policy introducing a Unified Access Licensing regime

INTRODUCTION OF UNIFIED ACCESS SERVICE


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INTRODUCTION OF UNIFIED ACCESS SERVICELICENSES

December 2003 - In an offline discussions with cell operators

Government hammers out settlement package , offers

A further reduction in annual license fee by 2% (to 6-8-10%)

Additional waiver of 2% (for 4 years) to 1st & 2nd Cell operators

who had paid high license fees under 1994 regime

Permission for intra circle mergers & acquisitions


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Step 2 Complete Unified License

Resolving ADC Anomalies


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All fixed operatorsexpeditiously migrated to UAS licensesafter

paying the necessary fees;

Cell operators too accepted the settlement package offered bythe Government and withdrew their appeal from Supreme Court

UAS licensing resulted in intense competition in the cellularmobile sector as there were as many as 6-8 operators in everyservice area

Intense competition resulted in both affordability & choice forIndian consumers as cell tariffs in India dropped to being amongstthe lowest in the world


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CHALLENGES OF PHASE - III

Delay in Introduction of Unified Licensing Regime

UAS Licenses introduced as Step 1, Step 2 was to be a completeunified license (including long distance)

Full unification was supposed to be completed in 6 months i.e. by April2004

Consultation process drags on over 2 years

Final recommendations in January 2005 maintain (in fact increase) thehigh entry barrier for acquiring long distance rights

Use of Fixed Wireless Terminals to offer Mobility

In November 2004, erstwhile Fixed Operators start using the Fixed

wireless Terminals to offer mobile service Mobile services priced anti-competitively at fixed line rates as

operators classified these services as fixed in order to evadepayment of access deficit charges


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COURSE CORRECTION III

November 2005, Government announced

Simplification of long distance licenses

Entry fee for national long distance rights cut by 97.5% - from USD22 MLN to 0.55 MLN USD

Entry fee for international long distance rights slashed by 90% from5.5 MLN USD to 0.55 MLN USD

Additionally also permits access provider to offer internet telephony,

internet services & broadband

August 2005 - Fixed Wireless Terminals classified as limited mobilephones, no longer able to evade ADC

February 2006 - One India Plan offering calls @ Re1/min introduced

Death of Distance

February 2006 - Access deficit charges to be recovered as a revenue sharefrom all operatorsremoves arbitrage opportunity for fixed wirelessservices


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THE LESSONS FROM INDIA

Course Corrections at every stage have yielded positive benefits for bothconsumers & industry - Lowest Tariffs & High Minutes of Use

6

0.4 0.41.6

0.44

2

3.58

14 14

13

96.63

51.53

6.5

3.581.881.20.88

33.31

0

2

4

6

8

10

12

14

16

1998 1999 2000 2001 2002 2003 2004 2005 2006

0

20

40

60

80

100

120

Effective charge (in Rs. Per min) Subscriber Base (in mn)

3rd & 4th Cellular

Operator

CPP

Introduced

NTP'99

Lowering of ADC from 10%to 1.5% of the revenue

Lowering of ADC from 30%to 10% of the revenue

Introductionof CDMA


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INDIAN CELLULARPHASE IV (2007 ONWARDS.)

Challenges that remains

Challenges that remain:

1. Spectrum Reforms

2. Review of High Duties & Levies

3. Rural coverage/penetration


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EXPONENTIAL GROWTH OF MOBILE SERVICES

0

100000000

200000000

300000000

400000000

500000000

600000000

700000000

Jun-06

Jul-06

Aug-06

Sep-06

Oct-0

6

Nov-06

Dec-06

Jan-07

Feb-

07

Mar-07

Apr-07

May-07

Jun-07

China USA India Russia Brazil

Third largest networkin the world

By end 2008,expected to reach No. 2position

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

180000000

200000000

June'0

6

July'06

Aug'0

6

Sep'06

Oct'06

Nov'06

Dec'0

6

Jan'07

Feb'0

7

Mar'0

7

Apr'0

7

May'20

07

Jun'20

07

GSM CDMA Total

Mobile subscribersdoubled in last one year

POOR GROWTH IN COVERAGE TILL 2005


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POOR GROWTH IN COVERAGE TILL 2005

Source: GSMA

Mobile Networks still to reach 40% of the population and60% of geographical area

FUTURE GROWTH OF TELECOM SUBSCRIBERS


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149

235

525

0

100

200

300

400

500

600

Dec-06A Dec-07P Dec-10P

Sub

s(millions)

FUTURE GROWTH OF TELECOM SUBSCRIBERS

Even at 500 million mobile, we would still have less than50% teledensity!....

COAI Estimates

INDIAS TRYST WITH DESTINY


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INDIAS TRYST WITH DESTINY

I see a nation that has the capacity andconfidence to address and resolve thesechallenges. The world believes that India, toquote the great Jawaharlal Nehru, has a trystwith destiny. The time has come to redeemthat pledge.

- James D. Wolfensohn,World Bank President,

18 November2004, New Delhi

India actively redeeming the pledge


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THANK YOU !

[email protected]

visit us at: www.coai.in
mailto:[email protected]://www.coai.in/http://www.coai.in/mailto:[email protected]

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