speeding ahead on the telecom and digital economy highway

Speeding ahead on the telecom and digital economy highway Key priorities for realizing a “Digital Bharat”

2 | Speeding ahead on the telecom and digital economy highway

ContentsFICCI forewordEY forewordAbout the reportIndustry associationsProminent contributorsExecutive summary1. Digital India: leveraging ICT to create a knowledge based economy

1.1 Vision Digital India as an enabler for digital revolution1.2 Need for digital quotient to enable inclusive growth1.3 Government’s framework to deliver objectives of Digital India

2. Telecom services2.1 Telecom growth and current market landscape

2.1.1 Market landscape

2.2 Overview of internet and broadband market

2.3 Challenges in the current scenario and the way forward2.3.1 Financial issues: an overview

2.3.2 Spectrum-related issues

3. Telecom infrastructure3.1 Telecom towers

3.1.1 Introduction

3.1.2 Challenges in the current scenario and the way forward

3.2 National broadband plan3.2.1 India’s NOFN plan


4. Handheld devices and handsets4.1 Introduction

4.1.1 Size and evolution of Indian handset market

4.2 Indian handset market: key trends and drivers

4.3 Challenges in the current scenario and the way forward4.3.1 Irrational structure of taxes and levies

4.3.2 Weak ecosystem for local manufacturing

4.3.3 Presence of grey market and the lack of implementation of standards

4.3.4 IPv6 compliance for mobile handsets

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3Speeding ahead on the telecom and digital economy highway |

5. Governance of internet and communications5.1 Internet and its challenges

5.2 Internet Governance5.2.1 Background to internet governance

5.2.2 Internet governance framework

5.2.3 Internet governance in India

5.2.4 Challenges and the way forward

5.2.5 India’s voice at global internet forums

5.3 Cyber security5.3.1 Introduction

5.3.2 Cyber security framework in India

5.3.3 Challenges in cyber security and the way forward

6. Emerging opportunities: Cloud and M2M6.1 Cloud services

6.1.1 Introduction

6.1.2 Cloud computing spanning across industries

6.1.3 Clouds offer full range of computing services


6.2 Machine-to-machine (M2M) 6.2.1 M2M and IoT market overview

6.2.2 M2M: challenges in the current scenario and the way forward

Summary of recommendationsGlossary

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FICCIThe Federation of Indian Chambers of Commerce and Industry (FICCI), in association with knowledge partners EY, is proud to present the report – Speeding ahead on the telecom and digital economy highway. The report aims to identify opportunities and lay down the impediments affecting the growth of the telecom sector, with a view to aid policy makers in ironing out these challenges.

Over the last decade, the growth of the entire telecom ecosystem has significantly propelled the growth of digital quotient in the country, and, in turn, positively affected the lives of a vast majority of India’s population. With more than 960 million subscribers, telecom services have reached some of the remotest areas in the country acting as an enabler for the masses.

The digital revolution now stands at the cusp of a transformation, with the new government laying out its vision of a digitally enabled India. The multi-faceted “Digital India” program aims to transform the country into a knowledge economy using technology for delivery of various government services and initiatives. The success of this program is likely to ride on the back of strong telecom ecosystem and its allied industries in the value-chain.

However, impeding issues on the policy and regulatory front, have the potential to decelerate the growth of the entire digital value chain. With a view to enable the next stage of digital revolution, this report outlines a roadmap for the resurgence of the telecom sector and lays out some pertinent, specific, and actionable recommendations. It highlights the role of each contributor in the ecosystem and the challenges faced by them. We hope this report will help in advancing government and industry cooperation to drive the next wave of telecommunications and internet growth.

We thank the contributors from FICCI Communications and Digital Economy Committee and participants from the industry for their valuable contributions and for sharing their perspectives.

Dr. A Didar Singh Secretary General FICCI

Mr. Rajat MukarjiCo-ChairmanCommunications & Digital Economy CommitteeFICCI

Mr. Virat Bhatia Chairman Communications & Digital Economy Committee FICCI

Foreword


EYEY, in association with the Federation of Indian Chambers of Commerce and Industry (FICCI), is pleased to present the report - Speeding ahead on the telecom and digital economy highway. The report delves into the challenges faced by India’s telecom industry and its associated sectors set against the backdrop of the Government’s push to propel India toward a digitally empowered future. The report aims to highlight key focus areas to give an impetus to the industry, and makes actionable recommendations to realize the dream of a “Digital India”.

The rising digital quotient of the country has transformed the way we live and communicate, and further advancement in the telecom industry is expected to drive the next phase of economic growth in India. The role of telecom and allied

services in the country has expanded significantly from it being a provider of vanilla connectivity to becoming an instrument of socio-economic transformation. The resultant benefits transcend sectors.

In the past year Government has initiated measures to advance communication infrastructure, enhance connectivity and drive the adoption of internet. The launch of “Digital India” program — an ambitious and robust blue-print for transforming the digital identity of the country — and the thrust on smart cites are expected to be game changers. Likewise, Government’s flagship “Make in India” initiative to boost the manufacturing ecosystem in the country is expected to aid the telecom and IT equipment-manufacturing in the country.

However, challenges continue to exist. Prevailing uncertainties in the regulatory landscape, delays in resolution of pertinent issues, non-availability of adequate spectrum for the launch of next-gen services, and the structural imbalances in taxes and levies imposed have the potential to dampen the growth momentum of the sector. Furthermore, the advent of new service delivery models, and their impact on the industry and the ecosystem need deliberation.

Looking ahead, timely resolution of issues, as well as continuous investment in communication infrastructure and its upgrade is vital for promotion of sustainable and inclusive growth in the country. A favorable and stable regulatory environment, coupled with increased transparency, is critical for attracting investments to the sector. An empathetic perspective of challenges faced by service providers is also important for restoring its vitality.

This report highlights some of the key impediments faced by the industry and elaborates on the evolution of policies required to address these issues. It aims to capture inputs from a wide range of stakeholders encompassing telecom service providers, infrastructure providers, social media and internet players, handset manufacturers, and industry associations and practitioners.

I take this opportunity to express my gratitude to industry members who debated the issues and helped us formulate actionable recommendations. I would also like to thank FICCI Communications & Digital Economy Committee for its involvement and support, especially for facilitating interactions with its members, which helped us significantly in gathering valuable insights and framing a point of view.

I hope you find this report interesting and informative.

Prashant Singhal Global Telecommunications Leader EY


About the report

Methodology

EY, in collaboration with FICCI, has developed this report on the key priorities for realizing a digital revolution in India. The report attempts to highlight the key challenges faced by the telecom and allied sectors, and calls for deliberation by the Government on resolution of these issues. Currently, the sector is at a juncture where it requires a regulatory impetus to migrate to the next phase of growth. This report aims to provide an objective set of recommendations to the Government to steer the sector onto the next phase of growth.

• Chapter 1 highlights the ambitious vision of Digital India and how the Government seeks to leverage ICT to create a knowledge-based economy. It brings forth the role of ICT to enable inclusive growth and gives a detail of the framework planned by the Government to bring digital revolution in the country.

• Chapter 2 delves into challenges faced by telecom operators in today’s rapidly changing market landscape. It assesses how issues relating to high regulatory pay-outs, allocation of critical resources such as spectrum and policy-related uncertainties need to be addressed to encourage growth in the sector.

• Chapter 3 talks about the telecom infrastructure segment, which plays a key role in supporting the growing demand for telecom. It looks at challenges of multiple clearances and delays in extension of benefits from policy reforms, as deterrents for timely roll out of networks.

• Chapter 4 reviews the current state of the handset industry. It provides a snapshot of challenges faced by the segment, highlights the need for revision of some schemes and benefits, and deliberates the need to boost the manufacturing ecosystem.

• Chapter 5 focuses on the growing importance and benefits of the internet as a global medium of communication. It highlights how concerns relating to internet governance and cyber security need an all-inclusive approach to arrive at a facilitating framework. It also discusses aspects such as security, testing and standards in the telecom equipment domain.

• Chapter 6 looks at emerging services such as cloud and M2M in the context of how formation of appropriate policies is essential for their uptake.

While preparing this report, EY collaborated with the FICCI Communications and Digital Economy Committee and conducted comprehensive meetings and interviews with senior executives of India’s Information and Communications Technology (ICT) sector. The interviews provided a first-hand perspective of challenges faced by various stakeholders in the sector. The findings have been combined with extensive secondary research, analysis and insights provided by EY.

The recommendations have emerged from input provided by senior executives across the entire telecom and digital economy

value chain. They specifically focus on issues that require the urgent attention of policy-makers and suggest measures sought from the new Government.

The report also discusses examples and case studies from India and across the world to supplement the recommendations in context of various challenges. It highlights the many ways in which the Government, policy-makers and implementing agencies can consider the success stories for adaptation in the Indian context.

AcknowledgementEY report development team:

Gaurav Kapoor, Gunpreet Singh, Kanika Kakar, Mayur Sachdeva, Pragya Joshi, Runa Dasgupta, Swapnil Srivastava, Swati Mahajan, Yukti Mittal


Industry associationsFederation of Indian Chambers of Commerce and Industry (FICCI): Established in 1927, FICCI is the oldest and largest apex business organization in India. Its history is closely interwoven with the country’s struggle for independence and its subsequent emergence as one of the most rapidly growing economies in the world. FICCI plays a leading role in policy debates that are at the forefront of social, economic and political change. Its stand on policy issues is sought by think tanks, governments and academia and its publications are widely read for their in-depth research and policy prescriptions. FICCI’s direct members are from the private and public sectors, including from SMEs and MNCs, and it has an indirect membership of more than 250,000 companies from regional chambers of commerce.

Cellular Operators Association of India (COAI): Established in 1995, COAI is a registered, non-profit, non-governmental society dedicated to advancement of modern communication through the establishment of a world-class cellular infrastructure. Over the years, COAI has emerged as the official voice of the Indian GSM Industry and interacts directly with ministries, policy-makers, regulators, financial institutions and technical bodies. It provides a forum for discussion and exchange of ideas between these bodies and service providers, who share a common interest in development of cellular mobile telephony.

Association of Unified Telecom Service Providers of India (AUSPI): Constituted in 1997, AUSPI is a registered society that works as a non-profit organization with the aim of delivering improved access to, coverage of and teledensity in India. It is the representative industry body of unified access service licensees providing CDMA and GSM mobile, fixed line and value-added services across the country.

Towers and Infrastructure Providers Association (TAIPA): TAIPA is the body of infrastructure providers who service telecom operators. It plays an active role in deliberations with ministries, policy- makers, regulators, financial institutions and technical bodies for promotion and growth of telecom infrastructure and telecom services.

Indian Cellular Association (ICA): ICA is the apex body of the mobile industry and includes brand-owners, technology providers, manufacturers, national distributors, applications, and solution and VAS providers. It was constituted to provide value and services to India’s mobile cellular handset industry by fuelling its growth and improving its competitiveness by helping to create a legal and ethical market, and regulatory environment. This is expected to result in the benefits of mobile connectivity being extended to the masses.

Telecom Equipment Manufacturers Association (TEMA): Established in 1990, TEMA is an industry association of telecom equipment manufacturers as well as manufacturers of components and cables. It plays an active role in dissemination and exchange of information amongst government and foreign agencies, embassies, trade missions, Indian missions abroad, and leading national and international trade associations.

Association of Competitive Telecom Operators (ACTO): Established in 2008, ACTO is an industry body, which focuses on policies that enhance enterprise telecommunications in India. The association was formed by several leading non-integrated long distance carriers that provide services to the enterprise market segment, which includes the IT-enabled services, business process outsourcing and multinational company segments.


Prominent contributors

Virat BhatiaChairmanCommunications & Digital Economy CommitteeFICCI

Rajat MukarjiCo-ChairmanCommunications & Digital Economy CommitteeFICCI

Vijay Madan Chief Mentor, Tata Teleservices and Chair of FICCI subcommittee on Cyber Security

Naveen Tandon President, Association of Competitive Telecom Operators and Co-Chair of FICCI subcommittee on M2M

Rajan Mathews Director General, Cellular Operators Association of India and Co-Chair of FICCI subcommittee on Strategy, Policy and Spectrum

Vivek Vasishtha Country Leader, Government Programs, IBM and Co-chair of FICCI subcommittee on Handset, Equipment & Solutions

We are grateful for the contribution of the above listed members as well as a broad array of industry experts whose insights and perspectives were highly valuable in drafting the report.

Sandeep Bhargava Director India – Corporate Affairs, Nokia and Co-chair of FICCI subcommittee on Handset, Equipment & Solutions

Ankhi Das Head, Public Policy for Facebook, India and Chair of FICCI subcommittee on Broadband Access

T R Dua Executive Director, Towers and Infrastructure Providers Association and Chair of FICCI subcommittee on Towers and Infrastructure

Ashok Sud Secretary General, Association of Unified Service Providers of India and Co-Chair of FICCI subcommittee on Strategy, Policy and Spectrum

Vikram Tiwathia Associate Director General, Cellular Operators Association of India and Chair of FICCI subcommittee on Internet Governance, M2M and Emerging Issues

Pankaj Mohindroo National President, Indian Cellular Association and Chair of FICCI subcommittee on Mobile Devices and Handsets


Spotlight on India’s Digital Highway

The draft IoT policy by DeitY aims to create a US$15 billion IoT

industry by 2020

Wireless access accounts for 92.6% of India’s internet

subscribers

DeitY has formed a joint task force with an aim to produce 500 million

handsets by 2019

Total operator outlay in March 2015 spectrum auction: INR1,099

billion

Make in India

e-governance

BharatNet

Digital India

Internet governance

Cyber security

Internet of things

Fiber roll-out

Spectrum roadmap

Wi-Fi and LTE

Digital inclusiveness


83% of India’s current demand for handsets met via imports

In FY14, India telecoms debt stood at INR2,500 billion, higher than industry gross revenue of INR2,339 billion

The sale of mobile handsets to cross 300 million by the end of 2015

Government intends to build 100 smart cities in India, with investment of INR480 billion over the next five years

India ranks 125th in the world in terms of fixed broadband penetration

18MHz, the average operator spectrum holding in India is amongst the lowest globally

INR1,130 billion, the approximate outlay for Digital India programme

The Twelfth Five Year Plan projects investments of around INR94 billion in the telecom sector

Export of mobile handset from India expected to fall to zero in 2015

Job creation by Digital India: 17 million direct and at least 85 million indirect

USOF contains INR356 billion in unutilized accumulated funds

150,000 additional towers required to provide pervasive mobile connectivity and bridge availability gaps


Executive summary

After the landmark elections of 2014, the incoming Government had brought with it expectations of a new development trajectory. Following that path, the country is treading toward a blend of favorable macroeconomic fundamentals along with strong demographics. With a new regime at the center, the macroeconomic environment is expected to improve further as government policies and agendas come up to speed.

As the country embarks on this new chapter of growth, the telecom sector is also moving toward a phase of evolution and development. Operators are transforming their networks into absorbent digital platforms with the confluence of internet, IT, social media, and mobile computing and cloud services. The telecom industry is heading toward agile business models, fast-paced and disruptive innovation, and a dynamically changing industry landscape.

There has been a renewed and focused direction to the Indian telecom sector in the last twelve months. The country has embarked on one of the world’s most ambitious broadband project with the “Digital India” program, which seeks to transform India into a digitally empowered society and knowledge economy. The vision is to provide digital access to all by expanding rural internet coverage to 250,000 villages and leveraging this ICT infrastructure as a foundation to deliver e-governance services on demand.

Another significant initiative is the 100 smart cities project, which aims to improve quality of life by leveraging technology. This gargantuan project has drawn considerable interest from all stakeholders as well as foreign collaborations for funding and technical expertise.

With these initiatives, the Government aims to harvest the power of internet and drive in socio-economic development of the country. These seek to capitalize on ICT to drive financial inclusion and facilitate growth in some critical sectors including infrastructure, health care and education.

Currently, creation of an investor friendly environment is one of the principal requirements for progress of the ICT sector. Retrospective aspects of policy changes and high regulatory payouts need to be reviewed to gain investor confidence. Rationalization of taxes and levies and provision of adequate financial aids and incentives are also essential to stimulate development in the sector. Moreover, a clear road-map of spectrum availability with a rational pricing structure needs to be developed and additional spectrum should be made available to support the growth of mobile broadband.

The infrastructure segment, which feeds as a backbone to the telecom industry, is another area of significance to foster development of the ICT sector. In this regard, inclusion of telecom towers in the harmonized infrastructure list and measures to ensure timely right of way (RoW) have been steps in a positive direction. However, it is imperative that the benefits of these decisions trickle down to the industry at implementation levels.

Another ambit of the ICT sector is the handset segment. In this segment also, India has long sought to provide an impetus to the sector through the release of National Policy on Electronics 2012 and launch of various schemes. There is a need to strengthen the handset manufacturing ecosystem in India via incentives, and rationalization of taxes and levies.

The proliferation of the internet and social media has thrown up new challenges in the areas of security, privacy and governance. The dynamic nature of these media demands a strategic shift in formulation of regulations that are mindful of the global context of such media, and also protect the interests of industry and consumers.

In addition to legacy services, technologies such as cloud and machine-to-machine, are bringing a plethora of new opportunities in the ICT space in the country. Uptake of these services is expected to rise with advances in technologies, particularly with increasing availability of high-speed internet connectivity. Given the nascent stage of these domains, it is important to put in place clear regulatory frameworks to set up a solid foundation for these services to prosper.

Looking ahead, a collaborative effort and focus on affordability are musts to run the digital kranti campaign. In a country with low per capita income, it is essential to focus on increasing the reach of affordable data services to the masses. To achieve this, all stakeholders need to work in tandem and drive service adoption. It is only then that India will be able to bring the much needed digital kranti and ensure digital transformation in the lifestyles of every Indian.

This report has been produced with inputs from the FICCI Communications and Digital Economy Committee, which included stakeholders from across the sector’s value chain. It aims to highlight the key challenges faced by industry players and provide actionable recommendations to foster growth in the sector.


Summary of recommendations:

• Provide adequate spectrum at reasonable prices: A clear road-map of spectrum availability with a rational pricing structure needs to be developed. Additional spectrum should be made available to support the growth of mobile broadband. Sufficient access and microwave spectrum for backhaul should be made available.

• Rationalize taxes and levies: Taxes and levies on telecom services should be rationalized to ensure overall growth and financial viability of the sector. Retrospective amendments in laws need to be discouraged, and all changes should be forward- looking as a principle. Additionally, the funds collected under USOF should be efficiently utilized.

• Provide uniform policies for deploying telecom infrastructure: There should be uniform RoW policy across all states with a uniform and reasonable cost structure. Moreover, a single window mechanism should be provided for granting RoW permissions. Also, the private sector needs to be incentivized to provide last mile connectivity in rural areas.

• Provide a fillip to manufacturing ecosystem: There is a need to strengthen the telecom equipment and handset manufacturing ecosystem in India through incentives, and rationalization of taxes and levies.

• Establish robust standards for security and privacy: Clear rules relating to security standards should be set to help reduce uncertainty for equipment providers, and service providers. The Government, industry and related global standards bodies should coordinate to establish protocols for standardization, interoperability and performance of connected devices.

• Address security and governance issues of internet: There is a need for an overarching multi-stakeholder oversight body, which deals with all matters relating to cyber security and amalgamates the work done by different agencies. A principles-based approach to surveillance is required, so that trust among internet community is not lost.

• Establish policy framework to boost emerging services of cloud and M2M: It is important to put in place clear

regulatory frameworks to set up a solid foundation for these services such as cloud and M2M to prosper. There should be a single nation-wide policy on data centers for providing cloud services, avoiding regional/state-wise difference in regulations.

Financing needs

Spectrum availability

Taxes and duties

Local manufacturing

RoW and other impediments to telecom tower installation

• A Telecom Finance Corporation should be set up on the same principle as that of the Power Finance Corporation.

• USOF fund needs to be eliminated or reduced to 1%–3%, and the funds already collected under USOF should be efficiently utilized.

• ► All spectrum currently lying unutilized with various government agencies should be made available on priority in conformity with globally harmonized bands.

• ► Spectrum usage charge should be revised and reduced to 1%, given that spectrum is allocated at market-determined prices.

• ► Bring handsets under provisions of “Goods of Special Importance” under the Central Excise Tax Act, 1956; therefore, capping the maximum VAT that can be levied by states at 5%

• ► Shift National Calamity Contingent Duty (NCCD) of 1% from mobile phones to other goods, to share levies equitably among industries.

• ► Minimum interest subsidy of 5% on all fixed capital investments for entire Electronic System Design and Manufacturing (ESDM) sector on the lines of benefits given under Technology Upgradation Fund Scheme (TUFS).

• ► Ten-year tax holiday on a block of 15 years on all profits and gains for manufacturing in the mobile phone industry.

• ► The DoT guidelines should be incorporated in the statutory framework and rules in line with the 53rd parliamentary committee report. State governments should be mandated to follow the guidelines through suitable legislation or direction.

• Adopt uniform RoW across all states at a uniform and reasonable cost.


1. Digital India: leveraging ICT to create a knowledge based economy


1.1 Vision Digital India as an enabler for digital revolution

Over the past two decades, ICT sector has played a transformational role in the socio-economic development of India. Today, the country is standing at the cusp of a digital revolution. With the Indian government’s vision of a Digital India, the country has embarked on a focused journey to bring digital transformation in the lives of all its citizens.

Approved in August 2014 by the Indian Government, the Digital India program aims to transform the country into a digitally empowered society and knowledge economy. It focuses on making technology central to enable this transformation. It is planned to be implemented in phases till 2018.

Digital India is an umbrella program to attain ICT infrastructure targets such as of broadband and mobile connectivity in the country, and further enable provision electronic delivery of government services to citizens. It is coordinated by DeiTY and implemented by the Government.

With this initiative, the Government aims to empower citizens with the power of internet. It seeks to create a digital interface between the Government and citizens and provide a plethora of e-governance services including health care, education and banking to bring transparency in the system and enable inclusive growth.

Figure 1: Key areas identified to realize the Digital India vision

“We should dream of a Digital India. Digital India is a dream for the poor, with broadband connectivity, we can ensure long-distance education…Digital India is plan not for the benefit of the rich, but the poor…e-governance is easy governance, efficient governance, and that is important”

- Mr. Narendra Modi Prime Minister of India, 15 August 2014

• High speed internet as a core utility• Cradle-to-grave digital identity — unique, lifelong, online,

authenticable• Mobile phone and bank account enabling participation in

digital and financial space• Easy access to a common service centre• Shareable private space on a public cloud• Safe and secure cyberspace

1 Digital infrastructure as a utility to every citizen

• Seamlessly integrated across departments or jurisdictions• Services available in real time from online and mobile platform• All citizen entitlements to be available on the cloud• Services digitally transformed for improving ease of doing

business• Making financial transactions electronic and cashless• Leveraging GIS for decision support systems and development

2 Governance and services on demand

• Universal digital literacy• Universally accessible digital resources• All documents or certificates to be available on cloud• Availability of digital resources and services in Indian

languages• Collaborative digital platforms for participative governance• Portability of all entitlements through cloud

3 Digital empowerment of citizens

Source: DeitY


1.2 Need for digital quotient to enable inclusive growth

The ICT sector, which includes telecom operators, internet service providers, computer hardware and software developers, content generators, application providers and equipment manufacturers, is playing an increasingly important role in the global economy today. Research and implementation around the world have consistently demonstrated that investment in ICT positively affects jobs, productivity, GDP growth, and innovation.1

There is a direct correlation between ICT development — the availability of telecom, broadband, computers, and software in a country — and the overall economic growth of a country. Top-ranking countries in terms of ICT development have the highest

GDP levels, which indicates that implementation of ICT in a country improves its overall economic health.

Despite its significance in the overall development of an economy, ICT readiness has remained low in India. India lags behind in terms of infrastructure development, and ICT has the potential to play the role of an alternative infrastructure. With its wide reach and increasing affordability, it has evolved as a basic infrastructure such as electricity, roads, water, and also bridged the urban-rural gap in terms of communication infrastructure.

Figure 2: ICT development* vs GDP per capital

SwedenUS

RussiaBrazil China

India0

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

1,80,000

0 20 40 60 80 100 120 140

GDP per capita(US$)

ICT Development Index Rank

Source: ITU, World Bank*ITU ICT development index rank 2013; #World Bank GDP per capita (US$) 2013 (at current prices)

#

1“The Economic Benefits of Strategic ICT Spending,” Intel, 2010, pg. 1.


Figure 3: Role of ICT in economic development

Improvement in quality of life through enhanced education and health care

Spillover effect of job opportunity creation and increased efficiency in other industries

Creation of high skill-sets and high-paying jobs and strengthening of small and medium enterprise segment

Development of ICT workforce with knowledge and skills to export technology to trade partners

Improvement of national and global commerce through easier and faster creation, distribution and consumption of information

Improved international competievness

Effe

ct o

f inv

estm

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in

ICT

infr

astr

uctu

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Source: EY analysis

In addition to economic benefits, ICT can be a leveler to bridge the urban-rural divide. It fosters social development including improved education, health and increased citizen participation in civil society. In India, health care, education, the reach of financial services and rural development are key priorities to increase social inclusiveness in the country.


Governance Governance

G

over

nanc

e

Go

vern

ance

ICT

ICT in health care• ► Remote monitoring and

diagnostic

• ► Reduce physician visits and overall delivery cost

• ► Healthcare worker education

• ► Increasing health awareness

• ► Health record maintenance

• ► Reduce default for medicines

ICT in finance• ► Heightened financial access

• ► Government subsidy schemes

• ► m-payment/m- transactions

• ► Remittances

• ► Micro insurance

• ► Small scale savings account

ICT in agriculture• ► Live market rates and information

• ► Best practices and farmer education

• ► Weather forecast update

• ► Reduce supply chain inefficiencies

• ► Micro-insurance for crops

• ► Remote irrigation

ICT in education• ► Online courses/self-learning

solutions

• ► Distance learning programs

• ► Online vocational trainings

• ► Teaching aids

• ► Teacher re-training

Figure 4: ICT in governance and social development

Source: EY analysis


1.3 Government’s framework to deliver objectives of Digital India

With the Digital India program, the country is expected to realize the direct and cascading benefits of ICT. In essence, it knits together several existing and new ICT programs — which are currently housed within various ministries or departments such as telecom and IT, railways, rural development, home, defence and urban development — under a unified branding. It seeks to restructure and re-focus on these schemes and implement them in a synchronized manner.

The Government has developed a framework of nine pillars for the Digital India program, detailing the targets, estimated timelines and costs associated with end-goals. Together, these are expected to facilitate government’s engagement with the public, enable provision of e-services on demand, offer wider access to internet, mobile connectivity, banking infrastructure and ensure overall availability of key digital resources to all citizens.

1. Broadband highways: With an estimated capex of INR476.9 billion, this pillar seeks to address the objectives of broadband for all rural and urban areas in the country, as well as create a National Information Infrastructure by March 2017. Rural broadband access includes coverage of 250,000 gram panchayats (GP) by December 2016 in a phased manner. For urban broadband access, it seeks to facilitate virtual network operators and mandate communication infrastructure in new urban development for smart buildings in cities.

2. Universal access to mobile connectivity: With an estimated capex of INR160 billion, this pillar seeks to increase network penetration and cover current gaps in mobile connectivity. It aims to cover remaining 42,300 villages by FY18.

3. Public internet access program: With an estimated capex of INR47.5 billion, this program seeks to cater to the objectives of National Rural Internet Mission and have common service centers in 250,000 villages by March 2017. It also aims to develop 150,000 post offices as multi-service centers in the country.

4. E-governance — reforming government through technology: With this initiative, the government seeks to undergo a business process re-engineering using IT to improve its transactions. It aims to simplify forms, create online repositories for school certificates and IDs, integrate services and platforms (such as Adhaar and payment gateway) and automate government workflow and public grievance redressal processes.

Figure 5: Nine pillars of Digital India

Pillars of Digital India

Information for all

Pillar 6

Universal access to mobile connectivity

Pillar 2

Public internet access program

Pillar 3

Broadbandhighways

Pillar 1

eKranti electronic delivery of services

Pillar 5

E-governance: reforming government throughtechnology

Pillar 4

IT for jobs

Pillar 8

Early harvest programs

Pillar 9

Electronics manufacturing- target net zero imports

Pillar 7

Source: DeitY


5. eKranti — electronic delivery of services: This pillar aims to involve technology for delivery of services in multiple facets such as for e-education using broadband, free Wi-Fi, online courses; e-health care through online consultation, records, medicine supply; for online banking, cash, loans and real time price information for farmers; financial inclusion; e-courts, e-police, e-prosecution; cyber security and much more.

6. Information for all: This includes online hosting of information and documents, use of social media by the government to proactively engage with the citizens and online messaging on special occasions or programs.

7. Electronics manufacturing — target net zero imports by 2020: This initiative seeks to fine-tune multiple ongoing programs to develop the electronics manufacturing ecosystem in the country. It has a specific focus on semi-conductor fabrication plants, fab-less design, set-top boxes, VSATs, mobiles, consumer and medical electronics, smart energy meters, smart cards and micro-ATMs.

8. IT for jobs: With an estimated cost of INR2.0 billion, this initiative seeks to train 10 million people in towns and villages for IT sector jobs in five years. It also aims to train 0.3 million agents to run viable businesses delivering IT services. Additionally, the project involves training of 0.5 million rural IT workforce in five years and setting up of BPOs in each Northeastern state.

9. Early harvest programs: The Digital India program houses several early harvest programs, which are under various phases of implementation. These include initiatives such as on use of IT platform for mass messaging and e-greetings from government, biometric attendance, standardized government e-mail designs, e-books for schools and national portal for lost and found children. It also includes programs to cover cities with more than 1 million population and tourist centers with public Wi-Fi hotspots, an INR7.9 billion project to provide Wi-Fi in all universities and an INR980 million project to have secure e-mail for use within government systems.

Figure 6: Estimated impact of Digital India

► Broadband in 250,000 villages, universal phone connectivity

► 400,000 public internet access points► Wi-Fi in 250,000 schools, all

universities; public Wi-Fi hotspots for citizens

Empowering citizens with digital inclusion and job opportunities

► Digitally empowered citizens — public cloud, internet access

► Digital inclusion: 17 million trained for IT, telecom and electronics jobs

► Job creation: 17 million direct and at least 85 million indirect

India gaining leadership in adoption and manufacturing of IT products and services

►

►

►

India will be a leader in IT use in services - health, education, bankingE-governance and e-services: across government

Net zero imports by 2020

Impact of Digital India by 2019

Providing internet access to all

Source: DeitY


Overall, the Digital India program is expected to cost approximately INR1,130 billion. This includes around INR1,000 billion in ongoing schemes of DeiTY and DoT (not considering those in other line ministries) and around INR130 billion for new schemes and activities.

Timely implementation of schemes and adequate funding are essential to achieve the Government’s ambitious program. Additionally, collaboration between different stakeholders is also important to enable proliferation of affordable solutions to the price-sensitive Indian consumer market and drive service adoption.

Though the program is in early stages, it has garnered considerable attention from all stakeholders. The vision looks promising, and the time is ripe for Digital India. The Government’s focused plan to leverage ICT to create a digitally empowered knowledge-based economy has spurred growth opportunities and investments in the sector. This is expected to bring the much needed thrust to boost ICT and socio-economic development in the country.


Broadband highways leading the way to smart cities

“Cities in the past were built on riverbanks. They are now built along highways. But in the future, they will be built based on availability of optical fibre networks and next-generation infrastructure… Why can’t we have 100 new smart cities in our country, all modern cities with concepts like ‘walk to work’ etc?”

— Prime Minister of India, Mr. Narendra Modi

The Government has envisioned a goal to build 100 smart cities in the country. The proposal received approval form the Union Cabinet in April 2015, and is set to receive INR480 billion over five years for developing these smart cities.

Development of smart cities hinges on the strength and progress of underlying communications infrastructure, which enables delivery of various services such as e-governance, e-learning, online medical assistance and smart metering.

However, as compared to countries with top smart cities, India is currently one of the least penetrated telecom markets. The Government’s vision for Digital India and smart cities is expected to stimulate ICT development in the country.

As part of the bigger picture of creating industrial corridors between major metropolitan cities in the country, smart cities are being developed in collaboration with foreign governments. India has teamed up with multiple countries such as Japan, Qatar, Russia, Singapore, the UAE, the UK and the US to use their expertise in building smart cities and to cater to funding requirements.

Telcos’ use cases in smart cities range from providing basic connectivity, which is essential for capturing data from sensors and delivering real-time information to consumers, to providing an overall solution, such as by systems integration with other ICT, cloud and M2M solutions. In India, telcos will play a vital role in deploying the backbone network infrastructure of smart cities by providing connectivity through fiber optic and wireless media.

Source: Note1: CIA World Factbook, July 2014 estimate; Note2: ITU, 2013; Note3: per 100 inhabitants, ITU, 2013; Note4: by population, Ovum, 2013; Note5: by population, Ovum, 2013; KPCB internet trends 2014; Factiva; “Smart City Index & Development,” Institute for Information Industry - Taiwan, 2010; EY analysis


2. Telecom services


The Indian telecom industry is deemed to be a remarkable growth story for Indian industries and is recognized in the global arena for its contribution in development of the country’s economy. The telecom sector is the third-highest FDI contributor (after services and construction) over the period FY2000–till date, attracting INR837 billion of investment.2 It has also played a significant role in the socio-economic development of the country by connecting the masses.

However, in the recent years, the sector has witnessed a difficult business environment. During 2008–2013, the recessionary global environment, coupled with the regulatory overhang witnessed by the sector, dampened investors’ sentiments and its growth potential.

2.1 Telecom growth and current market landscape

The growth of Indian telecoms can be attributed to several enabling factors. Foremost, liberalization of telecommunications in 1991, which opened up the sector to private participation, was a key game changer. Subsequently, regulatory and policy reforms such as the implementation of the National Telecom Policy 1994, award of cellular licenses and establishment of the Telecom Regulatory Authority of India (TRAI) in 1997 were some of the important milestones in the 1990s, which propelled the sector to a high-growth trajectory.

The launch of wireless services was an important landmark and one of the most important drivers of overall industry growth during the past two decades. Additionally, factors such as India’s large population, high economic growth in the country, intense competition in the sector, low tariffs, infrastructure sharing and the introduction of enabling regulatory reforms have played a notable role in the industry’s growth.

Figure 7: Overall subscriber base and teledensity

429.7

621.3 846.3 951.3 898.0 933.0 987.337.0%

52.7%

70.9%78.7% 73.3% 75.2% 78.7%

0%

20%

40%

60%

80%

100%

0

200

400

600

800

1,000

1,200

FY09 FY10 FY11 FY12 FY13 FY14 Feb-15

Teledensity (%)Subscribers(million)

Subscribers Teledensity

2Department Of Industrial Policy & Promotion

Source: TRAI


Wireless dominated the overall subscriber growth, accounting for 97.3% of the overall subscriber base as of February 2015.5 The high capex requirement for laying wireline networks, coupled with inexpensive availability of wireless handsets, has led to a decline in wireline growth.

Figure 8: Urban and rural subscriber base, FY15* (100% = 987.3 million)

UrbanRural

41.4%

Source: TRAI

58.6%

India’s telecom sector is a voice-centric market, characterized by high volumes and low average revenue per user (ARPU). Price-sensitivity of telecom products in India has resulted in low airtime tariffs — average tariff per outgoing minute being INR0.5 per minute.6 Unsustainable tariffs and competition to add new subscribers has also impacted operator margins.

The telecom revolution has benefitted rural as well as urban segments, and has become both a necessity and a development enabler. Currently, telecom connects the remotest of Indian regions, which remain unpenetrated by road or the railways.

Despite its growth in rural regions, its overall growth remains skewed toward urban subscribers, which account for around 58.6% of the overall subscriber base.3 The urban-rural digital divide is significant, with a teledensity of 149.3% in urban areas and as low as 47.2% in rural areas at the end of February 2015.4

Figure 9: Gross revenue from telecom services in India

1,523.6 1,579.81,716.6

1,954.42,125.9

2,338.2

1,253.7

18.0%

3.7%

8.7% 13.9% 8.8%10.0%

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2,500

FY09 FY10 FY11 FY12 FY13 FY14 FY15*

y-o-y growth (%)INR billion

Source: TRAI*till September 2014

3Telecom Regulatory Authority of India4Ibid5Ibid6Ibid


2.1.1 Market landscape

Wireless

Wireless services have been at the helm of the Indian telecom growth story. With 960.6 million subscribers at the end of February 2015, India is the second-largest wireless market in terms of subscribers after China. The country’s wireless market has been dominated by volume-based growth. Furthermore, affordability of wireless services, with one of the lowest mobile tariffs in the world, has led to an aggressive growth of mobile telephony. India’s urban wireless teledensity stood at 143.7%, while its rural teledensity remained low at 46.6%, at the end of February 2015.7

India’s wireless market began to record a systematic shift with the launch of 3G services in 2010. Operators began moving away from focusing on voice services and began to capitalize on the growth and revenue potential of data. Wireless broadband services — 3G and 4G — are likely to replicate the growth of voice telephony in the growth of internet and broadband, and will account for largest share of incremental revenues for the sector.

Wireline

India’s wireline market has been reporting a constant decline for more than a decade now. The growth in the demand for wireless services, coupled with low-cost access to wireless devices and affordable tariffs, have significantly reduced the attractiveness of wireline services for consumers. Wireline teledensity stood at a low 2.1% at the end of February 2015.8

However, demand for wireline services has witnessed renewal of some interest in the recent past given its importance in broadband delivery. Some of the private players have reported healthy addition of wireline subscribers, along with an uptick in APRU, led by a demand for high speed broadband.

Figure 10: Wireless subscribers in India

391.8584.3

811.6 919.2 867.8 904.5 960.633.7%

49.6%

68.0%76.0%

70.9% 72.9% 76.6%

0%

20%

40%

60%

80%

100%

0

200

400

600

800

1,000

1,200


Y-o-Y growth (%)Subscribers (million)

Subscribers Wireless teledensitySource: TRAI

7Ibid8Telecom Regulatory Authority of India


2.2 Overview of internet and broadband9 market

Broadband infrastructure plays a critical role in an economy and contributes significantly to the social progress and development of a country. It connects consumers, businesses, governments; facilitates social interaction and presents attractive opportunities for education, governance and entrepreneurship.

Countries across the world are looking to increase broadband access and view it as the next phase of growth in telecommunications services. Broadband offers extensive benefits to emerging markets. According to the World Bank’s estimates, a 10% increase in broadband penetration accelerates economic growth by 1.38% in low and middle income countries as compared to an increase of 1.21% in high-income countries.10

Till recently, India was primarily dependent on wireline infrastructure for delivery of internet services. Due to the deficient nature of the fixed infrastructure, the internet penetration has remained low and India ranks a lowly 125th in terms of fixed broadband penetration globally.11 However, the last couple of years have witnessed significant uptake of wireless internet services, led by operator initiatives to invest in spectrum acquisition and network upgrades. As of September 2014, wireless accounted for ~92.6% of the country’s total internet subscribers.12

Figure 11: Wireline subscriber numbers and growth rate

38.0 37.0 34.732.1 30.2 28.5 26.7

-3.6% -2.6%-6.2% -7.5% -5.9% -5.7%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

10

20

30

40

50


y-o-y growth (%)Subscribers (million)

Wireline Subscriber Growth RateSource: TRAI

Figure 12: Internet subscribers (million)

164.8198.4 210.4

238.7 251.6 259.1 254.4

143.2176.5 188.2

220.4 233.1 240.6 235.7

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

Total internet subscribers Wireless internet subscribers

Source: TRAI

9Speed greater than 512 Kbps10World bank analysis11Telecom Regulatory Authority of India12Ibid.


Figure 13: Factors influencing sluggish uptake of broadband in India

Future investment in wireless and fixed infrastructure

The growth trend in broadband is changing, and wireless broadband is expected to drive mass adoption. Due to relatively low capex, availability of affordable customer premise equipment and reduced time for roll-out, wireless broadband is expected to increase proliferation of broadband services.

Governments around the world are encouraging investment to boost the proliferation and availability of high speed broadband. The Government of India has envisaged driving broadband demand by advocating provision and support of easy, affordable and reliable broadband access to the masses. The NTP 2012 envisages 600 million broadband subscribers by 2020.

High-quality broadband will also require the substantial growth of fixed infrastructure for backhaul of wireless access and high speeds in dense urban areas through fiber (fiber to the x (FFTx)) and cable broadband. Developed economies have seen extensive deployment of FTTx and the technology has served as a platform for data growth, despite the presence of mature mobile broadband platforms in the countries. Moreover, developments in VDSL2 such as vectoring and the new G.fast standards are further changing the landscape of fixed broadband globally.

Worldwide, cable broadband caters to 20% of the demand for broadband, while in India, only 5% of broadband connections are provided via cable.13 In contrast, cable TV connections in India, as last mile infrastructure, reach more people than the telephone copper infrastructure.14 With mandatory conversion of cable to digital networks in major cities, the freed up capacity can serve as last mile for metro connectivity.

Supply side constraints

Demand side constraints

Availability of services

Awareness

Speed of service

Affordability

Non-availability of adequate

spectrum and backhaul carriers

Attractiveness

Lack of compelling

and relevant content

Lack of backhaul transmission

facilities

Figure 14: Wireless-wired broadband split

Source: TRAI

15.9%

84.1%

Total broaband subscribers in Feb - 15, 97.4 miilion

Wired broadband Wireless broadband

Source: EY analysis

13Telecom Regulatory Authority of India 14“Broadband policy,” TRAI, http://www.trai.gov.in/Content/broadband_policy.aspx, accessed 17 April 2014.


3G and 4G

The Government of India has recognized the importance of wireless broadband and the 3G/BWA auction in 2010 was a significant step for the Indian telecom sector. 3G services, which were launched in 2010, were slow to gain traction in initial years. However, the past two years have seen strong upswing in demand for 3G, with all operators reporting strong growth both in terms of subscriber addition and data usage.

Given the demand, the Government had taken the decision of releasing additional spectrum in the 2100MHz band in the recently concluded auction (March 2015). Moreover, the spectrum swap agreement signed between Department of Telecom and the Ministry of Defence, which will bring 15MHz of additional 2100MHz spectrum into commercial use is a noteworthy achievement. Furthermore, operators have started evaluating the use of their liberalized spectrum holdings in the 900MHz band for the launch of 3G services. 900MHz band can be instrumental in expanding the 3G services to the hinterland, given its superior propagation characteristics.

4G services in India were launched in 2012, and the current year is likely to witness large scale 4G roll-out from some key players, with the momentum expected to build in the coming years. Earlier, only operators that won spectrum in 2300MHz in 2010 could launch 4G services. However, the auction of technology neutral spectrum in February 2014 and March 2015 is likely to change the landscape of 4G in India. These auctions saw operators winning spectrum in 800MHz and 1800MHz bands, two amongst the most developed bands for launch of long-term evolution (LTE) services.

Furthermore, the auction of 700MHz digital dividend band in the next couple of years will also boost availability of 4G services in the market. However, the ability of 4G services to disrupt the existing market dynamics will hinge on several factors including price sensitivity of services, strength of the supporting ecosystem and the capability to deliver voice services.

On the demand side, affordability of services and availability of relevant local content are expected to generate a significant pull. India, with its young and increasingly urban population base, has huge potential for growth. Moreover, growing usage of smartphones, especially in urban areas, is driving usage of internet on hand-held devices.

2.3 Challenges in the current scenario and the way forward

2.3.1 Financial issues: an overview

The Indian telecom industry is currently facing a challenging financial environment. Its bourgeoning industry debt is a rising concern. In FY14, the sector’s total sector debt stood at INR2,500 billion — higher than the industry’s gross revenue of INR2,338.5 billion.15 The sector’s rising debt-equity ratio is also a key concern. Furthermore, financial over-leveraging, largely on account of the high costs of spectrum pay-outs, exerted a downward pressure on revenues and earning capacities in the industry.

In addition, multiple taxes and levies have added to the financial woes of operators. Currently, levies account for around 30% of revenue earned by telecom companies in India, as compared to around 5% in other APAC countries.16

High price-related competition and low tariffs have also led to low ARPUs exerting pressure on margins. These issues are likely to further decelerate operators’ investments and put a brake on their plans to expand their networks and provide new services.

Figure 15: High debt-equity ratio in telecom sector a key concern

Source: TRAI

0.110.17 0.26 0.29

0.98

1.38

1.81 1.74

0.69

0.93

1.25 1.26

0

0.5

1

1.5

2

FY11 FY12 FY13 FY14

In times

Public sector Private sector Total

Total broaband subscribers in Feb-15, 97.4 miilion

15“Telecom industry cracking under financial pressure,” The Hindu, 11 July 2013; Telecom Regulatory Authority of India; EY Analysis16Cellular Operators Association of India


2.3.1.1 Taxes and levies

India’s telecom sector is subject to one of the world’s highest net outlays in the form of regulatory costs including, but not limited to, Service Tax, state-level VAT, spectrum charges and license fees as well as other charges including Additional Duty of Customs (ADC), Central Sales Tax (CST), municipal charges, right of way, etc.). In FY13, spectrum and license fees (two of the largest regulatory pay-outs) together amounted to INR171.4 billion, while for FY14 the figure rose to INR214.4 billion.17 This highlights the substantial burden on the sector due to these levies.

2011–12 2012–13 2013–14

License fees 117.9 114.6 146.3

Spectrum fees

51.9 56.8 68.1

Total license and spectrum fee pay-outs

169.8 171.4 214.4

AGR 1,345.90 1,407.80 1580.4

License and spectrum fees as a percentage of AGR (%)

12.6 12.2 13.6

Figure 16: Regulatory pay-outs of India’s telecom sector (INR billion)

*AnticipatedSource: DoT, TRAI

Moreover, Indian taxes are much higher in comparison to its global peers. Spectrum usage charges (SUC) in most countries recover spectrum charges through an up-front payment in auctions and do not levy any supplementary charge. Even in cases where a fee is levied, it only covers the administrative cost of managing the spectrum.

In the case of license fees, India outstrips its global counterparts. For instance, China does not levy any license fees; in Singapore, it varies between 0.8%–1% of the annual turnover.18 Similarly, license fees are negligible in South Africa (0.15%–0.35% as a percentage of revenue from licensed services)19 and Thailand (a maximum 1.5% of annual revenue)20.

There is a need for the Government to revisit and revise these levies, since they adversely affect the sector’s growth. Research indicates that a one percentage point reduction in taxes on mobile broadband is likely to result in up to 1.8 percentage point increase in penetration, and up to 0.7 percentage point increase in GDP over five years in emerging markets.21 Specifically for wireless broadband, every dollar reduced in taxes for emerging markets, will generate GDP ranging between US$1.4 and US$12.6.22

Key recommendations

• Taxes and levies should be rationalized to ensure the overall growth and financial viability of the sector.

• License fees should be reduced to nominal rates.

• SUC should be revised and reduced to 1%, given that spectrum is allocated at market-determined prices.

2.3.1.2 Retrospective taxation

Retrospective amendments of tax norms are among the biggest challenges faced by companies in India’s telecom sector. Two significant changes were introduced in the Finance Act 2012. These have dented investors’ confidence in India as an investment destination. These changes include the following:

• Retrospective taxation of deals between two overseas parties of an entity based in India with effect from 1 April 1962.

• Expansion of the definition of “royalty” retroactively from 1976 to include any consideration received for computer software and transmission by satellite, cable, optic fiber or similar technology.

17Telecom Regulatory Authority of India 18“Guidelines on submission of application for facilities-based operator licence,” IDA, March 2013. 19TRAI20“Types of Telecoms Licenses and Their Fees,” National Broadcasting and Telecommunications Commission, http://www.nbtc.go.th/wps/portal/NTC/!ut/p/c4/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gTf3MX0wB3U08n8zAjA88wCzNXM09PA1MzE_2CbEdFALxking!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/library+ntc/internetsite/eng/en_interesting_articles/en_interesting_articles_detail/92541900400c63768dd5cdabcb3fbcab, accessed 16 April 2014. 21“The Impact of Taxation on the Development of the Mobile Broadband Sector,” GSMA, March 2012.22Ibid.


2.3.1.3 Contribution to USOF fund

Another area of concern constitutes high charges levied in the form of the Universal Service Obligation Fund (USOF). NTP 1999 had envisaged access to basic telecom services for all Indians at affordable prices, especially in rural and remote areas. In 2002, the Universal Service Support policy came into effect, with a universal service levy of 5% on the AGR, which forms a part of the license fee.23 Over the past few years, the high quantum of this levy and its suboptimal utilization has been a major concern.

USOF fund’s contribution for select Asian countries

Retrospective laws have proved to be a disincentive for existing and new companies that wish to do business in India. Such changes in laws create an environment of mistrust, unreliability and instability. They also lead to deterioration in investors’ confidence and unpredictability in the business environment. Some key ICT players in the country are involved in prolonged litigation due to retrospective taxation assessments.

Retrospective amendments made in laws need to be discouraged, and all changes should be forward-looking as a principle. It is important to improve the regulatory setup, drive enhanced transparency in communication between government agencies and regulatory authorities, and discontinue retrospective amendments in tax laws in the country.

Key recommendations

• Retrospective taxation issues need to be resolved, since they hurt investors’ confidence.

Country USOF fund contribution

India 5% of Adjusted Gross Revenue

Nepal 2% levy on revenues of incumbent operators, ISPs and mobile operators

Pakistan 1.5% levy on revenues of all operators

Bangladesh 1% of audited gross revenues

Afghanistan 2.5% of net revenues of all licensed service providers

Source: GSMA

Operators have already met their original roll-out obligations for rural areas. However, the Government has unilaterally mandated additional roll-out obligations that require the coverage of block headquarters (BHQs). Failure to meet these roll-out obligations has financial implications for operators in the form of penalties. The USOF fund’s contribution, along with the penalties, is equivalent to a “double levy” on operators. It should be noted that the USOF fund in India is among the highest in the world. India had the second-highest accumulated USO fund level in the world (next only to Brazil) and the highest among its APAC peers.

Although the USOF was created with the aim of promoting rural telephony, the fund’s rules are too cumbersome and lack focus. They do not reflect the fact that USOF subsidies are perhaps most urgently required to defray the cost of infrastructure creation in rural areas. Moreover, the high levy of 5% (one of the highest among India’s peers) continues to be imposed in the country, even though the fund contains INR356.1 billion of unutilized accumulated funds.24

Figure 17: Status of disbursement of USO levy on operators in India

54.1 55.2 57.8 61.1 67.2 67.4

79.0

37.0

12.9 16.0 24.0 31.0

16.9 6.3

21.6 17.8

0

20

40

60

80

100

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15*

INR billion

Funds collected Funds disbursed

*till 31 December 2014Source: USOF website


Key recommendations

• ► USOF needs to be eliminated or reduced to 1%–3%.

• ► Funds collected under USOF need to be utilized efficiently.

• ► Unilateral application of additional requirement of BHQ coverage needs to be revisited.

TRAI, in its recent recommendations on definition of AGR, has highlighted the inefficiencies in utilization of USO funds, and stated that the fund is being used to provide budgetary support and bridge the fiscal gap. The regulator also stated that the USO levy needs to be reduced to 3% of AGR for all licenses.

Case study: Best practices in USOF fund management

Best practices Country Comments

Consultation with stakeholders

Ghana Board of trustees for fund includes a representative from each major telecom operator.

Canada Operators have representation in and their input is sought by the fund oversight committee.

Detailed public consultations are conducted.

Autonomous/Independent fund structure

Nigeria There is a separate entity (USPF); board of directors comprises representatives from private and public sectors.

Clearly specified and measurable objectives including coverage and service delivery targets

Columbia The country has in place a four-year plan with detailed project descriptions, targets and associated costs.

Peru Annual report is generated on fund’s performance with respect to allocation and performance of projects versus targets.

Fair project allocation process – competitive bidding

Columbia Names and details of successful bidders are posted on the website.

Nigeria

Source: GSMA

2.3.1.4 Revision of AGR definition

Interpretation of the definition of AGR, which is used as the base for levy of licence fees and SUC, has long been an issue of contention. There is a disconnect between operators and the Government over what should constitute the AGR. Under the current regime, revenue accrued from non-telecom related activities is included for calculating AGR.

Revenue considered for calculating AGR should only be that which is derived from users of telecom services/sale or lease of bandwidth or receipt from sale of value-added services permitted under the conditions of the licence.

Moreover, the current definition of AGR is ambiguous and allows anomalies — includes revenues unrelated to licensed

23“Enabling the next wave of telecom growth in India,” EY, 2011.24“Collection of Universal Access Levy vis-a-vis Allocation and Disbursement of Funds from USOF,” USOF website, accessed 6 May 2014.


activities, accounting credits that strictly do not fall under the definition of revenue or income, dual charge of the same revenues twice in the hands of different operators, etc. Given the contentious nature of the dispute, it is imperative that such inconsistencies in the AGR definition are removed.

Figure 18: Inconsistences in the current definition of AGR25

Includes several revenues unrelated to licensed activities under the licence

Includes service items that do not strictly come under the definition of revenue

Results in dual charge of the same revenue twice in the hands of different operators

Includes notional income that is unrealized/remains uncollected by licensee

Includes item on accrual/billed basis, but allows deduction on collected/paid basis

Source: TRAI, EY analysis

Key recommendations

• ► AGR should only include revenues from services under license for respective service areas.

• ► A simple, non-ambiguous definition of AGR should be in place for the future.

2.3.1.5 Need for finance in telecom sector

The financing needs of the telecom sector are increasing rapidly with the rising cost of input required. India has been witnessing high payouts for acquisition of spectrum at all the airwave auctions since 2010. Moreover, with debts mounting on operators’ balance sheets, Indian banks have also been reluctant to lend money to the sector.

The Twelfth Five Year Plan projected investments of around INR94 billion in the telecom sector.26 However, it is envisaged that more than 90% of these investments will be from the private sector.27 This is a difficult proposition, given that operators’ balance sheets are already stretched.

25“Recommendations on components of adjusted gross revenue (AGR), TRAI, September 2006, page 1. 26“Twelfth Five Year Plan,” Planning Commission, 2012.27Ibid.


Figure 19: Twelfth Five Year Plan projections on investment in the telecom sector

Total Eleventh Plan

Twelfth Plan projections (INR billion)

2012–13 2013–14 2014-15 2015–16 2016–17 Total Twelfth Plan

Centre 8.6 1.5 1.4 1.4 1.4 1.3 7

Private 29.8 9 12.1 16.2 21.6 28.1 87

Total Telecommunications

38.4 10.5 13.5 17.6 23 29.4 94

Source: Planning Commission

Figure 20: FDI flow into telecom sector

2,558 2,554

1,6651,997

304

1,307

2,832

9.3% 9.8%8.6%

5.4%

1.3%

5.3%

11.1%

0%

5%

10%

15%

0

500

1,000

1,500

2,000

2,500

3,000

FY09 FY10 FY11 FY12 FY13 FY14 FY15*

%US$ million

FDI inflow in telecom (US$ million) Share of telecom sector in total FDI (%)

*till January 2015Source: DIPP, Ministry of Commerce and Industry

This is cause for a major concern, since telecom is a capital intensive sector. The need for financing is bound to rise, given the massive outlay required to acquire spectrum. It is estimated that the recently concluded round of spectrum auctions (March’15) will add an additional debt of ~INR1,000 billion on the industry. Moreover, rollout of next generation 4G services and expansion of 3G services will require additional investment by operators.

In this scenario, it is essential for the Government to support the financing needs of the sector, which has played an important role as an essential infrastructure, and contributed significantly to the growth of India’s economy.


Figure 21: Capital investment (gross block)

2400.02750.0

3377.04164.2

4792.75255.6

5645.6 5625.2

0

1,000

2,000

3,000

4,000

5,000

6,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

INR billion

Source: TRAI

CAGR: 13%

Setting up of Telecom Finance Corporation

The sector should be allowed to access funding on a preferential basis from government-promoted institutions financing the infrastructure sector. The Government should consider the creation of a Telecom Finance Corporation (TFC) as a vehicle to enable the sector to access funds on a preferential basis. TFC can be structured and serve the same purpose as the Power Finance Corporation. It should extend credit to the sector at competitive rates to facilitate its funding needs.

Increase in ECB limit

• For high capex requirements: Significant capex investment is required to achieve targets envisaged in NTP 2012. Enabling players to fund this capex through ECB rather than through high-cost rupee loans will ensure that the targets envisaged under NTP 2012 are reached.

• For working capital requirements: Telecom operators make sizeable investments in franchisee networking, expansion of distribution channels, manpower, marketing, brand promotion, network running costs, power and fuel costs, etc. Return on this investment has as long a gestation period as that of return on capex or spectrum investment. Since funding this working capital requirement through high-cost rupee loans increases input costs further, funding through ECB will help the industry reduce its input costs.

• For prepayment of debt and working capital finance: Recently, certain sectors in the infrastructure industry, such as roads and airlines, were permitted to use ECB to prepay their rupee-denominated debt and working capital loans. Similar benefits should be provided to the telecom and tower sector.

Key recommendations

• ► Telecom should be considered a critical infrastructure sector and its financing needs should be addressed accordingly.

• ► A Telecom Finance Corporation should be set up on the same principle as that of the Power Finance Corporation.

2.3.1.6 Entry of OTT services providers

The telecom value chain is undergoing a transition. Another layer of service providers are now a part of the value chain and are providing standalone application services to end users through the telecom network. These applications are being delivered in an over-the-top (OTT) model.

Deemed as OTT content providers, these players facilitate online delivery of content and applications without the telecom operator being involved in controlling or distributing the content


Key recommendations

• There is a need for the Government to support a collaborative environment where all stakeholders will understand the impact of new services such as OTT services on traditional telecom networks, and how these services can benefit users.

and applications. The services are delivered directly by the OTT provider to the end-user, independent of the latter’s telecom operator and without the need for carriage negotiations agreement with the operator.

With the entry of new players in the telecom ecosystem and the advent of new service delivery models, there is the need to understand the effect of these changes on legacy networks and benefits of users.

2.3.2 Spectrum-related issues

Spectrum is a scarce and critical resource and its efficient allocation and usage is critical for successful delivery of telecom services in the country. However, several spectrum-related issues such as high pricing, unavailability of optimum quantum of spectrum and lack of a spectrum roadmap are factors that continue to affect the sector adversely.

Figure 22: Spectrum-related factors crucial for service delivery

Spectrum at a reasonable price

to maximize participation and set fair market

price

Auction of all available spectrum

Charges for nominal

spectrum usage

Efficient, fair and transparent spectrum

allocation with a clear roadmap

Harmonized band plans

Efficient delivery of affordable and high-quality

services

Source: GSMA, EY analysis

2.3.2.1 High price of spectrum

Spectrum-related policies, especially those pertaining to its optimum pricing, are critical for the growth of telecom services. Alignment of spectrum prices with international benchmarks, keeping in mind local market conditions such as tariff levels, ARPU and purchasing power is important for optimally defining the spectrum pricing.

However, in India, pricing of spectrum has continued to be a critical issue, especially after the country moved to an auction-based pricing mechanism for allocation of spectrum. A high reserve price has been one of the key issues in disbursement of spectrum.


Short-term goals of maximizing revenue by governments seeking to reduce budget deficits are actually harmful to the development of the mobile sector and the socio-economic benefits it brings. Public discourse related to maximizing public good from spectrum should therefore not be focused on how much money can be generated for public funds. Instead, it should be focused on how to maximize the overall economic and social returns from spectrum.

GSMA

Furthermore, excessive bidding for a critical resource in the absence of a clear roadmap for future allocations has led to high spectrum payouts. This has burdened operators’ balance sheets. Lack of clarity on the future course and timelines for distribution of spectrum, results in artificial scarcity, which leads to operators bidding excessively. This was noticed in the 3G and BWA auctions in 2010 where operators bid aggressively in order to safeguard their future service launches of next generation services. 3G payouts (INR677.1 billion) were almost 20 times the reserve price (INR35 billion) set for the auctions.28 A similar bidding pattern was also witnessed in the recently concluded auctions (March 2015) where the 900MHz clearing price in nine circles was more than twice that of the reserve price.

Figure 23: Spectrum auction timeline

May 2010

November 2012

March 2013

February 2014

March2015

Source: EY analysis, DoT*Spectrum was up for auction in three circles only

Auctions: 2100MHzPan-India reserve price (per MHz): INR7 billionAuction highlights: Scarcity-driven participation; strong bidding to ensure 3G footprintAuction result: 100% spectrum sold; high resultant debt on operators’ balance sheets

Auctions: 800MHz, 1800MHzPan-India reserve price (per MHz): 800MHz – INR36.4b, 1800MHz – INR28 billionAuction highlights: High reserve price; limited participation driven by need to ensure business continuityAuction result: Unsuccessful outcome with no bids in 800MHz and only 47.2% spectrum sold in 1800MHz

Auctions: 800MHz, 900MHz, 1800MHzPan-India reserve price (per MHz): 800MHz – INR18.2b, 900MHz* – (Delhi (INR7.8 billion), Mumbai (INR7.6 billion), Kolkata (INR1.8 billion)), 1800MHz – INR23.6 billionAuction highlights: Participation from just one operator (despite cut in reserve price); no bidding in 900MHz and 1800MHz bandsAuction result: Second successive failed auction: 800MHz – 31.6%, 900MHz – No bids, 1800MHz – No bids

Auctions: 900MHz, 1800MHzPan India reserve price (per MHz): 900MHz* – (Delhi (INR3.6 billion), Mumbai (INR3.3 billion), Kolkata (INR1.3 billion)), 1800MHz – INR17.6 billionAuction highlights: Rationalization of prices; strong biding in Delhi, Mumbai and Kolkata; focus on future proofing investmentsAuction result: Bulk of spectrum sold — 100% in 900MHz and 79.8% in 1800MHz

Auctions: 800MHz, 900MHz, 1800MHz and 2100MHzPan India reserve price (per MHz): 800MHz (20 circles) – INR34.2 billion, 900MHz (17 circles) – INR34 billion, 1800MHz (15 circles) – INR14.3 billion, 2100MHz (17 circles) – INR35.1 billionAuction highlights: Operator focus on safeguarding business continuity resulting in excessive bidding in 900MHz band; muted participation in 2100MHz; bidding in 800MHz led by superior LTE ecosystem in the bandAuction result: Bulk of spectrum sold — 83.1% in 800MHz, 94.5% in 900MHz, 94.6% in 1800MHz, 82.3% in 2100MHz

28Department of Telecommunications


Key recommendations

• ► Reasonable spectrum reserve prices should be set that take into account the broader benefits accruing to society and the country due to expanding mobile services at affordable rates.

2.3.2.2 Availability of spectrum

Availability of spectrum continues to be low in India and poses a challenge for most operators. The current quantum of spectrum is insufficient to meet broadband penetration goals envisaged by NTP 2012 and to ensure affordability. India is a spectrum-crunched nation and lags behind its global peers in terms of its distribution of spectrum.

Figure 24: International comparison — quantum of spectrum distributed within bands (MHz)

800MHz 900MHz 1800MHz 2100MHz

Australia2 x 45MHz

2 x 60MHz 2 x 60MHz, 20MHz unpaired

Germany 2 x 30MHz 2 x 34.8MHz 2 x 70.2MHz 2 x 59.4MHz, 34.2MHz unpaired

Malaysia2 x 35MHz# 2 x 75MHz 2 x 60MHz, 20MHz

unpaired

Singapore2 x 30MHz# 2 x 75MHz 2 x 59.4MHz, 15.1MHz

unpaired

UK 2 x 30MHz 2 x 34.8MHz 2 x 71.6MHz 2 x 60MHz, 20MHz unpaired

India* 2 x 12.5MHz 2 x 22.2MHz 2 x 40MHz 2 x 20MHz* The spectrum holding for Delhi circle have been considered as on 31st January 2015# E-GSM has been deployedSource: Wireless Planning Commission, EY analysis

Figure 25: Global average of spectrum (in MHz) per operator

6965

50 4939

2818

Oceania Europe Globalaverage

Asia Americas Africa India

Source: TRAI

It is essential for the Government to allocate additional spectrum. The unutilized spectrum lying with defence services, the police, broadcasting and ISRO should be re-farmed and considered for allocation to telecom services. Moreover, the Government should make available the entire unsold spectrum.

Furthermore, licensing authorities should develop a clear roadmap that identifies the frequency bands that will be made available and the proposed timing of these. It is important that spectrum allocation-related decisions are made part of a long-term plan because once spectrum has been allocated, it can be difficult to re-assign. A clear roadmap for the auctions will help operators plan their acquisition strategies better. Lack of clarity on future availability of spectrum and the timelines of auctions lead to artificial scarcity in the market.


Mechanisms need to be put in place to ensure efficient utilization of allocated spectrum. In the event spectrum is unutilized, provisions need to be made to safeguard the valuable resource.

Global initiatives for safeguarding efficient utilization of spectrum

Bangladesh • In Bangladesh, some of the available spectrum that could have been used for GSM was left idle because it had been allocated to wireless local loop operators that had not established their businesses. This was despite limited spectrum being available for mobile operators.

• Bangladesh’s regulator has subsequently cancelled some of the wireless local loop operators’ licences.

Key recommendations

• ► A clear road-map of availability of spectrum should be provided in the future.

• ► All spectrum currently lying unutilized with various government agencies should be made available on priority in conformity with globally harmonized bands.

2.3.2.3 Backhaul spectrum

Backhaul links and systems are as essential as access links for mobile services. With anticipated data growth in the country, a large number of channels/RF carriers will be needed along with increased RF carrier bandwidths. It is imperative that high frequency bands — of up to 100GHz — are allowed for backhaul network usage. It is also imperative to adopt global best practices for utilization of these bands — light licensing and nominal or token spectrum charges.

S. No.

Service area Availability status of MW access carriers

13/15/18/21 GHz Bands

Total number of carriers available

Total allotted carriers

Balance available carriers

1 Delhi 95 41 54

2 Mumbai 95 52 43

3 Kolkata 95 41 54

4 Maharashtra 95 43 52

5 Gujarat 95 41 54

6 A.P. 95 39 56

7 Karnataka 95 41 54

8 Tamil Nadu 95 41 54

9 Kerala 95 35 60

10 Punjab 95 36 59

11 Haryana 95 33 62

12 UP (West) 95 37 58

13 UP (East) 95 37 58

14 Rajasthan 95 37 58

15 Madhya Pradesh 95 31 64

16 West Bengal 95 30 65

17 Himachal Pradesh 95 34 61

18 Bihar 95 36 59

19 Orissa 95 30 65

20 Assam 95 32 63

21 North East 95 32 63

22 J&K 95 31 64

Total 2090 810 1280

Figure 26: Allocation of spectrum for backhaul networks

Source: TRAI


Key recommendations

• ► Additional spectrum in increased bands should be available for the backhaul network, with a light licensing approach and nominal charges.

Key recommendations

• ► Spectrum trading and sharing should be allowed at the earliest to encourage its efficient use.

2.3.2.4 Spectrum trading and sharing

Spectrum trading and sharing is likely to provide a viable route for efficient utilization of spectrum that remains unutilized or underutilized with an operator. Spectrum trading and sharing promotes efficient spectrum usage by enabling it to be acquired by operators that can generate the maximum value from its use.

At the same time, the ability to share or trade spectrum provides an incentive for licensees that have unused or under-utilized spectrum in order to generate revenue by offering it to others that can make better use of it. Trading and sharing can also help in overcoming inefficiencies during the initial allocation and help operators obtain contiguous bands.

2.3.2.5 Lack of contiguous spectrum bands

The spectrum allocation in India is highly fragmented due to large number of operators in the market and lack of sufficient spectrum. This has led to unavailability of contiguous spectrum. Fragmentation of spectrum leads to its inefficient usage. Small holdings are a challenge when guard bands are needed to avoid interference at boundaries between frequency blocks for different applications (e.g., between broadcasting and mobile services and between different countries).

Assignment of continuous blocks of spectrum leads to increased efficiency. Contiguous blocks of spectrum can easily accommodate the varying throughput or bandwidths of user traffic. A widened channel can also absorb large and small user data transfers efficiently.

Furthermore, allocation of large blocks reduces the challenge of implementing multiple spectrum bands, especially in users’ equipment, since contiguous spectrum assignments are preferred to reduce the complexity of RF front-end designs. Wide spectrum blocks permit network operators to deliver high-speed services to users in a single band, and also simplify roaming for users with operators within the same band.

Therefore, contiguity is likely to enable significantly improved throughput and provide a consistent quality of experience for end users. It will also facilitate efficient and cost-effective rollout of new networks and device-related technologies.

Key recommendations

• ► Contiguous spectrum should be allocated for efficient provision of services.


Case study: Importance of contiguous spectrum for high-speed data services

As the demand for data services increases, deployment of LTE is expected to be critical in fulfilling the need for anytime, anywhere access to broadband. LTE will significantly increase data capacity and effectively augment existing 3G networks. It functions best with wide blocks of spectrum. This makes the need for contiguous spectrum imperative.

Wide channels provide optimum mobile broadband performance

• ► LTE uses an Orthogonal Frequency Division Multiple Access (OFDMA) radio interface that requires large and contiguous blocks of spectrum to operate efficiently.

• ► OFDMA technology leverages wider bandwidths to enable high data rates and thereby provide an excellent user experience. A bandwidth of 10MHz or more is best suited for deployment of LTE services.

• ► A wide channel allows licensees to take full advantage of future enhancements to LTE, while increasing their spectral efficiency.

Cost of deployment under different spectrum allocations

• ► The cost of deploying LTE services increases with the declining block size of contiguous spectrum. For instance, LTE networks in 2x10MHz spectrum channels cost twice as much to deploy as services in 2x20MHz channels.

2x5MHz$4X

2x10MHz$2X

2x15MHz$1.3X

2x20MHz$1X


3. Telecom infrastructure


The telecom infrastructure industry has acted as a backbone for the development of telecom services and played a prominent role in the growth story of the Indian telecom sector. Telecom infrastructure primarily includes the underlying network, such as fiber/cell sites over which wireline and wireless telecom services are provided.

3.1. Telecom towers

3.1.1. Introduction

Worldwide, ownership and management of telecom towers has largely been in the hands of telecom operators. However, in countries such as India and the US, towers have gained significance as a separate industry with operators outsourcing tower infrastructure to independent players. Separate tower companies with a considerable number of towers offer advantages such as rapid rollout over a large area, sharing of towers and tenancy-driven discounts, as compared to towers managed by operators.

India’s telecom infrastructure industry is one of the pioneers in passive infrastructure sharing. The tower infrastructure companies provide an integrated neutral host platform that is used by diverse and often competing operators. The growth of these independent tower companies, along with infrastructure sharing, has resulted in rapid rollout of services, fast go-to market time for new entrants and savings in capex and opex. This has led to affordable services for end users and improved accessibility to the hinterland.

Industry size and growth

The country’s tower industry has grown significantly over the past few years. The number of telecom towers grew from around 250,000 in FY08 to 421,000 in FY14.29 Furthermore, the tenancy ratio has increased significantly from 0.9 to 1.9 during this period.30

250 280 328 364 407 411 421

0.901.30

1.70 1.70 1.85 1.91 1.90

0

1

2

3

0100200300400500

FY08 FY09 FY10 FY11 FY12 FY13 FY14

Ratioin 000's

Number of towers Tenancy ratio

Figure 27: Telecom towers installed and tenancy in India

Source: TAIPA

Despite the substantial increase in the reach of telecom services, around 30% of the Indian population, mainly in far-flung rural and tribal areas, are still deprived of basic mobile services.31 Geographically, 15% of the country’s area remains to be covered by the telecom service providers.32 Furthermore, broadband coverage is still low in the country. It is estimated that more than 150,000 towers will be required on a pan-India level and a minimum of 50,000 towers in rural India to cater to these requirements.33

The telecom infrastructure segment is also expected to play a vital role to help realize the Digital India vision and facilitate inclusive growth. In particular, tower infrastructure will provide the foundation to achieve the objectives of broadband highway covering both rural and urban areas, universal access to mobile connectivity, public internet access, e-governance, e-Kranti and to develop smart cities in the country.

Figure 28: Key trends and drivers

Key trends

Growth drivers

Focus on optimization

of energy

Continued sharing

of passive infrastructure

Focus on operational

improvements

Shift to fixed energy models

Expansion of networks in rural areas

Rollout of new technologies (3G/4G)

Demand for data services

Demand for in-building solutions and Wi-Fi

Refarming of spectrum

Source: TAIPA and EY analysis

29Tower and Infrastructure Providers Association30Ibid.31Ibid.32Ibid.33Ibid.


3.1.2. Challenges in the current scenario and the way forward

The tower industry continues to face multiple challenges, despite the significant role played by the infrastructure segment in the overall growth and delivery of telecom services. Foremost, challenges around obtaining RoW and site acquisition continue and have slowed down deployment of towers. Furthermore, the non-uniform policies adopted by different states raise impediments in obtaining RoW.

Another significant area of concern that is inhibiting the growth of the sector is that benefits to be provided under infrastructure status have not yet been extended to the industry. Consequently, economic benefits envisaged by the Government for the development of the industry have not trickled down to the implementation level.

An added challenge faced by the tower industry is on the green energy solutions front. Given that the ecosystem for renewable energy is at a nascent stage in the country, it is difficult to achieve the stringent green energy targets that have been set.

3.1.2.1 RoW and other impediments in installation of telecom towers

RoW impediments continue to hamper installation of towers and constitute a key challenge faced by the tower infrastructure industry. High costs, lack of uniformity in RoW guidelines and the absence of a single window clearance process act as barriers for timely roll-out of towers. Despite a set of guidelines rolled out by the DoT to accelerate tower deployment, support and alignment from state governments is yet to materialize. Moreover, multiple levies such as permission fee, sharing fee and renewal fee are also being charged non-uniformly across states, further burdening the tower industry.

Acquisition of sites and their deployment is emerging as a major operational challenge due to people becoming apprehensive about location of cell towers in the vicinity of their households. Additionally, municipal bodies and local governments are limiting the number tower installations. There have also been instances of sealing or disconnection of electricity at towers without the consent of the appropriate regulatory body. Such actions have severe consequences on provision of quality services to customers and result in additional cost implications for tower companies.

Issues pertaining to further approvals, such as from the Standing Advisory Committee on Radio Frequency Allocation (SACFA) clearances, are also leading to delays and sub-optimal coverage of infrastructure.

• Requirement for multiple documentation

Infrastructure providers need to submit several documents according to requirements of various state governments, municipalities or concerned authorities. These include those pertaining to site and location plans, elevation plans, drawings of towers, capacity of towers, occupancy certificates and affidavits from the owners or association of owners of commercial buildings, etc.

This extensive documentation increases administrative work and causes a significant delay in processing of applications. Often time-consuming, these processes slow down rollout of telecom networks.

• Delay in applications processing and requirement of multiple approvals

Considerable time is taken in provisioning permission for installation of tower, and can range from 45–75 days.34 States have different requirements for approvals and no objection certificates (NOC) being obtained from the various departments.

For instance, in Haryana, the entire process of grant of license takes around 90–105 days. Goa is asking for an undertaking that the telecom service provider or infrastructure provider will enter an agreement with the Competent Authority prior to getting any permission. All these processes are time-consuming and adversely affect the pace of network rollouts.

The practice currently adopted by state governments deviates from the DoT’s guidelines, which mandate a single window clearance system and approvals to be provided within a specified time (30 days for faster processing of applications and granting permission/approvals).35 State governments should require only the specific and relevant documentation as stipulated by the DoT guidelines to accompany the applications.

34Tower and Infrastructure Providers Association35Ibid.


• Multiple fees and levies

The industry is levied high fees under the guise of permission fees, renewal fees, sharing fees, compounding fees, development charges and lump sum deposits for demolition. Furthermore, some state governments have divided their territories into various categories such as corporations, municipalities and Nagar Panchayats or high, medium or low potential zones to levy different fees.

Few states such as Goa ask for performance bank guarantees of an amount equal to the fees or levy over and above the fee payable. Chandigarh has a non-refundable license fee of INR0.5 million for seven years, which doubles after expiry of every seven years.

These multiple levies are against the DoT’s guidelines, which stipulate only a nominal “one time administrative fee” to recover administrative expenses to be charged for processing of all applications.

• Restrictions on installation of towers

States have imposed varying restrictions on installation of towers, despite no such mandate from the DoT. For instance, various state governments and municipalities have restricted installation of towers in and around water bodies, hospitals, airports, defence establishments, etc. Some policies also restrict the number of towers on buildings or wings of buildings, to one or two, making deployment of towers a challenging prospect.

• Sealing of towers and disconnection of electricity at tower sites

According to the DoT’s guidelines, no coercive action can be taken on telecom towers without the consent of state Telecom Enforcement, Resource and Monitoring (TERM) cells. However, there have been instances of demolition or temporary sealing of towers without the consent of local TERM cells as well as cases of disconnection of electricity on account of complaints arising out of misplaced public apprehension.36 Such instances disrupt the operations of towers and hamper provisioning of communications services.

Some state governments are gradually adopting measures to boost telecom services. For instance, the Kerala Government has accepted all the DoT’s guidelines on installation of towers. Additionally, seven state governments in North-East India have agreed to help the DoT acquire land for establishment of towers. These include the state governments of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. Such developments are steps in the right direction and should be promoted in other states as well.

• Issues related to SACFA approvals

One of the primary functions of SACFA is to provide siting clearance for all wireless installations in the country. The site clearance requires examination of antenna structures to ensure that the antenna heights do not obstruct aircraft navigations or interfere with other existing wireless networks. Of late, there have been delays in provision of SACFA clearances to tower companies and mobile operators. This impacts the rollout of networks and the expansion plans of operators, especially in areas where telecom services are still at a nascent stage. In light of these challenges, it is important that the pending SACFA applications of tower companies and mobile operators are processed on priority.

Another area of concern is state governments mandating SACFA clearance prior to approvals from the respective authorities or municipal corporations. This is contrary to the DoT’s guidelines, according to which a copy of the SACFA clearance/application/ID, submitted to the Wireless Planning and Coordination (WPC) wing, should be acceptable by state governments.

• Non-uniformity in local-level clearances

Currently, different municipal corporations and local bodies within states have issued varying tower-installation policies. Such a plethora of policies creates a challenging operational environment and leads to difficulty in compliance with norms.

36Tower and Infrastructure Providers Association


Indian Government emphasizes the need to address issues related to installation of telecom towers and provision of uniform RoW guidelines

• Group on Telecom and Information Technology Convergence (GOT-IT): In 2000, the Government formed this committee for guidelines on RoW. It promulgated an RoW regime which is free from all possible obstacles.

• NTP-2012: The policy recognizes the need to provide uniform RoW guidelines across states and union territories. It voices the need to review and simplify sectorial policy for RoW for laying cable network and installation of towers, etc. to facilitate smooth coordination between service providers and state governments or local bodies.

• 53rd Report of the Standing Committee on Information Technology: This parliamentary committee report on “norms for setting up of telecom towers, its harmful effects and setting up of security standards in expansion of telecom facilities”, notes that a national policy should be evolved to streamline the procedural issues to ensure fast and smooth growth of telecom services in the country. It also notes that implementation of DoT’s revised guidelines issued in August 2013 should be made mandatory across the country by giving them a statutory backing.

Source: TAIPA

• The DoT guidelines should be incorporated in the statutory framework and rules in line with the 53rd parliamentary committee report. State governments should be mandated to follow the guidelines through suitable legislation or direction.

• Adopt uniform RoW across all states at a uniform and reasonable cost

• Adopt single window mechanism on priority basis for granting RoW permission

• Levy only admissible charges for reinstatement or restoration; take up the matter with state governments on priority to align these with the DoT’s uniform tower installation guidelines across states

• Consult concerned departments (e.g. urban development/IT), advise state representatives to follow DoT guidelines for formulation of respective tower installation policies

• Seek a status update on the state tower policies from states

• Provide fiscal incentives to players for laying optical fiber cables in smart cities.

• Ensure availability of sufficient access and microwave spectrum.

• Frame strong laws including compensation for cable cut or damages due to digging.

• Process on priority all pending SACFA applications.

Key recommendations


3.1.2.2 Lack of extension of infrastructure status benefits

Given the significance of the telecom sector in the development of our country, telecom towers as well as overall telecom services have already been included in the harmonized master list of infrastructure sub-sectors. This was aimed at providing a multitude of economic benefits to infrastructure providers. For instance, infrastructure providers were to be eligible for increased limits of funds at soft lending rates, viability gap funding, tax holidays as well as reduced import duty, and exception from excise duty, etc.

However, mere inclusion under the definition of infrastructure has not yet given any economic benefit to the sector. Preferential benefits applicable to infrastructure status grantees have not yet been extended to the tower industry. As compared to this, other sectors such as highways and ports have been extended various benefits under infrastructure status. It is now essential that the Government and the RBI consider providing these benefits to the telecom and telecom services infrastructure sub-sector.

• Funds at concessional rates

Telecom and telecom services projects have long gestation periods and require large capex and opex. Therefore, domestic loans should be granted at concessional interest rates to this sub-sector by including it in the list of “Priority Sector” of the RBI. The tenure of loans should also be extended to 12–15 years on a case-to-case basis.37 This will enable operators to spread their loan tenures over most of the entire useful lives of assets, which is around 15 years.38

• Viability Gap Funding (VGF)

VGF is meant to reduce the capital cost of projects by enhancing credit, and making it viable and attractive for private investments through supplementary grant funding. VGF can take various forms, e.g., capital grants, subordinated loans, operation and maintenance support grants, and interest subsidies. The Government may appoint nodal agencies such as the IFCL or IDFC, through which VGF can be provided to telecom tower companies. VGF may also be provided to tower companies to subsidize capex and recurring cost of green initiatives, to help the government initiatives on green energy and reduce pollution. The current VGF scheme only recognizes public private partnership (PPP) projects as being eligible for grants. However, not all telecom projects meet the PPP

criteria; therefore, this condition needs to be reviewed.

• Funding for renewable energy

Currently, high RET targets have been set for the industry, which require considerable investments. Given that the industry is already under significant debt, arranging finance for RET is extremely difficult. According to the DoT's estimates, the total investment required for implementation of RET in three years (2013–2015) is around INR337.5 billion, and in eight years (2013–2020) is around INR576.0 billion.39 To achieve this, the industry will need financing and funding options through various sources.

• Accelerated depreciation

The sub-sector is highly capital-intensive and the benefits of accelerated depreciation will encourage further investments in expanding telecom infrastructure to rural areas. Currently, tax laws only allow 15% depreciation on most items used in the telecom sector — and it takes eight to nine years to claim tax deduction for the cost of capital goods.40 In comparison, items such as batteries have an economic life of only three years, and DG sets and air-conditioners of five to seven years.41 Given this situation, the general depreciation rate for capital goods used in the telecom business should be increased to 25% and in the case of batteries, to 60%, so that the total capital cost of equipment is depreciated within its economic life.42

• Implement the benefits of “infrastructure” status to the industry by making funds available to it at softer lending rates, extending VGF facility and providing accelerated depreciation as well as tax holidays.

Key recommendations

37Tower and Infrastructure Providers Association38Ibid.39Ibid.40Ibid.41Ibid.42Ibid.


3.1.2.3 High targets for green telecom

Another area of concern for the tower industry is the stringent green telecoms targets set by the Government. The Government has issued directives that require at least 50% of all cell towers in rural areas and 20% in urban areas to be powered by hybrid power, (which is defined as a combination of renewable energy technologies (RET) and grid power, by 2015.43 These targets increase to 75% and 33% for rural and urban areas, respectively, by 2020.44

Meeting these high targets is not feasible, given the poor eco-system of RETs in the country. For instance, the technical and operational challenges associated with deployments have made the business case unviable. Specifically, lack of large scale deployments and supporting ecosystem led to high costs of installation and operations for renewable energy plants. As a way out, the renewable energy service company (RESCO) model was also examined by the industry, but it has also not proved successful.

Moreover, RET targets were set by the Government, based on the recommendations of TRAI, in 2011. Significant improvements have taken place in energy efficiency technologies, e.g., advancement in battery technology, reduction in power consumption due to improved BTS efficiencies, use of free cooling units (FCUs), indoor to outdoor BTS (which do not require air-conditioning), etc. These developments have negatively affected the business case for use of RET devices for carbon footprint reduction. The industry has therefore, requested the Government that the TRAI should be requested to revisit its recommendations on green telecom. Moreover, during this period, the DoT’s communication on green telecom targets should be stayed.

Unrealistic targets for green telecommunications

RET

• 0.3 million towers to be powered by RET by 2020 (totaling to approximately 3GW capacity)

• This is thrice the current installed solar power in India; current installed solar capacity is 1GW.

• This is more than India’s cumulative off grid solar application target under the Jawaharlal Nehru National Solar Mission (which is of 2GW).

• Monthly run rate to achieve a target of 0.2 million towers powered by RET by December 2015 will require thousands of RET installations per month.

CO2

• Carbon footprint reduction targets

• 17% by 2018–19 (direct reduction)

• 50% in rural areas and 34% in urban areas by 2020 (through carbon credit policy)

Source: TAIPA

The DoT plans to make available overseas borrowings, subsidies and grants to telcos to stimulate investments in green energy technologies. If these materialize, they will provide companies commercially viable options for deploying green solutions. The financing options being considered include:

• External commercial borrowings (ECB) from the World Bank and the Asian Development Bank

• Subsidies from the Ministry of New and Renewable Energy (MNRE) and the National Clean Energy Fund (NCEF)

• Easy bank financing for tower companies (soft interest rates; increased loan tenures)

• Increased overseas borrowing limits, reduced import duties and excise exemptions on telecom infrastructure equipment

43“Implementation of Green Technologies in Telecom Sector,” DoT, January 2012.44Ibid.


It should be noted that the ICT sector’s contribution to carbon emissions is miniscule — only around 2% of global CO2 emissions are contributed by ICT.45 Furthermore, the primary cause of CO2 emissions from this sector is the consumption of diesel, which is used to power tower sites. As compared to other sectors such as transportation, railways and agriculture, the diesel consumption by telecoms is low — mobile towers are the second-lowest consumers of diesel, consuming only 1.54% of diesel, among the 12 identified sectors in India.46

Furthermore, the primary reason for diesel consumption by the telecom infrastructure industry is the absence of reliable grid power. Infrastructure providers are compelled to use diesel to keep the towers up and running in order to comply with the mandatory quality of service requirements. Therefore, availability of reliable power supply can lead to significant reduction in diesel consumption as well as CO2 emissions.

3.2. National broadband plan

Broadband connectivity is gaining significant importance with the role of the digital economy becoming more important for the progress of a country. Countries worldwide have adopted national broadband plans (NBPs) with the aim to extend their broadband network footprint and increase the usage of broadband-enabled services.

These NBPs have helped to drive broadband penetration in both fixed and mobile broadband connections. It is estimated that countries with an NBP have increased broadband penetration, as compared to those without an NBP. As of mid-2014, worldwide there were 140 NBPs in place.47

Figure 29: Differences in broadband penetration levels as per the presence of an NBP (2013)

12.7%

4.0%

27.5%

8.9%

With NBP Without NBPAverage level of fixed broadband penetration

Average level of mobile broadband penetration

Source: ITU

• The Government should provide electricity connections to towers on priority and at the lowest tariffs wherever possible. Ministry of Power to be approached for “uninterrupted power consumer” status and a preferential uniform tariff to telecom tower installations in consultation with DoT.

• The Government’s communication on green telecom may be referred back to TRAI for a review. During the process, the DoT’s communication on its green telecom directive may be kept in abeyance.

• RET targets may be adjusted taking into account current status of RET deployment and learnings and significant technological changes in other energy solutions.

• The carbon emission measurement methodology should be aligned with international practices.

Key recommendations

45“Recommendations on Approach towards Green Telecommunications,” TRAI, 12 April 2011.46“All India Study on Sectoral Demand of Diesel & Petrol,” Nielsen, 2013.47“The State of Broadband 2014: Broadband for all,” ITU, September 2014.


3.2.1. India’s NOFN plan

In line with global NBPs, the Indian Government has also introduced its National Optical Fibre Network (NOFN) project, with an aim to provide an impetus to rural broadband growth.

Approved in October 2011, the NOFN project seeks to bridge the connectivity gap between the Gram Panchayats (GPs) and block levels. At present, optical fiber cable connectivity in India is available up to the block levels. The project aims to provide connectivity of 100Mbps broadband service to 250,000 GPs in the country.48It is estimated that a total of 600,000 km. of optical fiber cable, i.e., incremental fiber of 2.4 km/GP has to be laid under the project.49 To achieve this, the Government has estimated a project cost of INR300 billion that is to be funded through USOF in a phased manner.50 A special-purpose vehicle, Bharat Broadband Network Limited (BBNL), has been set up to execute the project.

Project status:

• As of early April 2015 20,000 village panchayats have been digitally connected.

• In January 2015, Idukki in Kerala became the first district in the country to be linked to the NOFN.

Revival plan:

• As part of the focus on overall Digital India, the Indian Government is seeking to overhaul the national broadband project program, renaming it BharatNet

• A committee report analyzing the national broadband project expects that retail broadband services should be available at prices below INR150 a month in poorer states and approximately INR250 per month in more economically advanced states, with speeds ranging between 2Mbps and 20Mbps for all households. It further recommends on demand capacity to all institutions.

• BharatNet is expected to subsume all the ongoing and proposed broadband network projects taking the project outlay to around INR720 billion.

Current status and revival of NOFN plan

Source: BBNL website, Factiva

3.2.2. Challenges in the current scenario and the way forward

Despite the various steps taken by the Government in planning the NOFN project, its implementation has been facing multiple challenges and it has been delayed. Originally estimated to be completed by October 2013, it is now expected to complete in a phased manner by December 2016.51

Right of way

Facilitation of RoW for laying cables is another concern hampering timely execution of the NOFN project. In this respect, 16 states and union territories had signed tripartite agreements with the Central Government and BBNL, and were expected to provide free RoW for laying optical fiber cables. However, operators are still facing issues in obtaining timely RoW-related clearances. In particular, obtaining RoW permission from the forest department, railways for railway crossing and national highway authority form a key challenge.

Given that the NOFN project requires large-scale deployment of cables throughout the country, it is imperative that all state governments ensure timely facilitation of RoW at reasonable costs and comply with the terms agreed with the Central Government.

As a welcome step, some state governments have given their assurance to facilitate free RoW for laying optical fiber networks. For instance, the Andhra Pradesh Government was the first to issue free RoW for the NOFN project in October 2013. In a similar manner, state governments should contribute to the NOFN project by way of not levying RoW charges.

Lack of clarity on participation of service providers

While the Government is providing for the optical fiber connectivity up to the GP level, telecom operators will need to set up their own infrastructure at the Panchayat level to provide services to end customers. This brings up another important concern relating to the NOFN project — lack of clarity on the participation of access providers. Although the project provides for non►discriminatory access to all categories of service providers, details of their involvement or incentives provided to them on being a part of the project are not clear.

48“Customer Service - Frequently Asked Questions,” BBNL website, http://www.bbnl.nic.in/content/faq.php, accessed 27 April 2015.49Ibid.50Ibid.51“NOFN: The calculation that went wrong,” Business Standard, http://www.business-standard.com/article/economy-policy/nofn-the-calculation-that-went-worng-113120700742_1.html, accessed 4 March 2014.


Case study: success of PPP model for NBPs

Primary investment models used for an infrastructure deployment project include the ownership model (highest level of government involvement), PPP model (government partnering with private players) and financial incentive model (government mainly acting as a facilitator by providing incentives to public and private sector companies to deploy infrastructure).

Means of financing broadband plans globally (2012)

48% 33%25% 25% 19%

PPP Others Universal service fund

Government grantsof other direct

financial subsidies

Dedicatedbroadband

development fundSource: ITU

According to industry studies, a strong partnership between the Government, industry and other stakeholders is likely to significantly facilitate deployment of broadband. Although governments must lead the way in developing national plans, success also depends on the active support of a broad ecosystem of public and private entities such as telecom service providers, banks and financial institutions, business organizations, and ICT equipment and infrastructure providers. Policy-makers should involve these stakeholders in a consultative and participatory approach.

Examples of PPP for broadband development in Latin America

Country Partners Area of collaboration

Colombia Ministry of Communications, telecom service and ICT equipment providers

The last mile initiative, which is a large PPP incubating telecom connectivity in underserved and rural areas

Brazil The Brazilian government and telecom service providers

Brazilian telecom service providers to support the NBP by offering more economical broadband services to customers in the country

Chile Ministry of Digital Development, Ministry of Economy, Chilean Association of Information Technology Companies, telecom operator and market research firm

Collaborated to identify gaps in ICT adoption, including broadband service access

PPPs can be utilized as a mutually beneficial model to deliver NBP goals and objectives

Sources: DoT; ITU; “National Broadband Plans Show a Diversity of Methods but a Unity of Purpose,” Pyramid Research, December 2011.


• Adopt a uniform process to obtain RoW at reasonable costs.

• RoW permission should be granted “on priority” within stipulated time frame along with accountability for clearances.

• Single window mechanism should be adopted for granting RoW permission.

• RoW rates and issuance procedures should be standardized — all state governments should extend the facility of RoW for laying underground telecom cables to all licensees without payment of any compensatory charges, levy, lease rentals, license fee, revenue share or cashless equity. Admissible charges should include only reinstatement charges or charges directly linked to the restoration work.

• In real estate, building and town planning, make it mandatory to place ducts or optical fiber, with well-defined access mechanisms, on all new road constructions along national highways, inter and intra city roads as well as buildings.

Key recommendations

• All buildings and towers should be provisioned with vertical conduits for carrying out last mile building wiring for FTTH services.

• Mark area for underground cables away from roads to avoid disruption during expansion.

• Buildings should have properly demarcated sections both within buildings and on rooftops for broadband infrastructure; development authorities should give mandate to developers and builders.

• There should be a tower and a common transmission or equipment room in every village panchayat, funded by the panchayat running through USOF along with fiber.

• Trenching activities of USOF should be supported through Mahatma Gandhi National Rural Employment Guarantee Scheme.

• Provide details on participation of service providers in the NOFN plan. Also provide fiscal and regulatory incentives for them to become a part of the project.


4. Handheld devices and handsets


4.1. Introduction

Mobile handsets have played an integral part in the overall evolution of the mobile ecosystem in the country and have become agents of socio-economic transformation. Reduction of handset prices and increased affordability of services can be deemed critical success factors for the bourgeoning growth of wireless telephony. Currently, mobile handsets have evolved from communication-centric devices to all-encompassing communication devices that are no longer considered a luxury.

In future, mobile handsets and mobile tablets are expected to play a significant role in bridging the digital divide and connecting the country. Apart from being the primary communication medium for people, mobile devices are finding numerous uses across various domains. They are being used for banking transactions, making payments, as an educational and multi-media tool and for spreading governance. In addition, a mobile device is also an information dispersal platform across verticals such as agriculture and health care.

4.1.1. Size and evolution of Indian handset market

During the initial years of wireless telephony in India, customers had limited choice in terms of handsets, since the majority of devices were imported by a handful of global players. Moreover, the handsets and mobile services were both very costly and beyond the reach of low-income users. Over the years, the scenario has changed dramatically with a rapidly expanding telecom market, reducing tariffs, declining production costs and rising number of domestic players. Currently, the mobile handset and mobile tablet market in India has several players with varied offerings across all price points.

Figure 30: Average selling price of mobile handsets in India (INR)

2,409 2,315 2,300 2,122 2,305 2,327 2,778

3,279

2008 2009 2010 2011 2012 2013 2014F 2015F

Source: Indian Cellular Association

India’s handset and tablet market has seen significant growth over the past decade in terms of overall market size and the number of devices sold. However, there is still significant potential in the form of untapped rural population. Increased rural penetration is expected to drive the next phase of mobile telephony in the country, with mobile telephony becoming pervasive in the metros and category A circles. Moreover, the booming demand for data services is also expected to drive demand for smart devices.

Figure 31: Indian handset market value (INR billion)

265 301 345 382461

570750

1,000

2008 2009 2010 2011 2012 2013 2014F 2015F



Figure 32: Indian handset market volume (million)

110 130 150180 200

245 270305

2008 2009 2010 2011 2012 2013 2014F 2015F


4.2. Indian handset market: key trends and drivers

Mobile devices are at the center of most things people do, from entertainment to communication and from banking to commuting; several factors are at play in shaping the demand for these devices.

Emergence of dual-SIM handsets: The emergence of dual-SIM handsets has been a game-changer for the Indian handset industry, since these phones allow consumers to take advantage of price arbitrage in tariffs offered by different operators. Furthermore, these handsets enable consumers to do away with the need to carry two handsets. First introduced by Indian manufacturers, the concept has found wide acceptance and has now become a standard feature in most handsets.

Figure 33: Smartphone market in India

0

300

600

900

1200

1500

0

50

100

150

200

250

2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F

Value (billion)Volume (million)

Smartphone sale by volume (million) Smartphone sale by value (INR billion)

Growth of smartphones: In recent years, there has been an increasing trend of consumers opting for smartphones, since these offer a compelling user experience, with access to social media, emails and the internet. The boost in the demand for smartphones has been driven by the falling average selling prices of devices and a dip in data prices. Furthermore, with low penetration of PCs and a deficient fixed broadband network, smartphones are expected to drive the next phase of internet growth in the country.

The uptake of smartphones in India has been revolutionized by players that focus on introducing premium smartphones at affordable prices. These players have adopted innovative branding and marketing strategies to change the consumer preference toward smartphones.



Demand for data and 3G/4G services: The demand for mobile data has grown exponentially, with ~92.6% of the total 254.4 million internet subscribers in the country accessing data from mobile devices.52 Moreover, with the country’s large population becoming “keypad literate,” and demand for internet becoming ubiquitous, the appetite for internet-enabled handsets and tablets is expected to improve further.

Adoption of 3G services is expected to be another driver of the demand for handsets. Although current 3G penetration remains low, the demand for the service has gained pace, and the prices of the service have come down sharply. All these are expected to drive adoption of the service. Additionally, operators are making considerable investments to roll out 3G sites and are aggressively promoting the service to monetize it. India is also expected to witness large scale rollout of 4G services this year.

Changing consumer preferences: The Indian market has seen a marked shift in consumers’ preferences. Consumers are willing to spend more than earlier to buy mobile devices, and are demanding fully loaded feature-phones and smartphones.

India’s handset market has also evolved in terms of consumer behavior. The frequency with which users change their devices has increased significantly. Going forward, the replacement market is expected to account for the bulk of handset sales in the country. In 2013, the handset replacement market was estimated to be around 80% of the total market.53

Innovative sales strategies: Innovative sales strategies such as EMI schemes and exchange offers have increased the affordability of high-end smartphones for consumers. There is also an increasing trend of handset manufacturers partnering with online retail platforms to help increase sales and reduce time to market.

52Telecom Regulatory Authority of India53“85% of Mobile Shipments to be Smartphones in India by 2016,” Telecom Circle Website, http://www.telecomcircle.com/2013/07/85-of-mobiles-to-be/, accessed 4 March 2014.


4.3. Challenges in the current scenario and the way forward

4.3.1. Irrational structure of taxes and levies

In India, the importance of mobile devices has grown significantly, both in terms of contribution toward socio-economic development and the revenue generated in the form of taxes and levies. However, there is a need to strike the right balance regarding taxes levies imposed, ensuring end-user affordability and ensuring the vitality of the industry.

Inconsistent Value Added Tax (VAT) regime across states

Currently, there is an inconsistency in VAT on mobile handsets in the country, with different states in India charging different rates. This difference leads to price arbitrage and in the longer

run a parallel grey market. The emergence of a grey market, in turn, negatively impacts the tax collection of individual states. Similarly, the VAT rates in case of mobile accessories also vary from state to state, which leads to growth in sale of unbranded/sub-standard accessories. There is a need to address this ambiguity and bring in consistent guidelines.

Bringing handsets under the provisions of “Goods of Special Importance” under the Central Excise Tax Act, 1956 will cap the maximum VAT that can be levied by states at 5%. Department of Electronics and Information Technology (DeitY) has also highlighted the need to bring handsets under this category in the National Policy on Electronics 2012 (NPE 2012).54

Figure 34: VAT rate prevalent across states

State Rate as on 1 Apr’15 State Rate as on 1 Apr’15

Andaman & Nicobar (UT) NIL Kerala 5.00%

Andhra Pradesh 5.00% Lakshadweep (UT) NIL

Arunachal Pradesh 4.00% Madhya Pradesh 13.00%

Assam < INR15,000 5.00% Maharashtra 12.50%

Assam > INR15,000 14.50% Manipur 5.00%

Bihar 5.00% Meghalaya 5.00%

Chandigarh (UT) 5.00% Mizoram 5.00%

Chhattisgarh < INR3,000 5.00% Nagaland 5.00%

Chhattisgarh > INR3,000 14.00% Odisha < INR5,000 4.00%

Dadra and Nagar Haveli (UT) 4.00% Odisha > INR5,000 13.50%

Daman and Diu (UT) 4.00% Puducherry (UT) 5.00%

Delhi < INR10,000 5.00% Punjab 9.35%

Delhi > INR10,000 12.50% Rajasthan 8.00%

Goa 5.00% Sikkim 4.00%

Gujarat 15.00% Tamil Nadu 5.00%

Haryana < INR10,000 5.25% Tripura 5.00%

Haryana > INR10,000 8.00% Uttar Pradesh < INR10,000 5.00%

Himachal Pradesh 5.00% Uttar Pradesh > INR10,000 14.00%

Jammu & Kashmir 5.00% Uttarakhand 4.50%

Jharkhand 5.00% West Bengal < INR3,000 5.00%

Karnataka 5.50% West Bengal > INR3,000 14.50%Source: Indian Cellular Association

54Indian Cellular Association


Imposition of NCCD charge on mobile phones

National Calamity Contingent Duty (NCCD) of 1% of maximum retail price/retail selling price (MRP/RSP) was imposed on import of mobile phones in the Union Budget 2008–09.55 The proceeds of NCCD are aimed to be used for relief and rehabilitation in areas struck by natural disaster.

The NCCD charge on mobile handset was shifted from polyester filament yarn, which is now exempted. It is recommended that NCCD of 1% be shifted to other high volume goods, since the charge has been imposed on mobile handsets for several years now, to rotate the incidence on other industries in the interest of equity.

Charge for allocation of IMEI numbers

Mobile Standards Alliance of India (MSAI) is the authorized body for allocation of International Mobile Station Equipment Identity (IMEI) numbers in India and charges a fee from the mobile device importer/brand owner for allotment of these numbers. Given the importance of IMEI number in identifying individual mobile devices and the role it plays in tracking or blocking of a device in case of theft, this fee should be removed.

4.3.2. Weak ecosystem for local manufacturing

In spite of India’s handset market growing at a robust rate, almost 83% of the demand is met via imports, while domestic production and manufacturing continues to lag.56 It is imperative that measures are taken to address this mismatch and reduce the dependence on imports. Correcting this imbalance will not only lead to saving of foreign exchange, but also result in build-up of local capabilities and job creation.

The Government has recognized the need to bolster telecom equipment manufacturing in the country, and subsequent National Telecom Policies have also acknowledged telecom manufacturing as critical to the overall economic growth of the country. In the Union Budget for 2015–16, the Government rationalized duty on import of mobile phones and mobile tablets in the country, a move aimed to provide a fillip to the local manufacturing of these devices in the country.

Furthermore, electronic systems or the electronics system design and manufacturing (ESDM) industry has been identified as one of the focus sectors under the Make in India program. Given the pivotal role of mobile handsets and tablets in enabling the dream of a Digital India, favorable policies for manufacturing of these devices need to be instituted.

To further the efforts under the Make in India program, DeitY has established a joint task force of industry representatives and government officials with an aim to achieve production of 500 million handsets by 2019.57 The task force aims to rejuvenate the mobile handset and component manufacturing ecosystem in the country and targets to create additional employment opportunities for 1.5 million people.58

• Make VAT rates uniform for mobile handset and mobile accessories across states.

• Bring handsets under provisions of “Goods of Special Importance” under the Central Excise Tax Act, 1956; therefore, capping the maximum VAT that can be levied by states at 5%.

• Shift NCCD charge of 1% from mobile phones to other goods, to share the levy equitably among industries.

• Do away with imposition of a fee for allocation of IMEI numbers, since such a practice is not followed by other countries.

Key recommendations

55“Budget 2008 – 2009,” India Budget website, http://indiabudget.nic.in/ub2008-09/bs/speecha.htm, accessed 20 March 2014.56Indian Cellular Association57“Government sets up task force to revive domestic mobile manufacturing,” India in Business website, http://indiainbusiness.nic.in/newdesign/index.php?param=newsdetail/10473, accessed on 24 April, 2015. 58Ibid.


Figure 36. Mobile handset market — value imported and exported (INR billion)

133 154258 252

346422

585.5

757.5

115 125 153 120 120 118.524.5 0

2008 2009 2010 2011 2012 2013 2014F 2015F

Import value Export value

While the service sector in India has evolved at a frantic pace, the manufacturing sector has failed to keep pace. Development of manufacturing ecosystem has been hampered by lack of investor friendly policies, flux in taxation policies, and the lack of effective labor reforms. To overcome these challenges and to encourage companies to manufacture in India, Government of India launched a flagship program — Make in India.

The program, launched in September 2014, aims to strengthen the manufacturing ecosystem in the country by promoting investment, fostering innovation and enhancing skill development. Under the initiative, 25 priority sectors have been identified, which will receive special focus from the Government.

• Automobiles

• Automobile component

• Aviation

• Biotechnology

• Chemicals

• Construction

• Defence manufacturing

• Electrical machinery

• Electronics systems

• Food processing

• IT and BPM

• Leather

• Mining

• Oil and gas

• Pharmaceuticals

• Ports

• Railways

• Renewable energy

• Roads and highways

• Space

Identified sectors:

• Textile and garments

• Thermal power

• Tourism and hospitality

• Wellness

• Media and entertainment

Indian ESDM industry, which is expected to be ~US$94 billion in 201559 has been identified as one of the focus sectors under the Make in India program.

• The ESDM sector within India is already of considerable size; in years to come, more growth is expected, and ESDM’s contribution to India’s GDP is expected to grow.

• Fueled by considerable planned government investments (such as the NPE 2012 and Digital India program) India’s ESDM sector will accelerate in years to come.

• Market potential is fueled by high market readiness, with a pattern of significant increases in consumption and high demand for all sub-segments of the ESDM sector.

• The rising penetration rate of mobile phones, along with growing internet usage, will boost the development of India’s ESDM sector.

• The large low-cost labor force and considerable domestic market combine to make India an attractive manufacturing base for the ESDM sector.

Mobile handset industry, which accounts for the largest share of electronic products sold in the country is expected to benefit due to policies instituted for the ESDM industry.

Figure 35. Mobile handset market — units imported and exported (million)

50 7090

130 130

188225

259

55 68 80105

85.0 73

14 0

2008 2009 2010 2011 2012 2013 2014F 2015F

Import Export

Source: Indian Cellular Association Source: Indian Cellular Association

Make in India

59“Electronic Systems,” Make in India website, http://www.makeinindia.com/sector/electronic-systems-design/, accessed 25 April 2015.


Tax holiday for new units entering manufacturing of handsets and tablets

The domestic market for mobile handsets is expected to cross 300 million devices in 2015, while the number of devices being manufactured locally is expected to be only 46 million. This schism highlights the need for provision of incentives for the setting up of new handsets and tablets manufacturing units in the country.60 Vietnam is a prime example of a country, which has witnessed a sharp increase in its electronics manufacturing industry, with big ticket investments from some of the leading global players.

Vietnam has emerged as a global hub for manufacturing of mobile handsets, supported by a stable regulatory environment and favorable incentive schemes. The country offers 30 years of tax holiday window at just 10% tax on mobile manufacturing. This further goes down to 100% exemption in the first four years and reduction of 50% in the next nine years.61

India needs to consider providing a 10-year tax holiday on a block of 15 years on all profits and gains from manufacturing or rendering of services in or in relation to the mobile phone industry. This benefit should be provided to all fresh investment made in plant and machinery and other equipment of a durable nature for special economic zones (SEZ), domestic tariff areas (DTAs) and export-oriented units (EOUs).

Interest subsidy on fixed capital investment

The National Policy on Electronics 2012 (NPE 2012) has called for a favorable tax regime that promotes investments, given the burgeoning demand for ESDM in India. To capitalize on this demand, and promote domestic manufacturing, providing interest subsidy on fixed capital investment needs to be evaluated.

Under the current duty structure, no interest subsides are available for the ESDM sector, while similar incentives are available to other sectors. The Technology Upgradation Fund Scheme (TUFS) provides for interest subsidy of 5% for the textile and jute industries in India.

Deemed export benefit for domestically manufactured handsets

Local handset manufacturers have been affected by the Information Technology Agreement (ITA 1) with the World Trade Organization and the governments of certain countries. Manufacturers, who import handsets under the ITA 1 agreement, enjoy concessional Basic Custom Duty (BCD) of 0%. To incentivize manufacturing and create a level playing field for Indian manufacturers, domestically manufactured ITA 1 products should be treated as “deemed exports” in terms of the provisions of the Foreign Trade Policy (FTP) 2015–2020.62

Extending the benefits under the FPS

The global demand for mobile handsets is increasing strongly and creation of strong ecosystem for local manufacturing will stand India in good stead. Currently, push button mobile phones are entitled to duty credit scrip equivalent to 5% of FOB (free on board) value of exports (in free foreign exchange) under the FPS.63 To further incentivize local manufacturing of handsets in India, the Government should consider extending this benefit to touch phones, smartphones and tablets.

Moreover, extending the 5% FPS benefit to all handset parts and components will provide a fillip to the industry and help attract investments for manufacturing of these items. Currently, handset parts such as camera, battery, charger, and hands-free kit etc., get a benefit of 2% under the scheme.

Reformulation of the export incentive policy for zero duty ITA goods

Currently, supplies into domestic tariff area from SEZs and EOUs are recognized as exports only for the purpose of calculation of export obligation. However, other export benefits such as refund of taxes on inputs used in the manufacture of ITA goods for the DTA are not available.

In order to make the industry competitive in an ITA zero duty environment, it is suggested that all manufacturing of ITA items should be treated fully at par with physical export for the purpose of incentives.

60Ibid.61Ibid.62Indian Cellular Association63Ibid.


Income tax exemption on mobile phone exports/sales to DTA

ITA goods have to compete in a zero duty environment in the world market. Income tax on the profit derived from exports make the industry less competitive.

It is suggested that the Electronic Hardware Technology Park (EHTP)/SEZ schemes should have a special chapter on ITA goods with the following incentives:

• Income tax holiday on export from SEZ should continue as envisioned in the SEZ Act 2005 passed by the Parliament. Subsequent amendments, which detract from the tax holiday such as Minimum Alternate Tax (MAT), may be done away with, at least in the case of IT goods exports.

• The same regime should be adopted for the parallel EHTP scheme as well as export from DTA to compete with major electronic exporting countries particularly China and Vietnam, where exports enjoy special dispensation in their direct tax regime.

State-level daughter policies on ESDM manufacturing

Electronics hardware industry is the largest and the fastest growing manufacturing industry in the world, and stood at US$1.75 trillion in 2012, and is expected to grow to US$2.4 trillion in 2020.64 The industry comprises semiconductor design, high-tech manufacturing, electronic components and electronic system design for consumer products, telecom products and equipment, and IT systems and hardware.

India is one of the fastest-growing markets for electronics in the world. There is a considerable potential to develop the ESDM sector in India to meet our domestic demand, and also to use the capabilities thus developed to successfully export these products from the country. The NPE 2012 aims to address the issue with the explicit goal of transforming India into an ESDM hub. It is recommended that the respective state governments come up with daughter policies, in sync with NPE, for establishing conducive policies for growth of the ESDM sector in the states.

Case study: Andhra Pradesh Electronics Policy 2014–2020

Government of Andhra Pradesh aims to develop the electronics industry as an important growth engine for the state through effective use of the talent pool, skill enhancement, promotion of innovation and future technologies, as well as creation of infrastructure. The policy aims to attract investments to the tune of US$5 billion in the ESDM sector and create employment for 400,000 people by 2020.

Key strategies and incentives:

• The Government of Andhra Pradesh proposes to promote the development of 20 electronic manufacturing clusters (EMC) across the state. The EMC scheme intends to create infrastructure highly suited to electronics units by providing a subsidy of 50%.

• The Government will make efforts to attract investments to the tune of INR300 billion (US$5 billion) and facilitate the units to get the 25% capex subsidy under the MSIPS.

• It will provide 10% subsidy on new capital equipment for technology upgrading, limited to INR2.5 million as one time availment by the eligible company.

• The Government intends to provide power subsidy of 50% to micro, 40% to small, 25% to medium and 10% to large-scale industry limited to INR5 million.

• The electronics industry will be exempt from the purview of statutory power cuts.

• There will be 100% tax reimbursement of VAT/CST, for the new units started for a period of 5 years from the date of commencement of production for products manufactured and sold in Andhra Pradesh.

Source: Andhra Pradesh State Portal

64National Policy on Electronics 2012


Case study: Uttar Pradesh Electronics Manufacturing Policy 2014

Government of Uttar Pradesh has adopted the “Uttar Pradesh Electronics Manufacturing Policy 2014” with an aim to promote and develop the electronics manufacturing industry within the state, thereby, making Uttar Pradesh a globally competitive and industry friendly state for electronics design and manufacturing.

Key strategies and incentives:

• Single window clearance unit to work closely with the investors to efficiently and smoothly assist the investors in processing incentives claims as laid down under the policy; to facilitate investors in obtaining statutory clearances such as pollution control, shop and establishment act, power allocation etc.

• Capital subsidy of 15% on fixed capital, other than land, subject to maximum of INR50 million.

• Interest subsidy of 5% per annum for a period of seven years on the rate of interest paid on the loans obtained from scheduled banks/financial institutions will be reimbursed subject to a maximum of INR10 million per annum per unit.

• 100% tax reimbursement on VAT/CST subject to a maximum of 100% of fixed capital investment other than land (such as building, plant, machinery, testing equipment) for a period of 10 years.

• A memorandum of understanding for uninterrupted power supply, which will ensure commitment of reliable and quality power.

Source: Department of Information Technology and Electronics, Uttar Pradesh

Case study: Draft Electronics Hardware Manufacturing (ESDM) Policy, Government of Maharashtra

The Government of Maharashtra has drafted the “Draft Electronics Hardware Manufacturing Policy” with an aim to establish the state as the hub of ESDM manufacturing in India. The State Government envisions that via favorable investment policies the state will be able to attract investments to the tune of U$15 billion, and help generate employment for 3.6 million people. The State Government also anticipates that the ESDM sector will have a turnover of US$60 billion by 2020.

Key objectives of the policy:

• To strengthen the chip design, VLSI and embedded software industry and achieve a turnover of US$2 billion by 2020.

• To increase ESDM exports to US$6 billion by 2020.

• To promote creation of intellectual property in the ESDM sector by providing an impetus to research and development, start-up ESDM units and nanoelectronics sector.

• To create special financing dispensation to arrange soft loans to set up ESDM units.

• To create specialized departments/governance structures within the state government to cater to specific needs of the ESDM sector.



4.3.3. Presence of grey market and the lack of implementation of standards

Grey market comprises transactions, which are done outside authorized channels of trade and mainly includes counterfeiting, smuggling and tax evaded goods. There exists a considerable grey market for unbranded mobile phones in India. The presence of grey market deters mobile device players’

from investing in business growth and, future research and development (R&D), while causing significant revenue loss for the industry. Moreover, the sale of such handsets causes loss to the exchequer in the form of foregone direct and indirect taxes. It is estimated that branded devices have a total disability of 21%–30% against grey market devices, which includes outgo on taxes, quality compliance, and warranty and after sales.65

Figure 37: Gray market of mobile handsets India

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Value (billion)Volume (million)

Sale by volume (million) Smartphone sale by value (INR billion)

• Ten-year tax holiday on a block of 15 years on all profits and gains from manufacturing or rendering of services in or in relation to the mobile phone industry.

• Minimum interest subsidy of 5% on all fixed capital investments for the entire ESDM sector on the lines of benefits given under TUFS.

• Domestically manufactured ITA 1 products should be treated as “deemed exports” in terms of the provisions of the FTP 2015–2020 to incentivize local manufacturing.

• The Government should consider extending the 5% FPS benefit accorded to push button mobile phones, to touch phones, smartphones and tablets as well.

• There is a need to increase FPS benefits for handset parts and accessories (memory/external memory, camera, battery, charger etc.) from 2% to 5%.

Key recommendations

• Incentive available to exports should also be extended to SEZs, EOUs and EHDPs.

• EHTP/SEZ schemes should have a special chapter for ITA goods with the following benefits:

• Income tax holiday on export from SEZ should continue as envisaged in the SEZ Act 2005 and subsequent amendments, which detract from the tax holiday, need to be done away with.

• The same regime needs to be put in place for EHTP scheme and export from DTA.

• State governments should come up with daughter policies on ESDM manufacturing in sync with National Policy on Electronics 2012.



Figure 38: Revenue loss to government from sale of mobile phones in grey market, 2014

Loss to the exchequer (INR billion)

Direct tax loss Indirect tax loss Total Loss

10.4 56.6 67

Source: FICCI CASCADE

Issues arising from non-adherence to standards such as SAR and RoHS: Counterfeit handsets do not adhere to the health and safety standards as laid down by the government such as those pertaining to specific absorption rate (SAR) guidelines and the use of non-hazardous substances.

Another issue plaguing the industry has been the increase in the import of unbranded and substandard mobile device chargers. These chargers, which currently account for approximately 25% of the total market, lead to health and safety related threats due to power leakage and non-compliance to Restriction of Hazardous Substances (RoHS) limits.66 The proliferation of unbranded chargers also results in increased power consumption. These chargers, which are not subject to any standards, take increased amount of time to charge handsets. This leads to increase in gross power consumption straining the limited energy resource of the country.

Other tangential issues: Illegally imported handset and other telecommunications equipment also pose a threat to national security, as these can be misused by non-state actors. Furthermore, there is evidence that money generated from piracy and smuggling of goods has been used to fund terrorist activities.

• The industry for counterfeit handsets and chargers continues to thrive due to the absence of a concerted strategy and the lack of definite guidelines to manage the issue. Moreover, the implementation of existent rules pertaining to safety standards of these devices continues to be weak, especially those relating to mobile phone batteries.

• Inclusion of mobile handsets, mobile adaptors and mobile phone batteries in the list of products under DeitY’s compulsory registration scheme for electronic products. Currently, 15 items including mobile tablets are a part of this list.

• Stringent implementation of rules relating to reduction in the use of hazardous substances in manufactured/ imported electrical and electronic equipment. Rules relating to RoHS were enacted in 2012, and came into effect from 1 May 2014.

• Protecting customer interests by assuring quality through establishment of Bureau of Indian Standards (BIS) standards for mobile phones sold in the country.

• A Bureau of Energy Efficiency (BEE) rating for mobile device chargers needs to be adopted. This will not only help consumers identify energy-efficient chargers but also help conserve energy in the long run.

Key recommendations

65Indian Cellular Association66FICCI Communications and Digital Economy Committee


4.3.4. IPv6 compliance for mobile handsets

The future of the internet lies in an efficient numbering and addressing system, and the transition to Internet Protocol version 6 (IPv6) is a welcome step. The Government has taken progressive steps through NTP 2012 in recognizing the importance of IPv6 and its subsequent role in supporting innovative IP-based applications in different sectors of the economy.

Given the recommendations laid down by DoT, all new devices launched after July 2014 are capable of carrying IPv6 traffic; however, the ecosystem for testing and compliance remains deficient.

• Telecommunication Engineering Center’s (TEC) lab for testing of mobile handsets is not ready.

• The RFCs are defined according to the TEC IR document but do not identify the relevant test specification, which makes IPv6 compliance a challenge.

FICCI CASCADE

In 2011, FICCI established “FICCI Committee Against Smuggling and Counterfeiting Activities (FICCI CASCADE),” a dedicated forum to address the industry’s concerns of counterfeit products.

Aims of FICCI CASCADE

• Generating awareness on the hazardous impact of smuggled, contraband and counterfeit products among consumers and citizens

• Capacity building of law enforcement agencies including judges, police and customs officers

• Researching and proposing law reforms

• Interacting with law enforcement authorities to emphasize on the importance of continued awareness and seriousness of the impact of counterfeit goods

• Enforcing IP-related laws

• Systematically disseminating enforcement techniques, procedure and strategy through regular workshops for the guidance of its members

• Sharing best practices followed globally for combating contraband, smuggled and counterfeit product

• Providing knowledge support to industry members

Source: FICCI CASCADE website

• ► Standards and labs for testing and compliance of IPv6 need to be established.

Key recommendations

“All mobile phone handsets/ data card dongles/ tablets and similar devices used for internet access supporting GSM/CDMA version 2.5G and above sold in India on or after 30-06-2014 shall be capable of carrying IPv6 traffic either on dual stack (IPv4v6) or on native IPv6.”

– DoT recommendation on IPv6


5. Governance of internet and communications


5.1. Internet and its challenges

The role of internet today has evolved from being just a source of information to an all-encompassing, all-powerful medium of communication and an enabler for socio-economic development. It is a shared resource used by citizens, businesses, governments and various other stakeholders, and has emerged as one of the most critical pillar driving todays digitally connected economy. It is a powerful tool for innovation and collaboration.

Internet is a complex web of interactions between geographically separated people, software, devices and networks making it difficult to draw clear boundaries for its management, governance and jurisdiction. The inherent nature of internet calls for an open framework; however, this open nature has thrown up many fundamental challenges. These challenges are bound to grow in the foreseeable future with the exponential increase in the number of connected devices and people.

Moreover, the internet has become the most powerful communications medium and engine for economic growth. This unprecedented growth has been achieved without prescriptive regulation of the internet, since this is likely to have locked in place certain specific technologies or business models. Dynamic advances in ICT will continue to occur in response to future technological change and consumer demand, spurred on by new developments, including the internet of things, software defined networks, and big data analytics.

For the internet to realize its due potential and deliver the promised benefit of a better future, a secure computing framework needs to be established, which not only instills adequate trust and confidence in users, but also addresses their concerns of privacy. The growing number of cyberspace-related issues and concerns, and their dynamic nature calls for a concerted strategy with clear guidelines and mandates on how these threats need to be managed. There is an immediate requirement of adopting a legitimate framework of internet governance, which encompasses broad-based opinions through an inclusive process.

5.2. Internet governance

5.2.1. Background to internet governance

The current free nature of the internet, which has been largely responsible for its growth, has also increased its vulnerability and has resulted in a debate on its regulation. The deliberations around measures to regulate internet have drawn a mixed response from various stakeholders. With this, there is a need to evaluate issues related to security, privacy and internet neutrality, while keeping in mind the enhanced ramifications around social and economic benefits.

Internet governance is a broad term covering a diverse range of issues from setting up of technical standards to operation of critical internet infrastructure, to regulation, privacy and legislation. Several stakeholders including governmental bodies play various roles in ensuring the successful functioning of the ecosystem.

In 2003, at the first phase of “The World Summit on the Information Society (WSIS)” in Geneva, multiple stakeholders including international organizations, governments, the private sector and civil society were brought together to deliberate opportunities and challenges of the new information and communication environment.67 It was decided that issues relating to international internet governance need to be addressed in a coordinated manner and that UN should set up a working group to ensure an open, inclusive and multilateral dialog.

“The Internet has become one of the most important vehicles by which individuals exercise their right to freedom of opinion and expression, and it can play an important role to promote human rights, democratic participation, accountability, transparency and economic development.”

– Promotion and protection of the right to freedom of opinion, United Nations General Assembly

67 “UNESCO and WSIS,” UNESCO website, http://www.unesco.org/new/en/communication-and-information/flagship-project-activities/unesco-and-wsis/about/, accessed 6 March 2014.


With the members of the first phase of WSIS failing to agree on the future of internet governance, the UN set up the “Working Group on Internet Governance (WGIG)” and tasked it with the agenda of dealing with the following issues:68

• Develop a working definition of internet governance

• Identify the public policy issues that are relevant to internet governance

• Develop a common understanding of the respective roles and responsibilities of governments, existing international organizations and other forums, as well as the private sector and civil society in both developing and developed countries

Based on the criteria laid down, WGIG adopted a broad-based definition of internet governance, which was later adopted by the second phase of WSIS in Tunis in 2005.

The definition recognizes the concept of inclusiveness of governments, the private sector and the civil society in the matters relating to internet governance, while recognizing that each group will have different interests, roles and participation. The WGIG identified and established four key public policy clusters for internet governance:

• Issues relating to infrastructure and the management of critical internet resources

• Issues relating to the use of the internet, including spam, network security and cybercrime

• Issues relating to intellectual property rights (IPRs) and international trade

• Issues relating to developmental aspects of internet governance, including capacity building in developing countries

Further to the recommendations made by WGIG, the WSIS in Tunis was a watershed event in terms of how internet governance stands today. It was proposed in Tunis to establish a forum for multi-stakeholder policy dialog — called the Internet Governance Forum (IGF). The IGF holds annual meetings to carry forth the discussion on internet governance in an informal setting, free from binding negotiations.69

5.2.2. Internet governance framework

At its core, internet comprises thousands of interconnected networks and is termed as a “network of networks.” The platform is international in nature, decentralized, and comprises network owned by both public and private sector entities; and this very nature of internet supports the formation of a dispersed framework for its governance, involving participation from all stakeholders, known as the multi-stakeholder approach.

“The international management of the Internet should be multilateral, transparent and democratic, with the full involvement of governments, the private sector, civil society and international organizations.”

– WSIS, Geneva

“Internet governance is the development and application by Governments, the private sector and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programmes that shape the evolution and use of the Internet.”

– WGIG

68“Report of the Working Group on Internet Governance,” June 2005.69“Internet Governance Forum,” Internet Society website, http://www.internetsociety.org/igf?gclid=CLaSnr-30LwCFQpU4godORoAXg, accessed 6 March 2014.


Figure 39: The internet ecosystem: a multi-stakeholder scenario

Internet ecosystem

Naming and addressing for policy

development

Local, national, regional, and global policy development

Education and capacity building

Users

Shared global services and operations

Open standards development

• The Internet Corporation for Assigned Names and Numbers (ICANN)

• Regional Internet Registries (RIRs)

• The Internet Assigned Numbers Authority (IANA)

• Generic top level domains (gTLDs)

• Country code top level domains (ccTLDs)

• Governments

• Government regional organizations

• Multilateral institutions

• Internet Society

• Governments

• Internet Society

• Multilateral institutions and development agencies

• Internet community organizations and businesses

• Universities and academic institutions

• Individuals, businesses, governments, organizations

• Machines/devices

• Service creators and equipment builders

• Root servers

• Network operators

• Service creators and vendors

• Internet exchange points

• gTLDs, ccTLDs

• Internet Society affiliated organizations: Internet Engineering Task Force (IETF), Internet Research Task Force (IRTF)

• Other standards bodies: ITU-T, W3C, specialized bodies

Source: The Internet Society


5.2.2.1 Multi-stakeholder approach to internet governance

The multi-stakeholder approach is a dynamic concept that allows for a diverse set of stakeholders to cooperate and work together. It brings together members from governments, private sector, civil society, academia and technical communities for deliberations, with an aim to ensure a sustainable internet based on open, global and interoperable standards. As millions of new users are coming online, concerted efforts are being made to increase the geographic, cultural and linguistic diversity of representatives in these discussions.

As envisaged in the Tunis Agenda, the multi-stakeholder process for internet governance provides opportunities for a diverse set of stakeholders to work together and deliberate on both technical and public policy issues.

Key aspects of a multi-stakeholder process:

• Every stakeholder has the right to express views, but at the same time, they are obliged to listen and respect each other’s opinions.

• All stakeholders share an equal voice, and the role of the leader is not to issue directives, but rather to encourage collective decision making.

Figure 40: Principles associated with multi-stakeholder governance

Multi-stakeholder governance

Participation

Cooperation

OpennessPluralism

Source: The Internet Society

Challenges in multi-stakeholder dialog and need for effective decision making

The flexibility and scalability accorded by the multi-stakeholder approach forms a foundation for consultative and cooperative deliberations. There is a broad consensus that a multi-stakeholder approach, rather than a multilateral approach, is the way forward for internet governance. However, the complexities associated with a multi-stakeholder process of internet governance pose several challenges.

In its current form, the discussions tend to be dominated by voices from more developed countries and there is a need for these discussions to be more inclusive. Efforts are also required to bring in the opinions of previously un-represented sections including participation from more linguistic groups, women, and youth. The stakeholders at these forums should have the trust of the audience they represent and mechanisms for identification of such stakeholders need to be deliberated.

The multi-stakeholder approach calls for wide range of viewpoints and opinions to build a consensus. There is a need to ensure that all members get fair representation and are able to act equally. Furthermore, it is highly pertinent that multi-stakeholder forums evolve from discussion platforms to a stage for taking meaningful decisions.

5.2.2.2 ICANN and the transition of IANA

Historically, the control and management of internet has been unfavorably skewed in favor of select few, which is not a true reflection of internet’s international character. International Corporation for Assigned Names and Numbers (ICANN) has been responsible for the management of the critical domain name system and is contracted by the US Department of Commerce for the management of Internet Assigned Numbers Authority (IANA).

“Strengthen and enhance the engagement of stakeholders in existing and/or future Internet governance mechanisms, particularly those from developing countries.”

– Tunis Agenda paragraph 72(f)


To address this imbalance, the US Government, in a recent announcement, highlighted its intention of transitioning the stewardship of IANA and its functions to the global multi-stakeholder community. To take this further, the US Government has asked the multi-stakeholder community to develop a proposal to enable such a transfer, while adhering to the following principles:

• Support and enhance the multi-stakeholder model

• Maintain the security, stability and resiliency of the internet domain name system (DNS)

• Meet the needs and expectation of the global customers and partners of the IANA services

• Maintain the openness of the internet

In recent times, ICANN has also initiated steps to get a wide representation in its governance and management, measures, which include splitting its headquarters into three operational hubs between Los Angles, Istanbul and Singapore, and freezing of all further recruitment in the US.

5.2.2.3 IGF and its role in internet governance

IGF is an annual multi-stakeholder global platform for dialog on internet governance, and is playing a key role in encouraging opinions, forming of policy proposals and shaping discussions on a multitude of issues. The IGF brings together stakeholders to discuss issues relating to internet policy in a neutral, non-partisan space. Although, the forum has no formal decision making power, IGF’s role in evolution of policy formulation has been recognized globally. Apart from the global IGF, regional and national IGF have also been launched in several countries taking forward the discussion in a democratic and participatory manner.

Driven under the auspices of UN, the IGF has no formal membership and is open to all stakeholders with an interest in internet governance. A consultative council to the IGF is the multi►stakeholder Advisory Group (MAG), a 56-member, multi►stakeholder panel whose mandate is to advise the UN on the content and the schedule of the IGF.

While the initial years of IGF were broadly focused on technical and policy aspects of internet governance, the 2013 IGF in Bali incorporated themes such as cyber►security and human rights. The IGF has also seen an evolution in terms of wider participation from several countries and a growing representation from emerging economies.

IGF 2014, Istanbul (Turkey)

• Participants: 2,403 onsite participants from 144 countries

• Gender split: Male (64.8%), Female (35.2%)

• 60 remote hubs organized around the world, with an estimated number of 1,852 attendees

Onsite participant composition by geography

32%

31%

17%

8%

6%3%

Western Europe and others Host countryAsia Pacific AfricaLatin America and Caribbean Eastern Europe

Onsite participant composition by stakeholder group

32%

24%

24%

11%

5% 4%

Civil society Private sector

Government Technical community

Media Inter-governmental organization

Source: Internet Governance Forum website


5.2.2.4. NETmundial: Brazil, multi-stakeholder meeting on the future of internet governance, 23–24 April 2014

The NETmundial meeting was organized in Brazil in partnership between the Brazilian Internet Steering Committee (CGI.br) and /1Net. The meeting focused on elaborating the principles that should drive the future of internet, and laid out a proposal for future development of internet.

Figure 41: Internet governance principles

The meeting brought together representatives of civil society, private sector, academia and technical community to establish strategic guidelines related to the use and development of the internet, while following a model of participative plurality. Stakeholders from India also participated at the NETmundial.

Human rights and shared value – Human rights are universal and should underpin internet governance principles

• ► Freedom of expression, freedom of association, privacy, accessibility, freedom of information and access to information.

Enabling environment for sustainable innovation and creativity –To sustain the remarkable growth and dynamism of the internet, Internet governance must continue to allow permission-less innovation via an enabling environment.

Protection of intermediaries – Intermediary liability should be implemented in way that promotes economic growth, innovation, creativity and free flow of information.

Open and distributed architecture – The internet should be preserved as an innovative environment based on open system architecture, with voluntary collaboration, collective stewardship and participation.

Culture and linguistic diversity – Internet governance must respect, protect and promote cultural and linguistic diversity.

Security, stability and resilience of the internet – Security, stability and resilience of the internet should be a key objective of all stakeholders.

Unified and un-fragmented space – Internet should be a coherent, interconnected and scalable system based on a common set of unique identifiers.

Internet governance process principles – Multistakeholder; Open; Participative; Consensus driven, Transparent, Distributed, Inclusive and equitable, Collaborative.

Source: NETmundial website

Principles adopted at NETmundial

70“The World Factbook,” CIA website, https://www.cia.gov/library/publications/the-world-factbook/geos/in.html, accessed 14 February 2014.71“intermediary”, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, webhosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes;’ – Section 2(1) (w), The Information Technology (Intermediaries guidelines) Rules, 2011


5.2.3. Internet governance in India

India, with a population of 1.2 billion people and a growing economic influence, is increasingly expected to play the role of a leader in formulating policies for internet governance of the future.70 India as a society has always favored a multi-stakeholder approach for drawing consensus, highlighted by the multi-ethnic, multi-cultural and democratic nature of the society. India, through various global and regional forums, has taken steps toward a multi-stakeholder approach on internet governance. In fact, India hosted the third IGF conference at Hyderabad in 2008.

5.2.4. Challenges and the way forward

5.2.4.1 Multistakeholder Advisory Group appointed by DeitY must begin national discourse

DeitY under the aegis of Ministry of Communications and IT appointed a Multistakeholder Advisory Group (MAG) in July 2013. It consists of 28 multi-stakeholder representatives from government, private sector, civil society, academia and the technical community. The MAG has a broad, “Terms of Reference”, but is primarily expected to foster a national discourse on issues of internet governance, including organizing an India Internet Governance Forum (IIGF).

The MAG is chaired by the Secretary of DeitY. Since 2014, efforts are also underway to strengthen technical and research capabilities with regards to internet governance issues, within National Internet Exchange of India (NIXI). This auger well for a national structure to discuss domestic priorities, ascertain views of multi-stakeholder groups and represent/participate at global fora and conferences related to internet governance.

5.2.4.2 Need to adopt a principles-based approach to surveillance

Laws/regulations, which provide government access to user data without following robust procedural safeguards can create an environment of uncertainty for businesses as well as citizens. In light of recent global instances of surveillance and the associated mistrust among the internet community, the Government should set an example for the rest of the world by adopting a principles-based approach to surveillance.

In this regard, surveillance activity should preferably be carried out by an independent judicial authority and appropriate mandates and guidelines should be adopted. Excessive state directed surveillance threatens individuals’ right to privacy, hinders freedom of expression and threatens innovation. Therefore, a right balance of privacy and security is critical for the safe future of internet.

5.2.4.3 Amendment of intermediary laws in line with the evolving nature of internet

The internet is changing constantly and laws need to evolve to adapt to its dynamic nature. The Information Technology (Intermediaries guidelines) Rules is the example of one such law, which needs re-evaluation to be relevant in current times.71 Laws imposing intermediary liability, in relation to third party content, should be fair and reasonable, and should also ensure that intermediaries do not face undue censorship.

Special care also needs to be taken for liabilities imposed on intermediaries in case of issues relating to online copyrights and a clear set of guidelines should be laid down for the same. With blurring geographic boundaries, and no clear jurisdiction, such laws can become onerous for online businesses.

• The MAG, under the chairmanship of Secretary, DeitY, should ensure a democratic, pluralistic and citizen-oriented dialog on issues of internet governance, by engaging multi-stakeholder groups in their respective roles, as defined under the Tunis Agenda.

• The MAG should be encouraged to organize India IGF by inviting wide participation from various stakeholders, with a focus on important issues such as access, critical internet resources, security, openness, and net neutrality, etc.

Key recommendations

• Governments should adopt a principles-based approach to surveillance, so that trust among internet community is not lost.

• Guidelines and mandates need to be established to undertake any surveillance activity and it should be preferably carried out under the watchful eye of an independent judicial authority.

Key recommendations


It is expected that by 2015, online intermediaries will contribute almost US$41 billion to the Indian economy, accounting for 1.3% of the GDP, apart from indirect benefits to increase in productivity, and other social benefits.72 Therefore, it is imperative to reform the liability regime for India’s internet intermediaries to ensure a right balance between freedom of speech and privacy.

In a recent development, the Supreme Court of India has struck down Section 66A of the IT Act. The Court also added that definition of offences under the provision were “open-ended and undefined” and impeded on people’s right to free speech. However, the court turned down appeals to strike down Sections 69A and 79 of the IT Act.

5.2.4.4 Need to invest in critical internet infrastructure

With more than 200 million internet users, internet’s impact on the Indian economy is ever growing.73 It has transformed the way people in India communicate and the benefits are now transcending across sectors. Investment and upgrade of the country’s internet infrastructure is essential for promoting access and driving the next phase of economic growth.

Despite a sharp increase in the number of internet subscribers in the recent past the broadband infrastructure of the country remains deficient. The targets for the flagship NOFN program have been missed, and there is an urgent need to gear up the program and to incentivize the private sector to provide last mile connectivity in rural areas. Additionally, measures need to be initiated for increasing penetration of data services in rural areas, which have primarily remained an urban phenomenon.

5.2.4.5 Incentivizing the creation and dissemination of multilingual content

India is a vast country with 22 official languages and more than 380 dialects; however, most of the information available on the internet is in English. English, though the second-most widely spoken language in the country is spoken by only 10% of the people, thereby, acting as an inhibitor for uptake of internet.74

Currently, India’s mobile penetration stands around 76% and with the next phase of internet growth expected to be driven via mobile handsets, there is a lot of latent demand, which remains to be tapped.75 Creation and dissemination of content in vernacular languages can act as an enabler for adoption of internet. Similarly, efforts need to be undertaken to increase the availability of software and mobile applications in local languages, which can not only take governments’ e-governance agenda ahead but can also act as an enabler for pushing improvement in delivery of health care and education services.

Views expressed by a leading social networking player

Section 79 of the IT Act was enacted to provide an exemption from liability to intermediaries for third party content, recognizing the unique role of internet intermediaries as passive conduits of information. However, under Section 79(3b), if the intermediary fails to take down the content upon mere notification, it loses the immunity under section 79, thereby, forcing intermediaries to take down legitimate content and denying the intermediary any procedural safeguards such as the requirement of a lawful order. Section 79(3)(b) should be amended to include procedural safeguards.

• A right balance between privacy and security is critical for the safe future and growth of internet. A distinction must be made between internet governance issues and cyber-crime related challenges, which are equally significant part of the overall cyber security regime. Information Technology (Intermediaries guidelines) Rules need re-evaluation to be relevant in current times.

• Laws imposing intermediary liability in relation to third party content should be in line with global best practices.

• The law must allow for expression of free speech within constitutionally permissible limits, while ensuring intermediaries do not face undue censorship.

Key recommendations

• Government needs to incentivize the private sector to provide last mile connectivity in rural areas.

Key recommendations

72“Closing the Gap – Indian Online Intermediaries and a liability system not yet fit for purpose,” Copenhagen Economics, March 2014.73Telecom Regulatory Authority of India74“English or Hinglish - which will India choose?,” BBC website, http://www.bbc.com/news/magazine-20500312, accessed 14 February 2014.75Telecom Regulatory Authority of India


5.2.5. India’s voice at global internet forums

Penetration of telecom, broadband, and internet services in India has grown rapidly, and India now has the third-highest number of internet subscribers after China and the US.76 With a briskly evolving internet ecosystem, it is imperative that Indian viewpoints are suitably positioned at various international forums. India’s participation at these international forums needs to be enhanced to enable the country’s input and points of view to be factored into global discussions, and harmonize in line with international developments.

Most of these forums have traditionally been open only to respective Government officials. However, given the substantial contribution of multi-stakeholder groups, it is imperative that the interests of these stakeholders are suitably taken into account with their participation at these international platforms.

Key global forums for discussion on matters relating to internet policy and governance

• International Telecom Union (ITU)

• World Summit on Information Society (WSIS)

• UN Commission on Science & Technology Development (CSTD)

• Working Group on Enhanced Cooperation (WGEC)

• Internet Engineering Task Force (IETF)

• Internet Governance Forum (IGF)

• Internet Corporation for Assigned Names and Numbers (ICANN)

• Asia Pacific Regional Internet Governance Forum

• Asia Pacific Telecommunity (APT) as part of this regions ITU body

• There is a need to incentivize the creation and dissemination of multilingual content, including software and mobile applications.

Key recommendations

Moreover, to enhance the multi-stakeholder process, it is imperative that new faces and new opinions are brought to the fore. However, participation at these global events entails significant costs, which individuals in their personal capacity might find difficult to sponsor. Adequate channels and funding mechanisms will bring forth views from such participants. Funding for such participants can also be organized by fellowships provided by NIXI.

ITU Plenipotentiary Meeting, Busan, Korea (20 October 2014 – 7 November 2014)

• Plenipot is the primary governing meeting of the ITU and a key event at which ITU member states decide on the future role of the organization. It is the highest policy-making event of the ITU and allows member states to amend ITU Constitution and Conventions. The conference is held every four years and discusses issues relating to the scope, activities, finances, management, and policy approaches of the ITU. Key activities include:

• Setting the Union's general policies

• Adopting four-year strategic and financial plans

• Electing the Secretary-General, the Deputy Secretary-General, the Directors of the Bureaux and the members of the Radio Regulations Board

• Electing the member states that will constitute the next ITU Council

• ITU Plenipotentiary Meeting considers inputs and documents from a range of sources, including regional telecommunications organizations, which consolidate regional views and send common regional proposals to the Plenipot.

• In recent years, there has been considerable discussion among ITU members about the role, scope and activities of the ITU in Internet public policy.

• Outcome: Post deliberations in Busan, ITU member states decided not to expand the body’s current role in internet governance and cybersecurity. There was consensus that these issues are outside the mandate of ITU, and ITU already has an important role in promoting core infrastructure development and cross border connectivity, and providing technical assistance and capacity building in developing countries.

76“India is now world’s third largest Internet user after U.S., China,” The Hindu website, http://www.thehindu.com/sci-tech/technology/internet/india-is-now-worlds-third-largest-internet-user-after-us-china/article5053115.ece, accessed 14 February 2014.


5.3. Cyber security

5.3.1. Introduction

Cyber security has emerged as one of the biggest challenges for governments and organizations globally. As cyberspace grows and becomes more pervasive in all aspects of modern society, the question of how to protect it becomes more pressing. Cyberspace is no longer restricted to traditional computers, servers and networks connected via internet. It has expanded to all ICT systems, machines and people communicating with each other locally or remotely through computer networks, telecoms networks, internet cloud or through any other hybrid technology cluster.

Cyberspace now also includes devices, content, telecommunication and IT infrastructure, applications, and services. Rapid evolution of technology, manifold usage of data-centric applications and the omnipresence of the internet now mean that cyber space growth and related challenges are evolving rapidly and constantly. Easy access to growing and converging communication systems, innovations in applications, services and content has made the cyberspace vulnerable.

Recent times have brought forth an alarming number of incidents of both state and non-state actors using internet for reprehensible acts that include identity theft, phishing, snooping, denial of service, cyber terrorism and inducing threats, which are aimed at undermining structures and systems of countries. Exposure to such vulnerabilities has been accentuated by rapid changes in technologies, which leave governments and businesses struggling to cope.

Figure 42: Trends characterizing the current challenges of cyber security

• India’s participation at these international forums needs to be enhanced to enable the country’s inputs and viewpoints to be factored into global discussions, and harmonize it in line with international developments.

• Internal consultation with all concerned stakeholders should be carried out before projecting a national view point at international forums.

• Adequate channels and funding mechanisms need to be developed to encourage participation at these forums.

Key recommendationsInternet and mobile devices

Privacy and identity abuse

Complexity and compatibility issues

Espionage and sabotage

Equipment security and testing

Increased use of offshoring

Bring your own device (BYOD)

New service platforms

Increased use of smartphones, tablets and other connected devices makes networks more vulnerable to threats, since potential threat can emerge from any quarter.

Personal privacy is threatened by new methods of communication. Identity abuse and identify theft is a growing challenge for individuals, businesses and public authorities.

It is a challenge to keep track of all the interdependencies and potential vulnerabilities of all ICT products. Ensuring compatibility and seamless integration is another issue.

There is an increasing trend towards targeted and professional hacking of critical ICT systems. There are targeted espionage attacks against vital national security interests.

It is a challenge to ensure telecommunications and IT equipment procured is free from potential threats or bugs. Flux in rules leading to delay in network roll-out and procurement delays.

Local regulations and practices regarding data protection and management in other countries maybe different from those being followed locally.

Organizations are allowing employees to bring their own devices (BYOD) to workplace, thereby, bringing down hardware procurement costs. This leads to challenges of data breach and leakages.

Emerging service platforms such as cloud computing and virtualization bring cost savings to businesses. However, organizations are vulnerable to data theft and misuse, as the data is dispersed.


5.3.2. Cyber security framework in India

The Government and stakeholders of ICT have understood the need and necessity of taking steps to enhance cyber security awareness and have set up policy framework, issued guidelines and regulatory mandates to ensure appropriate implementation. Moreover, enterprises are taking measures to secure their organizations and data of their customers by implementing definitive and appropriate security policies.

Telecom networks form a crucial part of a country’s infrastructure and play an important role in enabling and linking other mission critical sectors, and therefore, are highly vulnerable to security threats. A case in point being that the telecom licensor, along with that of banking regulator, was the first to introduce security policies for the protection of both infrastructure and information. Therefore, security concerns associated with telecom equipment and network have the potential to inflict significant economic damage. As a result of the critical nature of telecom equipment, a focus on security, testing and standardization of telecommunications products is inevitable.

The Government has been cognizant of the challenges posed by cyber/telecom and network security and has taken several progressive steps in the recent past to effectively manage the increasing threat of cyber-crimes.

Figure 44: Mission critical sectors for cyber security

Mission critical sectors

Energy

Banking and

finance

Defence

Space

Air/Rail transport

Telecoms

Law enforcement

Source: NCIIPC

Figure 43: Cyber security risk assessment and management cycle

Risk assessment and management cycle

Threat identification

Review and feedback

Compliance

Risk preventionand recovery

Vulnerability identification

Risk evaluation

Qualitative and quantitative analysis

Analysis of implications

Source: NCIIPC

Applications

Service providers

Application ecosystem offers users flexibility and convenience; however, this evolution brings forth several security risks. User’s credit card details, bank logins and passwords face potential exposure.

Paradigm of cyber security is new to access providers and they are struggling to cope with the ever evolving space. Access providers are not rightly equipped to manage the challenge alone.


• IT Amendment Act 2008: The Government introduced major amendments to the IT Act 2000 in the form of the Information Technology (Amendment Act), 2008 (ITAA). The amendment brought several crimes under the ambit of the IT Act for which no provisions had existed earlier. Moreover, a new section on cyber terrorism was included in the Act.

• Amendment to the Unified Access Service license agreement: In 2011, DoT amended the licensing conditions of telecom service providers to take holistic steps toward ensuring and implementing end-to-end security measures. The amendment made it mandatory for the licensee to be completely responsible for security of their networks. Furthermore, licensees were required to have organizational policy on security and security management of their networks including being made responsible for network forensics, network hardening, risk assessment and the periodic audit of their networks. Subsequently, the DoT set up mechanisms to release a list of periodic monitoring items to ensure compliance.

• Joint Working Group on engagement with private sector on cyber security: Government has acknowledged that issues relating to cyber security cannot be resolved in isolation either by the government or the industry. To

reinforce this belief, the Government has set up a joint working group under the stewardship of Deputy National Security Advisor. The recommendations laid out by the group underpin the public-private partnership model for dealing with issues of cyber security including training of resources, devising funding mechanisms, sharing of intelligence and collaboration during cyber-attacks.

• National Cyber Security Policy 2013 (NCSP): In July 2013, the National Cyber Security policy was unveiled. A progressive policy with diverse flavors for all stakeholders, it enlists detailed strategies for managing and preventing cyber threats. Though, it provides a strong vision, operationalizing the policy would be a key challenge.

• Guidelines for Protection of National Critical Information Infrastructure: In July 2013, National Critical Information Infrastructure Protection Centre (NCIIPC) released the guidelines and principles for the protection of country critical information infrastructure. NCIIPC has been appointed as the nodal agency for taking all measures for the protection of critical information infrastructure in India.

Figure 45: National Cyber Security Policy of India

Objectives National Cyber Security Policy 2013

• To create a secure cyber ecosystem in the country, generate adequate trust and confidence in IT systems and transactions in cyberspace.

• To enhance and create National and Sectoral level 24x7 mechanisms for obtaining strategic information regarding threats to ICT infrastructure, and developing mechanisms for response.

• To establishing infrastructure for testing and validation of security of ICT products and services.

• To develop effective public private partnerships and collaborative engagements through technical and operational cooperation and contribution.

• To enhance the protection and resilience of critical information infrastructure by operating a 24x7 National Critical Information Infrastructure Protection Centre (NCIIPC).

• To create a workforce of 500,000 professionals skilled in cyber security through capacity building, skill development and training.

• To enable protection of information while in process, handling, storage and transit to safeguard privacy data and for reducing economic losses due to cyber crime.

• To enable effective prevention, investigation and prosecution of cyber-crime and enhancement of law enforcement.

Source: National Cyber Security Policy 2013


5.3.3. Challenges in cyber security and the way forward

• Multiplicity of agencies and dispersed efforts on matters relating to cyber security: With the advancement in technology and the growing sophistication of threats, there is an urgent need to coordinate all efforts aimed at dealing with cyber-crimes. Currently, efforts in this direction are dispersed with multiple agencies issuing policies, guidelines, and advisories resulting in confusion and overlap of efforts. Furthermore, threats encountered by various agencies, and/or service providers remain in silos, with each entity devising own strategies of dealing with them.

There is a need for an overarching oversight body, which deals with all matters relating to cyber security and amalgamates the work done by different agencies. A fair representation from the government, private sector and cyber security professionals is expected to work best.

Various agencies involved in dealing with cyber security in India

Ministry/department/agency Role

Ministry of Home Affairs (MHA) Responsible for the maintenance of overall internal security and domestic policy of the country

Ministry of Information and Broadcasting

Responsible for formulation and administration of the rules and regulations and laws relating to information and broadcasting

National Security Council Responsible for the country's political, economic, energy and strategic security concerns

Department of Telecommunications (DoT)

Drafting of policies for growth of telecommunications services

DeitY Regulating policy matters relating to information technology, electronics and internet

National Technical Research Organisation (NTRO)

Technical intelligence gathering agency to other agencies on internal and external security

National Cyber Coordination Centre (NCCC)

Proposed body to carry out real-time assessment and provide actionable alerts to government departments in cases of perceived security threat

Centralized Monitoring System (CMS) Centralized system to monitor communications on mobile phones, landlines, international/national long distance service and the internet in the country

Computer Emergency Response Team (CERT-in)

Responding to computer security incidents, report on vulnerabilities and promote effective IT security practices


The Government has set up the National Critical Information Infrastructure Protection Centre (NCIIPC) under the aegis of National Technical Research Organisation (NTRO) to act as the nodal agency for protection of critical information infrastructure in India. NCIIPC has been tasked with creating awareness and ensuring a robust security system in all critical government agencies, and has identified 17 sectors, which need special protection against cyber-attacks.

Though a step in the right direction, the information and efforts initiated under the NCIIPC should be tied together with the private sector, since a large number of critical infrastructure including telecoms, and oil and gas have significant private sector involvement.

The sectoral CERTs should act as umbrella agencies for ensuring quick dissemination of any potential threat information to all relevant stakeholders and joint strategies to deal with such threats should be devised. Furthermore, there should be increased coordination among all CERTs such as sharing of global threat perceptions, knowledge, and best practices.

Case study: National Cybersecurity and Communications Integration Center, the USThe US has set up the National Cybersecurity & Communications Integration Center (NCCIC), within the Office of Cybersecurity and Communications. NCCIC serves as a centralized location where operational elements involved in cyber security and communications reliance are coordinated and integrated.

NCCIC partners include all federal departments and agencies; state, local, tribal, and territorial governments; the private sector; and international entities. The center’s activities include providing improved understanding of cyber security and communications situation awareness vulnerabilities, intrusions, incidents, mitigation, and recovery actions.

Source: US Department of Homeland Security


• Exploring right funding mechanisms and understanding cost implications for service providers: There is a consensus that cyber security is a matter of national importance and one that requires concerted efforts and strategies; however, for the right framework to develop, adequate funding is required. Dedicated budgetary allocation should be made toward cyber security, given its impact on national security.

Meanwhile, there is also a need to develop an improved understanding of competencies of service providers, as they are neither technically nor financially equipped for end-to-end management of cyber security related issues. Service providers require significant government support to effectively deal with threats, including an empathetic view of associated costs. Penalties imposed on service providers, in case of security breaches, should be re-evaluated and a moderate constructive approach needs to be adapted.

• Need for capacity building: The Government also needs to invest in building capacity as there is a shortage of cyber security professionals and, specialized training and recruiting of man power needs to be carried out. Investments are also required in R&D with a focus on developing indigenous security solutions that meet international standards. Alternatives for PPP in setting up testing and standards setting facilities, and incident management systems also need to be evaluated. Efforts also need to be directed towards establishing a multi-disciplinary Centre of Excellence (CoE) for cybersecurity for areas including best practices, forensics, cybercrime investigation and research.

• Need to adapt global best practices: Technological changes mean that global ICT scenario is continuously evolving, and so is the corresponding threat perception. India needs to adapt global best practices on detection and management of these threats. Moreover, in this connected world, threats can emerge from any country or network, and therefore, no one country or company can manage this challenge alone.

• Investment in capacity building and R&D

• Consider alternatives such as PPP to set up testing and standards setting facilities

• Undertake initiatives aimed at increasing cyber security awareness among the customers

Key recommendations

• ► Dedicated allocation should be made towards cyber security in the Union Budget.

• ► There is need for an improved understanding of competencies of service providers, as they are neither technically nor financially equipped for end-to-end management of cyber security-related issues.

• ► Penalties and levies imposed on service providers should be reevaluated in case of security breaches.

Key recommendations

• There is a need for an overarching multi-stakeholder oversight body, which deals with all matters relating to cyber security and amalgamates the work done by different agencies.

• There is a need to establish a formal process of bringing together all agencies to discuss and deliberate matters relating to cyber security and formulate a consensual way forward.

• Holistic and harmonized compendium on dealing with cyber security removing conflicts between IT Act, Telegraph Act regulation for privacy, data protection and lawful protection needs to be developed.

• There is a need for increased coordination among all CERTs including sharing of global threat perceptions, knowledge, and best practices.

• Run initiatives aimed at increasing cyber security awareness among the customers.

Key recommendations


• Security, testing and standards of telecom equipment: Initiatives for security, testing and standardization of equipment are interlinked and therefore, need to work in tandem with each other. Proper standards need to be in place and testing labs and centers need to be established in line with global practices and standards to ensure a secure network deployment.

Government initiatives for security, testing and standards Challenges

Proposed creation of bodies such as:

• Telecom Security Directorate

• National Telecom Network Security Coordination Board

Though a positive step, it is necessary that quick action is taken to set up these bodies to extend their benefits to industry.

Initiated a pilot equipment testing lab and approved setting up of a Telecom Testing and Security Certification Centre (TTSC) to test imported equipment more than three years ago.

Project has been delayed; need to expedite setting up of test labs.

Existing schemes include:

• DeitY’s Patent Reimbursement schemes

• Technology Development and Demonstration Program

• Technology Development Board schemes

Strengthening of existing schemes is needed; monitor the scheme’s progress and make improvements as required.

Figure 46: Issues of security, testing and standards

Security

Testing

Standards

Source: EY analysis

Source: Telecom Equipment Manufacturing Council; EY analysis

• India needs to adapt global best practices on detection and management of threats.

• There is need for enhanced cooperation with global peers on matters relating to cyber security, and sharing of information on threats and ways to manage them.

Key recommendations


• Challenge of country-specific standards: Since the sector comprises service providers, networks, equipment, products, services, suppliers and customers, which are international in nature, country-specific regulations related to security testing have both merits and demerits. In view of this, adoption of standards, which are in line with global standards, is essential to provide various services through different technologies. Similarly, Indian testing and inspection regime should conform to established global standards, such as the Common Criteria for IT elements and DoT’s guidelines issued in 2011.

• Need to decouple security from domestic manufacturing: The Government should move away from its existing approach of linking security with domestic manufacturing. The view of the Government is to test imported equipment and at the same time promote domestic procurement by considering domestically manufactured products secure for networks. However, there is a need to decouple the aspects of security from domestic manufacturing.

• Collaborative approach to tackle security challenges: The Government and the industry should adopt adequate procedures to work together to address security issues. The current mandates and regulations are unable to provide the level of speed and flexibility to address security issues given the rapid nature of technological change in this industry. There is a need for a set of transparent procedures and regulations to address the issue.

Accordingly, appropriate measures need to be taken to facilitate regular deliberations among the government and industry players. In this respect, a Telecom Security Council of India will enhance cooperation with the companies. Additionally, collaboration with governments of other countries through cyber and telecom security dialogs will help in developing practices and principles to address security needs.

• Standardized equipment testing and threat assessment standards: There is an urgent need to lay down clear norms for testing and compliance verification of IT/communication equipment. Furthermore, as cyber security is an ever-evolving concept, a periodic assessment and audit of these policies is required, and the updated guidelines communicated promptly and in a transparent manner. India is a significant importer of communications equipment and the past years have seen the Government raise questions on some organizations over potential activities of cyber espionage. Clarity on rules relating to security standards will help reduce uncertainty for equipment providers, and service providers, as delays in security clearance of equipment can lead to interruptions in network roll-out.

• Decouple security from domestic manufacturing.

• Indian testing and inspection regime should conform to established global standards, such as the Common Criteria and 3GPP.

• Enhance cooperation with companies through a Telecom Security Council of India and with other governments.

• Provide detailed guidance on the specifics of policy on equipment security as soon as possible.

• Lay down clear rules relating to security standards to help reduce uncertainty for equipment providers, and service providers.

Key recommendations


6. Emerging opportunities: Cloud and M2M


6.1. Cloud services

6.1.1. Introduction

Over the last few years, cloud computing has emerged as one of the most defining secular trends and it is believed that its effects are beginning to be felt across various industries. Cloud services are finally taking off because technology advances, particularly ubiquitous high-speed internet connectivity and the ever-decreasing cost of storage, have finally enabled service providers to meet buyers’ needs for simplicity, cost and flexibility.

For consumers, the recent proliferation of smart mobile devices, that are actually handheld wireless computers, has accelerated the development of cloud services that provide application functionality to those devices. This is an example of why consumers have been such rapid adopters of the cloud — cloud computing has the potential to instantly deliver simple, easy-to-use, sophisticated and high-powered computer applications and information that consumers could not otherwise access.

Organizations are using the cloud technology to increase operational efficiency, improve collaboration, and gain competitive edge by delivering differentiated services. The shift to cloud helps organizations in achieving business agility and scalability, which enables them to be more responsive in the rapidly changing market.

Figure 47: How companies are using cloud today?

Transform infrastructure by changing application

delivery method.

Deliver a new service, or existing service to

a new market.

Arming your people with the best tools to

increase productivity.

Efficiency and Transparency Channel Startegy Workforce Innovation

Undergoing a major IT TransformationAging Infrastructure/workforceTransparency in cost, and cost reduction

Drive new revenueExpand client baseReach new customersExpand market footprint

Implement new technology applications based on user requirements and increasing mobility demandImprove end user driven collaboration(maximize productivity)

►► ►

►

►

►

►

►

►

Source: EY analysis


6.1.2. Cloud computing spanning across industries

Cloud computing has the power to transform traditional operations of a business, and is bringing about significant changes across several sectors. It is acting as a catalyst for growth to bring about robust value additions across verticals.

Some industries are adopting cloud to reduce their capital expenditure on IT while others are utilizing cloud to better collaborate and deliver high-value add to its customers. For example, financial institutions and the banking sector are adopting cloud technology to reduce upfront IT cost, whereas health care companies are exploring cloud technology to enable better patient reach and care.

As enterprises are becoming increasingly aware, this technology is gaining popularity across various industries, since they operate in an evolving and highly competitive marketplace. According to a research report, the number of cloud applications used by various industries is expected to increase by 36% between 2011 and 2014.77

Figure 48: Global average number of cloud applications per company

10.8

10.9

12.4

13.2

13.3

13.6

14.3

17.6

18.0

19.4

9.34.8

3.4

4.5

4.4

5.7

5.1

5.5

5.7

6.8

6.2

8.5

Media and entertainment

Health care services

Energy and utilities

Metals and Mining

Consumer productmanufacturing

Pharmaceuticals

Retail

Transport

Banking and Insurance

Telecom services

Communicationequipment manufacturer

2011 2014Source: TCS website

Figure 49: Cloud services across verticals

6.1.3. Clouds offer full range of computing services

Cloud computing is becoming a business-changing technology, which has not only affected the IT industry considerably, but is also transforming the business models of telecoms operators across the globe. Cloud computing services are available across the entire computing spectrum.

• Infrastructure-as-a-Service (IaaS) is a provision model in which an organization outsources equipment used to support operations, including storage, hardware, servers and networking components.

• Software-as-a-Service (SaaS) is a software distribution model in which applications are hosted by a vendor and made available to customers over a network, typically the internet. Applications both general, such as word processing, email and spreadsheet, and specialized, such as customer relationship management (CRM) and enterprise resource management (ERM) are the typical service offerings.

• Platform-as-a-Service (PaaS) is another upcoming area highlighted in the survey, and is used to develop and deploy applications on the cloud. It typically includes databases, development tools and other components required to support the delivery of custom applications.

77“Differences in Cloud Adoption Across Global Industries,” TCS website, sites.tcs.com/cloudstudy/differences-in-cloud-adoption-across-global-industries#.UhxkJTssUhU, accessed on 27August 2013.

Source: EY analysis


• Communication-as-a-Service (CaaS) is increasingly being used to describe a suite of cloud-based unified communication applications, which include audio and web conferencing, desktop conferencing, email, instant messaging, mobility features, voice, document sharing and enterprise-grade social networking.

• Network-as-a-Service (NaaS) is a category where cloud-based service users are provided network connectivity services on a pay-as-you-use model. In this, the mobile network, billing and informational assets are bundled together.78

Indian government emphasizes the need for cloud computing

The NTP-2012 emphasizes on the need for cloud computing with the following objectives:

• To recognize that cloud computing will significantly speed up design and roll out of services, enable social networking and participative governance and e-Commerce on a scale, which was not possible with traditional technology solutions.

• To take new policy initiatives to ensure rapid expansion of new services and technologies at globally competitive prices by addressing concerns of cloud users and other stakeholders including specific steps that need to be taken for lowering the cost of service delivery.

• To identify areas where existing regulations may impose unnecessary burden and take consequential remedial steps in line with international best practices for propelling the country to emerge as a global leader in the development and provision of cloud services to benefit enterprises, consumers and Central and state governments.

The TRAI is working on a paper on cloud. Separately, a working group at DeitY is also working on enabling cloud services in India covering aspects such as jurisdiction, cross-border data flow, data security, data location and much more.

There is a need for a coordinated effort and a uniform cloud policy from the Ministry of Communications and Information Technology

6.1.4. Challenges and the way forward

6.1.5.1 Data center location

In line with the nature of cloud architecture, it is possible that consumer data is split and stored at multiple locations. As data sometimes falls under more than one legal jurisdiction, there is no clarity on how inconsistencies across jurisdictions can be resolved. Governments are concerned about weakening or redeeming their “legal controls” due to jurisdictional compliance and to “oversee” data on the cloud and apply their laws to the cloud.

• Free flow of non-critical data across borders: A majority of Indian industries involved in IT-enabled services (ITeS) benefit substantially from cross-border flow of networks and data-based services; the ITeS sector is likely to be at a disadvantage if India adopts policies that limit the country’s ability to move data on a cross-border basis. Any restrictions that India imposes are likely to become restrictive precedents that other countries adopt, which will restrict the movement of data to Indian BPOs or data centers. With this in mind, the default position should be that cloud-based services can utilize data centers either within or outside India.

• Mission critical data to be stored in India: There will be certain narrowly tailored instances where Government’s mission-critical data is best secured within the geographical boundaries of the country. In these narrowly tailored instances, findings should be made on a case-to-case basis, rather than adopt a blanket rule that may unnecessarily compromise India’s role in a global information economy. The Government should frame policies to keep mission-critical data within the geographical boundaries of the country, such as data for sectors of national importance such as defence should reside within India. Non-critical data/applications can be stored outside the country. However, the Government should retain the rights to access the data if needed.

78“Network as a Service,” DSG website, www.dsg.co.za/Default.aspx?TabID=54, accessed on 25 July 2013.

Source: DeitY, NTP-2012


• No separate statewide regulations: The Government should avoid varying regulations across states and formulate a single nationwide policy. It should avoid localizing mandates or any policies that give preference to data processors using only local facilities or operating locally. Any sweeping restriction on data center location or on cross-border data flow restriction will create a precedent, which may be adopted by other countries that could be devastating to the Indian BPO industry, which is entirely dependent on the ability of cross-border data flow into India.

If India were to adopt overly broad restrictions, other countries will follow this lead and this will directly harm the services economy. With this in mind, the default position should be that cloud-based services utilize data centers either in India or outside India.

6.1.5.2. Security and risk of data loss

Customers are concerned that transmitting and storing data over a public internet, as opposed to storing it entirely within an exclusive corporate network, is likely to increase data vulnerability and expose it to unauthorized users. As the cloud aggregates data and services of multiple users on the same platform, it becomes an easy target for cyber-attacks. If encryption standards are not strong, it will be vulnerable to store and transmit data over the network.

6.1.5.3. Data privacy

Since data on the cloud is stored on remote machines, which are shared with other users, customers are concerned about the potential of competitors accessing their data. Even though concern over privacy is secondary to its concern over security for cloud sharing, the storage space with its competitors definitely poses a concern for the cloud customer.

6.1.5.4. Requirement of robust interoperability standards

The ability of clients to move data across various cloud providers is restricted due to the “vendor lock-in” function; use of proprietary architecture; or unique application model employed by a cloud provider. Standards are required to simplify interoperability among cloud providers and between enterprise systems and cloud-based services, since very few exist currently. The lack of standards may also pose as an obstacle in recovering data for the purpose of legal discovery or for migrating from one cloud-based service provider to another.

• It is suggested that the Government could frame policies to expand the scope of a narrowly tailored view of mission-critical government data or national security-related data that is recommended for storage within Indian boundaries.

• The default position should be that cloud computing services utilize data centers either in India or outside India. The Government could contemplate formulating a single nation-wide policy avoiding regional/state-wise difference in regulations.

Key recommendations

• Government policy should adopt strengthened encryption standards rather than continue with 40-bit encryption.

• The Government should identify best practices such as ISO 27001 and SAS 70 for the audit process of a cloud-based service provider to provide assurance to its customers.

Key recommendations

• Bring cloud-based service providers under the purview of the Information Technology Act of 2000.

• The Government needs to spread awareness among consumers, especially its own departments, by educating them on data privacy legislations that apply to cloud-based service providers.

Key recommendations


6.1.5.5. Reliability

Typically, in a competitive market such as cloud computing, competition will deliver a range of service level agreements (SLAs) at various price points. This will deliver extra-high SLAs for mission critical cloud applications to businesses that will pay a premium. Furthermore, it will deliver services with low ensured SLA for cloud applications where a customer wants a value service and is willing to experience some service quality trade off. The Government could set some indicative benchmarks, but in a competitive market, it should also consider its role as a facilitator and not stifle business model innovation by imposing rigid SLA requirements.

6.1.5.6. Cross-border flow of data

Currently, there is a lack of clarity under which legal jurisdiction data on the cloud falls. Related concerns are about legal compliance issues such as whether laws in the jurisdiction where the data was collected apply or whether the laws at the user’s destination apply. As a result, constraints on trans-border flow of sensitive data are a key area of discussion while framing policies and regulations around data security.

6.1.5.7. Lack of credibility

Organizations using cloud-based services do not have complete visibility if the vendors are ensuring 100% compliance, which may result in oversight of privacy policies and procedures. Cloud computing increases the need for service providers to implement and adhere to the agreed service level agreements.

• The Government may work in collaboration with the MCIT and the industry to promote open standards-based cloud infrastructure and documented interfaces. These standards are expected to help increase software and data interoperability.

Key recommendations

• The Government should have a registration mechanism through a single window to approve cloud providers in the market. For this, the Government should collaborate with the industry to define minimum technical standards required to set up a cloud infrastructure.

Key recommendations

• The Government may work with the industry to set benchmark standards for SLAs, defining minimum commitment levels for critical service parameters such as uptime, response times and bandwidth. Furthermore, it should also consider its role as a facilitator and not stifle business model innovation by imposing rigid SLA requirements.

Key recommendations

• The Government should try to ensure that the necessary legal regulation of the country in which data originates is applicable to data controllers and data processors. There is a need to encourage accountability rules governing data flow and ensuring that consumers do not lose protection when their data is stored or processed in any remote computing environment outside the country.

Key recommendations

Compliance involves conformity with laws, regulations and standards regarding data security. A major compliance issue is the location of data storage. If the data resides within the premise of an organization, it can ensure that safeguards are in place to protect the data. Most cloud-based service provider do not disclose the location of data storage to their customers, which results in uncertainty pertaining to whether adequate safeguards are in place and whether legal and regulatory compliance requirements are being met.


6.1.5.8. Clarity on taxation

Currently, there are no specific tax rules in the Indian taxation regime, since cloud computing-based services are nascent in the country. According to the current tax regime, the direct tax of cloud-based services depends on the residential status of the service provider, while the indirect tax depends on whether the cloud is classified as a service or as transfer of right to use property. There needs to be clarity on classification of the category of cloud services for taxation applicability.

6.2. Machine-to-machine (M2M)

6.2.1. M2M and IoT market overview

The evolution of internet in recent times has led to more devices being connected to each other. In future, these devices are expected to generate majority of the internet traffic. The interaction of these devices with each other and other static non-intelligent objects is termed as “internet of things” (IoT). To ensure such interaction, mobile technology is expected to play a transformational role in the future.

Figure 50: M2M and IoT as enablers for various industries

M2M is a subset of IoT and refers to machines communicating with the application infrastructure using network resources for purpose of monitoring or control, either of the machine itself or the surrounding environment. Additional services, along with M2M services, which involve physical world to merge with digital world together, form IoT.

IoT is fast becoming a reality globally. The use of connected devices and systems to leverage data from a range of physical objects is growing rapidly, transforming societies and economies in many new ways. Technology and services revenue from IoT are expected to expand from US$1.3 trillion in 2013 to US$3.04 trillion in 2020 with a compound annual growth rate of 13%.79 By the end of the decade, nearly 30 billion connected devices are estimated worldwide, with all regions experiencing growth.80

The upside represented by IoT remains highly promising — with use cases as diverse as home automation services, logistics tracking, pay-as-you-drive car insurance and much more. Partnerships are a key success factor for these emerging IoT service propositions. Go-to-market approaches for such initiatives remain flexible, with operators considering offering such services either directly to customers or via white-label platforms.

Application areas Automotive Logistics and fleet management

Monitoring/ automation

Remote sales and payments

Security/ surveillance

Health care

Applications

(examples)

• Infotainment and positioning services

• Active security• Post-crash

systems• Pay-as-the-

drive solutions• Remote

diagnostics• Traffic control

systems

• Logistics planning and optimization

• Fleet vehicle management

• Navigation• Fuel

Management• Sensors• Carbon

footprint

• Smart metering

• Smart grid• Field

equipment management

• Facility management

• Public surveillance and safety

• Remote sales management

• Remote credit card applications

• Mobile point of sales, e.g., taxis and vending machines

• E-commerce

• Cameras• Alarms and

surveillance systems

• Telemedicine• Remote

monitoring

Potential industry alliances

(examples)

• Automotive• Diversified

industrial products

• Safety• Media and

entertainment• Insurance

• Transportation• Construction• Diversified

industrial products

• Car leasing companies

• Utilities• Real estate• Chemicals• Oil and Gas• Retail• Government

and public sector

• Retail• Banking

• Security • Government

and public sector

• Heath care providers

• Life sciences• Insurance

Source: EY analysis


6.2.1.1. Snapshot of global and Indian M2M market

Global M2M market

According to industry estimates, around 61% of connected devices globally are expected to be categorized as M2M by 2022.81 The total number of global M2M connections is likely to reach 18 billion by 2022.82

The growth in the number of M2M connections is expected to result in significant revenue opportunity for all players in the ecosystem. By 2022, the total M2M revenue opportunity is expected to increase at a CAGR of approximately 20.5% to reach US$1.2 trillion, up from US$200 billion in 2011.83

Figure 51: Current status of global M2M connections

Indian M2M market

Currently, the Indian M2M market is at a nascent stage but offers high growth opportunities. Enterprises have realized the incremental benefits of M2M and have gradually started adopting these solutions. M2M solutions have already started gaining prominence in industries such as utilities, logistics and automotive and are in early deployment stages.

Figure 52: India M2M market growth Revenue in US$ million

22.9

98.4

2011 2016F

CAGR33.8%

Global M2M connections

Growth rate: 38% CAGR from 2010 to 2013

• Current status: 195 million connections in 2013.

• M2M connections account for 2.8% of all global mobile connections.

M2M adoption by operators

Growing momentum of M2M service offering by service providers

• As of January 2014, 428 mobile operators offered M2M services across 187 countries; equivalent to 40% of world's mobile operators.

• Growth is stronger in developing markets over the last three years — six out of ten operators offering M2M are located in developing countries.

Source: GSMA

Source: 6Wresearch

79“Finding Success in the New IoT Ecosystem: Market to Reach $3.04 Trillion and 30 Billion Connected ‘Things’ in 2020, IDC Says,” IDC, 7 November 2014.80“Finding Success in the New IoT Ecosystem: Market to Reach $3.04 Trillion and 30 Billion Connected ‘Things’ in 2020, IDC Says,” IDC, 7 November 2014.81“The Global M2M Market in 2013,” Machina Research white paper, January 2013.82Ibid.83Ibid.


Figure 54: Government departments’ initiatives toward IoT and M2M

Figure 53: Key drivers of M2M services

Standardization and adoption of IPV6 technology

Government mandates and regulatory compliances

Improved network coverage and high speed data services

Cloud-based offerings

Declining technology and component costs

New revenue streams and differentiated service

offerings

Environmental sustainability Operational efficiency and cost savings

Key drivers ofM2M services

2014: The DeitY comes out with a draft IoT policy

• The policy focuses on the following objectives:• ► Create a US$15 billion IoT industry in India by 2020.

India is assumed to have a share of 5%–6% of global IoT industry

• ► Undertake capacity development (human and technology) for IoT specific skill-sets for domestic and international markets

• ► Undertake research and development for all assisting technologies

• ► Develop IoT products specific to Indian needs in all possible domains

The IoT policy framework is proposed to be implemented via a multi-pillar approach. The approach comprises five vertical pillars — demonstration centers, capacity building and incubation, R&D and innovation, incentives and engagements, human resource development; and two horizontal supports — standards and governance structure.

2015: DoT comes out with a draft National Telecom M2M roadmap

The document puts together various standards, policy and regulatory requirements and approach for the industry on how to look forward for M2M.

It provides the following:

► ► Overview of M2M, applications, opportunities and future of M2M

► ► Communication technologies and infrastructure for the last mile

► ► Global scenario for M2M standards and regulations ► ► DoT activities towards policy formulation and

development of standards ► ► M2M adoption supporting Make in India ► ► M2M’s influence on various sectors such as smart

cities, automobile, energy, utilities and much moreThe roadmap is expected to be reference document for all M2M ecosystem stakeholders and help in proliferation of M2M services in the country.

Need for synergy between DeitY’s draft IoT policy and DoT’s M2M roadmap

Source: DeitY, DoT.

Source: EY analysis


6.2.2. M2M: challenges in the current scenario and the way forward

The lucrative M2M market comes with a host of challenges, which may deter the segment’s growth potential. Given that this market is at a nascent stage not only in India, it is best to set up a strong policy framework, which ensures a conducive environment for the service to grow in future. Moreover, collaboration among the industry, government agencies, academia and global agencies on M2M will help in better planning for the concerns, which may arise as the market matures.

6.2.2.1. Lack of standardization and interoperability

The M2M market operates in a fragmented ecosystem where various players are offering similar solution with different technical specifications. With numerous M2M connections, integration of data from various nodes poses a unique challenge. Increased standardization is required to encourage investment and development in the M2M market. Protocols for interoperability, security, and performance need to be defined to enable the M2M market to grow. Such initiatives are also vital to contain product development costs and generate economies of scale.

Apart from the basic communication or “service layer” architecture of M2M devices, there is also a need for a standard protocol for communication between these devices and the central server. Similar to HTTP, which is the de facto protocol for World Wide Web, standards need to be produced for M2M/IoT connectivity protocols.

In line with this requirement, open standardization bodies such as Organization for the Advancement of Structured Information Standards (OASIS) are leading efforts for producing standards for protocols such as Message Queuing Telemetry Transport (MQTT). It is critical to adopt such measures toward an open, standardized communication protocol to ensure easy connectivity of devices to a central server and transmission of data with a reliable quality of service.

Globally, there are various groups, alliances and trade bodies such as the M2M Standardization Task Force (MSTF) and GSMA, which are working toward achieving standardization. In India as well, DoT, through its various arms such as the

Telecommunication Engineering Center (TEC) and the Centre for Development of Telematics (C-DOT), is partnering with One M2M Alliance (an alliance of leading global standardization bodies) to take care of India-specific requirements for M2M standards development. TEC has made five working groups to meet this objective.

• ► Coordination between government, industry and related global standards bodies to establish protocols for standardization, interoperability and performance, which are in line with global practices.

• ► National M2M standards should cover architecture, gateway, communication protocol/standards, vertical specific requirements and interoperability guidelines. White goods should be an additional category in standards formulation.

Key recommendations

6.2.2.2. Numbering scheme

On the M2M policy front, provisioning of numbering schemes for M2M services is one of the most significant aspects requiring regulatory clarity. Traditionally, most M2M devices are allocated numbers from the existing numbering schemes meant for mobile and fixed numbers. However, given that the M2M devices and services follow a different business model, usage of existing numbering schemes comes with its set of challenges.

Business models followed by M2M devices and services are considerably different from typical handsets and mobile services. The value chain for provisioning of M2M service includes mobile network operators providing wireless connectivity to M2M device manufacturers, who in turn provide M2M devices and services to end customers. The wireless connectivity is integrated within the M2M device meant for specific functions (such as smart metering, etc.) and the end customer is not charged separately for usage of a communications service. Moreover, M2M devices have low data consumption and low ARPU as compared to mobile phones and tablets. Due to these reasons, building economies of scale by developing standardized products is one of the main objectives of M2M device manufacturers.


With such a view to curtail input costs, M2M device ecosystem will not flourish if country-specific numbering schemes are made mandatory. In such a case, the M2M device manufacturer will need a SIM card embedded with the country-specific International Mobile Subscriber Identity (IMSI) code for each M2M device to be distributed in that particular country, leading to increased inventory management costs. Moreover, requiring M2M device manufacturers to conform to country-specific E.16484 numbers, which are addressing schemes used to route calls to the appropriate destination in each country where they seek to distribute products, will substantially increase their costs.

Usage of country-specific numbering resources also means that the M2M device manufacturer will need to forecast customer demand with high accuracy in order to avoid cases where there are too many M2M devices with a SIM card properly coded for one country, but not enough devices for another country. Given the global scope of M2M services, the administrative costs and operational complexities of manufacturing will therefore, become overwhelming. With each individual country requiring reservation of numbering blocks, such a scenario is likely to result in unused part of blocks, leading to inefficient use of numbering resources.

Additionally, from the perspective of potential market for device manufacturers, country-specific numbering policy for M2M will undermine the proliferation of M2M services developed by global players in India, as well as deter global prospects for providing M2M services developed and originated in India.

In light of these challenges, an M2M system should be flexible to support more than one naming scheme. The M2M policy should enable the use of global numbering resources, and allow for global use of IMSIs and E.164 numbers. In this respect, the addressing schemes should include IP address of connected objects, IP address of group of connected objects (including multicast address), and E.164 addresses of connected objects.

Moreover, the ITU Recommendation E.21285 should be followed, which establishes a three-tiered plan for identification of geographic areas, networks and subscriptions. The E.212 standard makes roaming of devices possible by identifying the subscriber, the subscriber’s carrier and the carrier’s country, which, in turn, enables the visited network operator to authenticate the subscriber as an authorized roamer and to bill the home network operator appropriately.

Another aspect to be considered in M2M systems relates to the time of allocating numbers to devices. The Mobile Subscriber Integrated Services Digital Network (MSISDN), which follows the numbering plan defined in ITU’s E.164 recommendation, is used to uniquely identify a device.

Traditionally, each SIM card, associated with its IMSI, is allocated an MSISDN during manufacture and testing phase itself, thereby, pre-provisioning the subscriptions in the network. Given that M2M devices may actually not require permanent wireless connectivity or may be static, i.e., only operating in one geographic region, hence, such devices do not require unique provisioning of the subscription.

Accordingly, M2M policy should allow for MSISDN less subscriptions or dummy MSISDN-based subscriptions. Even in cases where there is a requirement for unique identifier, such as when M2M devices require permanent wireless connectivity and are mobile in nature, then the unique MSISDN can be dynamically provisioned when they are first used. Such a policy will enable efficient utilization of MSISDNs and save costs.

In recent years, several countries have started to realize the challenge posed by scarcity of numbering ranges to address the substantial number of M2M devices. This issue can be resolved by designating specific numbering ranges to M2M devices.

Telecoms regulators in some European Union countries (such as Ireland and Spain) have deliberated on allocating long 15 digit numbers for M2M devices

• A welcome step, since it addresses the demand for a large number of M2M devices.

• Additionally, the length of the numbering scheme does not pose a problem since these numbers are not designed for dialing by humans.

Source: Ovum

84Note: ITU-T E.164 provides for the international public telecommunication numbering plan; “Recommendation E.164,” ITU, http://www.itu.int/rec/T-REC-E.164/en, accessed 2 May 2014.85Note: ITU-T E.164 provides for the international identification plan for public networks and subscriptions; “Recommendation E.212,” ITU, https://www.itu.int/rec/T-REC-E.212/en, accessed 2 May 2014.86Cisco6lab, http://6lab.cisco.com/stats/index.php, accessed 19 March 2014.


• While framing its policy for numbering scheme for M2M services, the Government should consider the following:

• Formulate an M2M policy enabling the use of global numbering resources. In this respect, global use of IMSIs and E.164 numbers should be facilitated

• Supporting more than one naming scheme

• Adoption of ITU E.212 recommendation

• MSISDN less subscription/dummy MSISDN-based subscription

Key recommendations

Mandatory IP/IPv6 in transport network

In addition to forming a specific numbering scheme for M2M devices, availability of adequate IP addresses is also important. Since the IPv4 addresses have been officially depleted, timely transition to IPv6 protocol is necessary. India’s overall IPv6 deployment currently stands at 20.8%, which is much behind Belgium, the global leader with 39.3% IPv6 deployment.86 The Government has laid out a national roadmap for IPv6 deployment and in the first phase mandated Government-based organizations to migrate to IPv6 networks by end of 2017. The challenges in implementation withstanding, it is a positive step from the Government and India should further promote uptake of IPv6 in M2M network architecture.

6.2.2.3. SIM-related issues and know your customer (KYC) requirements

Policy aspects pertaining to SIM and KYC norms form another area of concern likely to deter the growth of M2M services. The scope of M2M devices differs from traditional communication devices and the policies should be framed accordingly. In several instances, M2M devices may not be directly associated with a specific user; may be located remotely; transferred from one jurisdiction to another; and may require change in ownership. In such scenarios, laying stringent norms can pose a challenge to the propagation of M2M services in the country.

Accordingly, a light regulatory approach needs to be adopted for M2M SIMs, which operate in a controlled and secure environment, i.e., where the M2M SIM can communicate with only a server or an emergency number. On the KYC aspect, all redundant requirements for M2M SIMs should be removed.

6.2.2.4. Roaming issues

Another area of concern requiring policy back-up for seamless execution of M2M services are the roaming norms. These include issues pertaining to inter-circle roaming, inter-network (including 2G-3G, GSM-CDMA), home network roaming as well as permissions to international roaming.

Most M2M devices such as health care equipment, smart utility meters, components of smart vehicles, etc., are manufactured in one country and later distributed globally. Therefore, the business model of M2M market inherently results in a large number of devices to be roaming on a permanent basis. Since embedded SIMs cannot be manually replaced with a local SIM, the M2M devices are connected to the visited mobile network in the foreign country, as a roaming device. This leads to increased costs for operators due to additional outlay to cover signaling.

Global associations such as the GSMA have suggested the use of specific standards/templates for facilitating roaming of M2M devices. For instance, GSMA adopted an “M2M Annex” template in 2012 for international M2M roaming. Among other things, this contract template mandates transparency in the provision of M2M services by requiring the parties to the agreement to identify their M2M traffic separately from other traffic (via a dedicated IMSI code, Access Point Names (APNs), or other agreed means). Taken together, international roaming agreements and the M2M Annex provide an industry-wide standard contractual structure for supporting M2M services globally.

• ► Have IPv4/IPv6 mandatory in transport network

Key recommendations

• ►► Adopt a very light touch regulatory approach for M2M SIMs.

• ► No new KYC requirements are needed for M2M services; norms, which limit SIM transfers, necessitate tele-verification of the user and require the maintenance of a list of user identities should be discouraged.

Key recommendations


Despite its significance, most regulators across the globe have not come up with a firm view on provision of permanent roaming by operators. Given the opportunity of M2M services at a global level, inability to roam permanently is likely to hinder the growth of M2M business models significantly. There is a need for regulators, including the Indian counterparts, to bring clarity on the roaming aspects.

6.2.2.5. Privacy and security concern

M2M is expected to enable billions of connected devices to interact with each other. In such a market, there is significant potential to generate economic value from personal data collected. However, the use of this data also poses issues on the security and privacy front. Security lapses and misuse of personal data need to be addressed by adopting appropriate safety measures.

It is critical to maintain security at the device end, at the transport layer as well as while connecting to central enterprise server. Unauthorized device clients connecting to the enterprise server can cause serious security breach. In countries such as the US, standards such as Federal Information Processing Standard (FIPS) 140-2 are enforced to provide multi-level security. Such initiatives are important to maintain the confidentiality and integrity of information.

• Put in place a policy framework on security issues including:

• Data ownership, sharing and protection

• Broad data retention policy

• Basic security and privacy framework

• M2M data encryption policy

• M2M data accessibility for lawful interception

• Define security features (for instance, multiple independent levels of security; safety for embedded sensors)

Key recommendations

• Develop a policy framework to avoid issues pertaining to inter-network (including 2G-3G, GSM-CDMA), home network and inter-circle roaming; permitting of international roaming by default.

Key recommendations

Case study: Regulation of M2M services in Singapore

Over the years, the telecoms regulator of Singapore has focused on regulations for M2M services. Accordingly, there is more certainty on some M2M policy guidelines in Singapore as compared to other countries globally.

Positive regulatory regime to boost development of

M2M market

SIM card/roaming rules• Currently, there are no permanent roaming restrictions• License is needed for sale of foreign SIM cards

Spectrum allocation and management

Though separate spectrum has not been awarded for M2M; but the regulator has deliberated on use of white spaces since 2009. Trails have been launched in collaboration with private companies.

Numbering policy

The telecoms regulator encourages adoption of 13-digit M2M numbering address scheme; has proposed for a five-digit access code format for M2M.

Source: Infocomm Development Authority of Singapore; Ovum


Actions expected from the industry:

In addition to the government’s initiatives to support future uptake of M2M from a regulatory policy standpoint, industry participation is equally important to ensure mass and faster rollout of M2M-based services. For this, the industry should in parallel take up the following steps:

• Collate M2M status in India in terms of industry wise/telco wise number of M2M connections

• Collate M2M-related issues industry wise/segment wise

• Collate details of M2M support activities initiated by various government and industry bodies

• On the enterprise end, develop an M2M gateway solution, which can scale to millions of concurrent connections, process millions of messages per second and ensure secure access to the central services. This is essential to enable multiple connected devices communicate to the enterprise server, including many scenarios requiring real time communication.

• Establish a National M2M Forum

• Create awareness among SME to adopt production of M2M products and services

• Identify manufacturing hub or clusters dedicated to M2M

• Form an inter-ministerial task force for M2M proliferation

Case study: Brazilian Government’s regulatory support to drive uptake of M2M services

Brazil has significant demand for M2M services in security application and industry sectors. There were a total 9.9 million M2M connections by December 2014, with significant future growth potential.

Regulatory support to push uptake of M2M services:

Impact:

• With the regulatory changes, the number of M2M connections is expected to be 35 million in 2018, growing at a CAGR of 32% from 2012 to 2018.

• Telematics and fleet management sector in Brazil is expected to grow from BRL2.2b in 2014 to BRL4.2b in 2019, at a 14.5% CAGR. The sector is expected to account for 49% of total M2M revenue by 2019.

Regulatory support

Source: Analysys Mason, Pyramid Research, M2M World News, Teleco website, Factiva

Tax cutsReduced installation inspection fee — paid by operator for each active terminal as part of telecommunications fund from BRL26.7 to BRL5.6. Also, reduced operation inspection fee from BRL8.9 to BRL1.9, which is charged to carriers annually for each active telecommunications chip.

Mandatory installation in vehiclesBy 2015, all new vehicles produced for the domestic market must have M2M device to allow vehicle tracking and remote blocking services.

Dedicated band for M2MAllotted 70–80GHz band for M2M applications and IoT.

Smart meteringIn 2012, the Brazilian Electricity Regulatory Agency approved a resolution to give energy distributors 18 months to start offering smart meters to consumers, though installation is required only on customer request


Summary of recommendations

Challenges Recommendations Concerned MinistriesTaxes and levies • Taxes and levies should be rationalized to ensure the overall growth and financial viability

of the sector.

Ministry of Communications and Information Technology, Ministry of Finance, Ministry of Home Affairs

License fee • License fees should be reduced to nominal limits.

SUC • SUC should be revised and reduced to 1%, given that spectrum is allocated at market-determined prices.

Retrospective taxation

• Retrospective taxation issues need to be resolved, since they hurt investors’ confidence.

USOF • USOF needs to be eliminated or reduced to 1%–3%.

• Funds collected under USOF need to be utilized efficiently.

• Unilateral application of additional requirement of BHQ coverage needs to be revisited.

Revision of AGR definition

• AGR should only include revenues from services under license for respective service areas.

• A simple, non-ambiguous definition of AGR should be in place for the future.

Telecom financing • Telecom should be considered a critical infrastructure sector and its financing needs should be addressed accordingly.

• A Telecom Finance Corporation should be set up on the same principle as that of the Power Finance Corporation.

OTT services • There is a need for the Government to support a collaborative environment where all stakeholders will understand the impact of new services such as OTT services on traditional telecom networks, and how these services can benefit users.

Pricing of spectrum • Reasonable spectrum reserve prices should be set that take into account the broader benefits accruing to society and the country due to expanding mobile services at affordable rates.

Availability of spectrum

• A clear road-map of availability of spectrum should be provided in the future.

• All spectrum currently lying unutilized with various government agencies should be made available on priority in conformity with globally harmonized bands.

Backhaul spectrum • Additional spectrum in increased bands should be available for the backhaul network, with a light licensing approach and nominal charges.

Spectrum trading and sharing

• Spectrum trading and sharing should be allowed at the earliest to encourage its efficient use.

Contiguous spectrum bands

• Contiguous spectrum should be allocated for efficient provision of services.

Provide regulatory clarity

• Follow “no worse off principle” and exclude items presently sub-judice.

KYC norms • Customer acquisition form – move to electronic/paperless format as soon as possible with Aadhar integration.

Recommendations on Telecom services


Challenges Recommendations Concerned Ministries

Telecom towers

RoW and other impediments to telecom tower installation

• The DoT guidelines should be incorporated in the statutory framework and rules in line with the 53rd parliamentary committee report. State governments should be mandated to follow the guidelines through suitable legislation or direction.

• Adopt uniform RoW across all states at a uniform and reasonable cost.

• Adopt single window mechanism on priority basis for granting RoW permission.

• Levy only admissible charges for reinstatement or restoration; take up the matter with state governments on priority to align these with the DoT’s uniform tower installation guidelines across states.

• Consult concerned departments (e.g. urban development/IT), advise state representatives to follow DoT guidelines for formulation of respective tower installation policies.

• Seek a status update on the state tower policies from states.

• Provide fiscal incentives to players for laying optical fiber cables in smart cities.

• Ensure availability of sufficient access and microwave spectrum.

• Frame strong laws including compensation for cable cut or damages due to digging.

• Process on priority all pending SACFA applications.

Ministry of Communications and Information Technology, State ministries, Ministry of Finance, Ministry of PowerLack of extension

of infrastructure benefits

• Implement the benefits of “infrastructure” status to the industry by making funds available to it at softer lending rates, extending VGF facility and providing accelerated depreciation as well as tax holidays.

Targets for green telecom

• The Government should provide electricity connections to towers on priority and at the lowest tariffs wherever possible. Ministry of Power to be approached for “uninterrupted power consumer” status and a preferential uniform tariff to telecom tower installations in consultation with DoT.

• The Government’s communication on green telecom may be referred back to TRAI for a review. During the process, the DoT’s communication on its green telecom directive may be kept in abeyance.

• RET targets may be adjusted taking into account current status of RET deployment and learnings and significant technological changes in other energy solutions.

• The carbon emission measurement methodology should be aligned with international practices.

Recommendations on Telecom infrastructure


Fiber deployment through NOFN

RoW • Adopt a uniform process to obtain RoW at reasonable costs.

• RoW permission should be granted “on priority” within stipulated time frame along with accountability for clearances.

• Single window mechanism should be adopted for granting RoW permission.

• RoW rates and issuance procedures should be standardized — all state governments should extend the facility of RoW for laying underground telecom cables to all licensees without payment of any compensatory charges, levy, lease rentals, license fee, revenue share or cashless equity. Admissible charges should include only reinstatement charges or charges directly linked to the restoration work.

• In real estate, building and town planning, make it mandatory to place ducts or optical fiber, with well-defined access mechanisms, on all new road constructions along national highways, inter and intra city roads as well as buildings.

• All buildings and towers should be provisioned with vertical conduits for carrying out last mile building wiring for FTTH services.

• Mark area for underground cables away from roads to avoid disruption during expansion.

• Buildings should have properly demarcated sections both within buildings and on rooftops for broadband infrastructure; development authorities should give mandate to developers and builders.

• There should be a tower and a common transmission or equipment room in every village panchayat, funded by the panchayat running through USOF along with fiber.

• Trenching activities of USOF should be supported through Mahatma Gandhi National Rural Employment Guarantee Scheme.

Ministry of Communications and Information Technology, State Ministries

Lack of clarity on participation of service providers

• Provide details on participation of service providers in the NOFN plan. Also provide fiscal and regulatory incentives for them to become a part of the project.

Summary of recommendationsRecommendations on Telecom infrastructure


Parameter Recommendations Concerned Ministries

Taxes and duties

Rationalization of VAT rates

• Make VAT rates uniform for mobile handset and mobile accessories across states.

• Bring handsets under provisions of “Goods of Special Importance” under the Central Excise Tax Act, 1956; therefore, capping the maximum VAT that can be levied by states at 5%.

Ministry of Finance, Ministry of Commerce and Industry, Ministry of Home Affairs, Ministry of Communications and Information Technology

Retrospective amendments to laws

• Retrospective amendments to laws need to be discouraged, and all changes should be forward looking as a principal.

Removal of 1% National Calamity Contingent Duty (NCCD)

• Shift NCCD of 1% from mobile phones to other goods, to share levies equitably among industries.

Removal of fee for allocation of IMEI numbers

• Do away with imposition of a fee for allocation of IMEI numbers, since such as practice is not followed by other countries.

Local manufacturing

Tax holiday for new units entering manufacturing of handsets and tablets

• Ten-year tax holiday on a block of 15 years on all profits and gains from manufacturing or rendering of services in or in relation to the mobile phone industry.

Ministry of Finance, Ministry of Finance of all state governments across India, Ministry of Commerce and Industry, Ministry of Communications and Information Technology

Interest subsidy on fixed capital investment

• Minimum interest subsidy of 5% on all fixed capital investments for the entire ESDM sector on the lines of benefits given under TUFS.

Deemed export benefit for locally manufactured handsets

• Domestically manufactured ITA 1 products should be treated as “deemed exports” in terms of the provisions of the FTP 2015–2020 to incentivize local manufacturing.

Benefits under the Focus Product Scheme (FPS)

• The Government should consider extending the 5% FPS benefit accorded to push button mobile phones, to touch phones, smartphones and tablets as well.

• There is a need to increase FPS benefits for handset parts and accessories (memory/external memory, camera, battery, charger etc.) from 2% to 5%.

Reformulation of the Export Incentive Policy

• Incentive available to exports should also be extended to SEZs, EOUs and EHDPs.

Income Tax exemption on mobile phone exports/sales to DTA

• EHTP/SEZ schemes should have a special chapter for ITA goods with the following benefits:

• Income tax holiday on export from SEZ should continue as envisaged in the SEZ Act 2005 and subsequent amendments, which detract from the tax holiday, need to be done away with.

• The same regime needs to be put in place for EHTP scheme and export from DTA.

Promotion of ESDM manufacturing at the state level

• State governments should come up with daughter policies on ESDM manufacturing in sync with National Policy on Electronics 2012.

Recommendations on Handheld devices and handsets


Grey market

Grey market • Inclusion of mobile handsets, mobile adaptors and mobile phone batteries in the list of products under DeitY’s compulsory registration scheme for electronic products. Currently, 15 items including mobile tablets are a part of this list.

• Stringent implementation of rules relating to reduction in the use of hazardous substances in manufactured/ imported electrical and electronic equipment. Rules relating to RoHS were enacted in 2012, and came into effect from 1 May 2014.

• Protecting customer interests by assuring quality through establishment of Bureau of Indian Standards (BIS) standards for mobile phones sold in the country.

• A Bureau of Energy Efficiency (BEE) rating for mobile device chargers needs to be adopted. This will not only help consumers identify energy-efficient chargers but also help conserve energy in the long run.

Ministry of Communications and Information Technology, Ministry of Commerce and Industry, Ministry of Power

IPv6

IPv6 compliance • Standards and labs for testing and compliance of IPv6 need to be established. Ministry of Communications and Information Technology

Summary of recommendationsRecommendations on Handheld devices and handsets


Parameter Recommendations Concerned Ministries

Internet governance

Multi-stakeholder approach

• The MAG under the chairmanship of Secretary, DeitY, should ensure a democratic, pluralistic and citizen oriented dialogue on issues of internet governance, by engaging multi-stakeholder groups in their respective roles, as defined under the Tunis Agenda.

• The MAG be encouraged to organize India IGF by inviting wide participation from various stakeholders, with a focus on important issues such as access, critical internet resources, security, openness, and net neutrality, etc.

Ministry of Communications and Information Technology, Ministry of Information and Broadcasting, Ministry of Home Affairs, Ministry of Human Resource Development

Surveillance • Governments should adopt a principles-based approach to surveillance, so that trust among internet community is not lost.

• Guidelines and mandates need to be established to undertake any surveillance activity and it should be preferably carried out under the watchful eye of an independent judicial authority.

Intermediary laws • A right balance between privacy and security is critical for the safe future and growth of internet. A distinction must be made between internet governance issues and cyber-crime related challenges, which are equally significant part of the overall cyber security regime. Information Technology (Intermediaries guidelines) Rules need re-evaluation to be relevant in current times.

• Laws imposing intermediary liability in relation to third party content should be in line with global best practices.

• The law must allow for expression of free speech within constitutionally permissible limits, while ensuring intermediaries do not face undue censorship.

Critical internet infrastructure

• Government needs to incentivize the private sector to provide last mile connectivity in rural areas.

Multilingual content • There is a need to incentivize the creation and dissemination of multilingual content, including software and mobile applications.

India’s voice at global internet forums

Participation and representation

• India’s participation at these international forums needs to be enhanced to enable the country’s inputs and viewpoints to be factored into global discussions, and harmonize it in line with international developments.

• Internal consultation with all concerned stakeholders should be carried out before projecting a national view point at international forums.

• Adequate channels and funding mechanisms need to be developed to encourage participation at these forums.

Ministry of Communications and Information Technology, Ministry of Information & Broadcasting, Ministry of Home Affairs

Recommendations on Governance of internet and communications


Cyber security

Collaborative efforts

National oversight body

• There is a need for an overarching multi-stakeholder oversight body, which deals with all matters relating to cyber security and amalgamates the work done by different agencies.

• There is a need to establish a formal process of bringing together all agencies to discuss and deliberate matters relating to cyber security and formulate a consensual way forward.


• There is a need for increased coordination among all CERTs including sharing of global threat perceptions, knowledge, and best practices

• Run initiatives aimed at increasing cyber security awareness among the customers

Other measures


• Need for increased coordination among all CERTs including sharing of global threat perceptions, knowledge, and best practices.

• Run initiatives aimed at increasing cyber security awareness among the customers.

Ministry of Communications and Information Technology, Ministry of Information and Broadcasting, Ministry of Home Affairs, Ministry of Defence, Ministry of Finance, Ministry of Human Resource Development, Ministry of Defence

Funding mechanism • Dedicated allocation should be made towards cyber security in the Union Budget.

• There is need for an improved understanding of competencies of service providers, as they are neither technically nor financially equipped for end-to-end management of cyber security-related issues.

• Penalties and levies imposed on service providers should be reevaluated in case of security breaches.

Capacity building • Investment in capacity building and R&D

• Consider alternatives such as PPP to set up testing and standards setting facilities

• Undertake initiatives aimed at increasing cyber security awareness among the customers

Global best practices

• India needs to adapt global best practices on detection and management of threats.

• There is need for enhanced cooperation with global peers on matters relating to cyber security, and sharing of information on threats and ways to manage them.

Equipment testing standards

• Decouple security from domestic manufacturing

• Indian testing and inspection regime should conform to established global standards, such as the Common Criteria and 3GPP

• Enhance cooperation with companies through a Telecom Security Council of India and with other governments

• Provide detailed guidance on the specifics of policy on equipment security as soon as possible

• Lay down clear rules relating to security standards to help reduce uncertainty for equipment providers, and service providers

Summary of recommendationsRecommendations on Governance of internet and communications


Challenge Recommendation Concerned Ministries

Cloud services

Data center location • It is suggested that the Government could frame policies to expand the scope of a narrowly tailored view of mission-critical government data or national security-related data that is recommended for storage within Indian boundaries.

• The default position should be that cloud computing services utilize data centers either in India or outside India. The Government could contemplate formulating a single nation-wide policy avoiding regional/state-wise difference in regulations.

Ministry of Communications and Information Technology, Ministry of Home Affairs

Security • Government policy should adopt strengthened encryption standards rather than continue with 40-bit encryption.

• The Government should identify best practices such as ISO 27001 and SAS 70 for the audit process of a cloud-based service provider to provide assurance to its customers.

Privacy • Bring cloud-based service providers under the purview of the Information Technology Act of 2000.

• The Government needs to spread awareness among consumers, especially its own departments, by educating them on data privacy legislations that apply to cloud-based service providers.

Light touch regulations

• As part of the light-touch philosophy in the competitive cloud services market, all service providers should be treated at a level playing field for equivalent services. This will facilitate the provisioning and in turn boost the uptake of cloud based services.

Interoperability • The Government may work in collaboration with the MCIT and the industry to promote open standards-based cloud infrastructure and documented interfaces. These standards are expected to help increase software and data interoperability.

Reliability • The Government may work with the industry to set benchmark standards for SLAs, defining minimum commitment levels for critical service parameters such as uptime, response times and bandwidth. Furthermore, it should also consider its role as a facilitator and not stifle business model innovation by imposing rigid SLA requirements.

Cross-border flow of data

• The Government should try to ensure that the necessary legal regulation of the country in which data originates is applicable to data controllers and data processors. There is a need to encourage accountability rules governing data flow and ensuring that consumers do not lose protection when their data is stored or processed in any remote computing environment outside the country.

Credibility • The Government should have a registration mechanism through a single window to approve cloud providers in the market. For this, the Government should collaborate with the industry to define minimum technical standards required to set up a cloud infrastructure.

Recommendations on Cloud and M2M


Machine-to-machine (M2M)

Standardization and interoperability

• Coordination between government, industry and related global standards bodies to establish protocols for standardization, interoperability and performance, which are in line with global practices.

• National M2M standards should cover architecture, gateway, communication protocol/standards, vertical specific requirements and interoperability guidelines. White goods should be an additional category in standards formulation.

Ministry of Communications and Information Technology, Ministry of Home Affairs

Numbering scheme While framing its policy for numbering scheme for M2M services, the Government should consider the following:

• Formulate an M2M policy enabling the use of global numbering resources. In this respect, global use of IMSIs and E.164 numbers should be facilitated.

• Supporting more than one naming scheme.

• Adoption of ITU E.212 recommendation.

• MSISDN less subscription/dummy MSISDN-based subscription.

Mandatory IP/IPv6 in transport network

• Have IPv4/IPv6 mandatory in transport network.

SIM related issues and KYC requirements

• Adopt a very light touch regulatory approach for M2M SIMs.

• No new KYC requirements are needed for M2M services; norms, which limit SIM transfers, necessitate tele-verification of the user and require the maintenance of a list of user identities should be discouraged.

Roaming aspects • Develop a policy framework to avoid issues pertaining to inter-network (including 2G-3G, GSM-CDMA), home network and inter-circle roaming; permitting of international roaming by default.

Privacy and security Put in place a policy framework on security issues including:

• Data ownership, sharing and protection.

• Broad data retention policy.

• Basic security and privacy framework.

• M2M data encryption policy.

• M2M data accessibility for lawful interception.

• Define security features (for instance, multiple independent levels of security; safety for embedded sensors).

Summary of recommendationsRecommendations on Cloud and M2M


Glossary

ACTO Association of Competitive Telecom Operators

ADC Additional Duty of Customs

AGR Adjusted Gross Revenue

APAC Asia Pacific

APT Asia Pacific Telecommunity

ARPU Average Revenue Per User

AUSPI Association of Unified Telecom Service Providers of India

BBNL Bharat Broadband Network Limited

BCD Basic Custom Duty

BEE Bureau of Energy Efficiency

BIS Bureau of Indian Standards

BSC Base Station Controller

BTS Base Transceiver Stations

BWA Broadband Wireless Access

BYOD Bring Your Own Device

CaaS Communication-as-a-Service

CAGR Compound annual growth rate

ccTLDs Country code top level domains

CDMA Code Division Multiple Access

C-DOT Centre for Development of Telematics

CERT Computer Emergency Response Team

CISO Chief Information Security Officer

CMS Centralized Monitoring System

COAI Cellular Operators Association of India

COE Centre of Excellence

CRM Customer relationship management

CST Central Sales Tax

CSTD Commission on Science & Technology Development

DeitY Department of Electronics and Information Technology

DoT Department of Telecommunications

DNS Doman name system

DTA Domestic tariff area

ECB External commercial borrowing

EHTP Electronic Hardware Technology Park

EOU Export oriented units

ERM Enterprise Resource Management

ESDM Electronic System Design and Manufacturing

FDI Foreign direct investment

FICCI Federation of Indian Chambers of Commerce and Industry

FICCI CASCADE

FICCI Committee Against Smuggling and Counterfeiting Activities

FOB Free on board

FPS Focus Product Scheme

FTP Foreign Trade Policy

FTTX Fibre to the x

FY Financial Year

G-cloud Government-cloud

GPs Gram Panchayats

GSMA GSM Association

GST Goods and Services Tax

gTLDs Generic top level domains

IaaS Infrastructure-as-a-Service

IANA Internet Assigned Numbers Authority

ICA Indian Cellular Association

ICANN Internet Corporation for Assigned Names and Numbers

ICT Information and Communications Technology

IETF Internet Engineering Task Force

IGF Internet Governance Forum

IIGC India Internet Governance Conference

ILD International long distance

IMEI International Mobile Station Equipment Identity

IMSI International Mobile Subscriber Identity

IoT Internet of things

IP-1 Infrastructure Provider-I

IPR Intellectual Property Rights

IPv4 Internet Protocol version 4

IPv6 Internet Protocol version 6

IRTF Internet Research Task Force

ISP Internet Service Provider


IT Information Technology

ITA Information Technology Agreement

ITAA Information Technology (Amendment Act)

ITeS IT-enabled Services

ITU International Telecommunication Union

KYC Know Your Customer

LTE Long Term Evolution

M2M Machine-to-machine

MAG Multi►stakeholder Advisory Group

MAT Minimum Alternate Tax

MHA Ministry of Home Affairs

MNRE Ministry of New and Renewable Energy

MoU Minutes of usage

MQTT Message Queuing Telemetry Transport

MSAI Mobile Standards Alliance of India

MSC Mobile Switching Center

MSISDN Mobile Subscriber Integrated Services Digital Network

MSTF M2M Standardization Task Force

NaaS Network-as-a-Service

NBP National Broadband Plan

NCCC National Cyber Coordination Centre

NCCD National Calamity Contingent Duty

NCCIC National Cybersecurity & Communications Integration Center

NCEF National Clean Energy Fund

NCIIPC National Critical Information Infrastructure Protection Centre

NCSP National Cyber Security Policy

NLD National long distance

NOFN National Optical Fibre Network

NTP National Telecom Policy

NTRO National Technical Research Organisation

OASIS Organization for the Advancement of Structured Information Standards

ODMs Original design manufacturers

OFDMA Orthogonal Frequency Division Multiple Access

PaaS Platform-as-a-Service

PKI Public Key Infrastructure

PPP Public Private Partnership

PSU Public Sector Undertakings

R&D Research and development

RBI Reserve Bank of India

RESCO Renewable energy service company

RET Renewable energy technologies

RF Radio frequency

RIRs Regional Internet Registries

RoHS Restriction of hazardous substances

RoW Right of way

SaaS Software-as-a-Service

SACFA Standing Advisory Committee on Radio Frequency Allocation

SAR Specific Absorption Rate

SEZ Special Economic Zones

SI System integrator

SII Statute for Industrial Innovation

SIM Subscriber Identity Module

SLAs Service level agreements

SMS Short Messaging Service

SUC Spectrum usage charge

TAIPA Towers and Infrastructure Providers Association

TDB Technology Development Board

TDMA Time Division Multiple Access

TDSAT Telecommunications Dispute Settlement and Appellate Tribunal

TEC Telecommunication Engineering Center

TEMA Telecom Equipment Manufacturers Association

TERM Telecom Enforcement, Resource and Monitoring

TRAI Telecom Regulatory Authority of India

TTSC Testing and Security Certification Centre

USFs Universal Service Funds

USOF Universal Service Obligation Fund

VAT Value Added Tax

VGF Viability Gap Funding

Glossary


WCO World Customs Organization

WGEC Working Group on Enhanced Cooperation

WGIG Working Group on Internet Governance

WHO World Health Organization

WPC Wireless Planning and Coordination Wing

WSIS World Summit on the Information Society

2G Second Generation

3G Third Generation

4G Fourth Generation

Subscribers refers to the number of connections

Glossary


About Federation of Indian Chambers of Commerce and Industry (FICCI)

Industry’s Voice for Policy Change

Established in 1927, FICCI is the largest and oldest apex business organization in India. Its history is closely interwoven with India’s struggle for independence and its subsequent emergence as one of the most rapidly growing economies globally. FICCI plays a leading role in policy debates that are at the forefront of social, economic and political change. FICCI’s stand on policy issues is sought out by think tanks, governments and academia. Its publications are widely read for their in-depth research and policy prescriptions.

A non-government, not-for-profit organization, FICCI is the voice of India’s business and industry. FICCI has direct membership from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of more than 250,000 companies from regional chambers of commerce.

FICCI works closely with the government on policy issues, enhancing efficiency and competitiveness and expanding business opportunities for industry through a range of specialized services and global linkages. It also provides a platform for sector-specific consensus building and networking. Partnerships with countries across the world carry forward our initiatives in inclusive development, which encompass health, education, livelihood, governance, skill development, etc. FICCI serves as the first port of call for the Indian industry and the international business community.


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