Speaking Notes for Research Symposium,

“Political Economy Constraints in Regulatory Regimes in Developing Countries”,

22-24th March 2007

The Political Economy of Telecom Regulation in India

I. Introduction

Infrastructure services, unlike many other commodities cannot be effectively traded in

markets. There are several characteristics that make it unlikely that socially optimal and
economically efficient prices and quantities will be delivered through the market.
Investments are large and lumpy, implying significant scale economies in operations.
Further, because of different classes of users, issues relating to cross subsidy of one
category of users by another need to be addressed.

Until the middle nineties, telecommunication services in India were provided by an

incumbent monopoly, the Department of Telecommunications (DoT), which was seen as
the best method of overcoming the market failure resulting from the characteristics of
telecommunications. Recently as technological and economic change made the
reintroduction of competition seem consistent with the goals of collective welfare, new
forms of institutional design and regulatory policy have evolved across the world and
were sought to be established in India through the introduction of competition in the
telecommunications sector.

Paul Joskow’s list of regulatory goals for infrastructure, though it speaks of a

“monopoly”, addresses in more strictly economic terms the objectives underlying
infrastructure regulation in any market structure.1

• Making sure that the monopoly charges consumers reasonable prices for services
• Inducing the monopoly to provide services efficiently
• Using the level and structure of prices to induce consumers to make efficient use
of services offered
• Providing additional incentives to attract additional capital to the sector
• Achieving income distribution goals through the level and structure of prices.

In most jurisdictions, the frame of activity of the regulator is set out by the legislature
through statute, the executive sets and communicates telecommunications policy, while
the regulator uses its powers to implement the policy on a day-to day basis. The concept
of an independent regulatory agency operating with transparent procedures, obligated to
make decisions based on a logical evaluation of the facts in light of its statutory
responsibilities and subject to judicial review, may not be easy to create. As Paul Joskow
1
Paul L. Joskow Regulatory Priorities for Reforming Infrastructure Sectors in Developing Countries
April 1998 Paper prepared for the Annual World Bank Conference on Development Economics
Washington, D.C., April 20–21, 1998.

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states, “Regulatory institutions necessarily take time to create and mature, and their
independence and credibility are established on the basis of both their legal foundations
and their actual behavior when faced with difficult decisions that involve substantial
interest group controversy”2. William Melody describes independence not as
independence from government policy, but rather as independence to implement policy
without undue interference from politicians or industry lobbyists.

Regulatory governance has emerged as an area of concern across the world. As

regulation becomes essential, establishment of independent regulatory institutions
becomes important. The International Telecommunications Union (ITU) reports that
there are now over 84 independent regulatory agencies in the world, whereas earlier there
were only 10.

Litigation has been widespread since the formation of the Telecom Regulatory Authority
of India (TRAI), although it started even before TRAI began functioning. Litigation
continues to be an endemic part of sector development. In this presentation, a few major
cases are explored that have been symptomatic of the disputes between stakeholders in
the sector and which have delayed the transformation of India’s telecom infrastructure to
world class levels.

II. The National Telecom Policy (NTP) 1994

Telecommunications was not perceived as one of the key infrastructure sectors for rapid
economic development during the formative years of the Indian economy. The relatively
low levels of investment in the sector affected the quality, quantity and range of services
provided. In 1998, telephone density was 2.2 while the world average was 14.263. The
situation today is vastly different. Telecom infrastructure is considered to be one of the
crucial requirements for Information Technology enabled services (ITES) like Business
Process Outsourcing (BPO).

The change in attitude toward telecommunications was first set out in the National
Telecom Policy (NTP) document in 1994. NTP 1994 stated that in order to realize the
goals of India’s new economic policy (1991), it was necessary to have a world class
telecommunications infrastructure. ‘It is [therefore] necessary to give the highest priority
to the development of telecommunications service in the country.4 NTP 1994 thus
focused on telecommunications for all and telecommunications within reach of all;
universal service covering all villages as early as possible at affordable and reasonable
prices; quality of telecom services to be of world standard; India to emerge as a major
manufacturing base and major exporter of telecom equipment defence and security
interests to be protected. NTP 1994 also envisaged setting up of an autonomous regulator,
TRAI.

2
Ibid
3
World Telecommunication Development Report, ITU, 1999
4
NTP 1994, Ministry of Communications, Government of India, New Delhi see www.dotindia.com

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Although the policy specified the creation of a regulator, the latter was not setup until
1997. Meanwhile, implementation of the 1994 policy was carried out by the Department
of Telecommunications (DoT). In August and September 1995, the first eight mobile
licenses began commercial operations in Delhi, Bombay, Calcutta and Madras. The basic
service licenses were not as keen to sign license agreements as their mobile counterparts,
because they would be in direct competition with DoT, who was also responsible for
implementing policy. By early 1996, DoT had issued letters of intent to a few of basic
service licenses.

The regime devised by DoT to implement policy was naturally skewed in its favour,
especially as it related to it service provision functions. Thus, all interstate traffic was to
be handed over to DoT in its capacity as the monopoly long distance carrier and
interconnection charges were to be borne totally by the new entrants. Further, DoT did
not have to pay any license fee.

The genesis of the Telecom Regulatory Authority of India (TRAI) lies in the bidding
process for the grant of basic services licenses and the litigation that followed the grant of
the first set of cellular licenses under NTP 1994.

New entrants challenged the government and DoT and questioned the process of
awarding basic service licenses. This gave rise to a legal struggle in Delhi Science Forum
and others vs. Union of India.5 The central feature of this case was that Himachal
Futuristic Communications Limited (HFCL) offered the highest bid for 9 basic circles.
Subsequently, DoT, capped the number of circles a single company could operate in to
three, leading to the litigation.

The litigation delayed entry of competition in the sector and the Supreme Court agreed
that there had been delay on part of the government to establish an independent
regulatory agency. Between the time of the filing of writ petitions, and the date of
delivery of the judgment, the Telecom Regulatory Authority of India Ordinance, 1996
had been promulgated. The Supreme Court analyzed the said Ordinance and held that:

“The existence of the Telecom Regulatory Authority with the appropriate powers is
essential for the introduction of plurality in the telecom sector. The National Telecom
Policy is a historic departure from the practice followed in the past century. Since the
private sector will have to contribute more to the development of the telecom network
than DoT / MTNL in the next few years, the role of an independent telecom regulatory
authority with appropriate powers need not be impressed.6

The creation of the new regulatory agency was a significant event in the need to establish
an institutional framework capable of achieving the objectives of NTP 1994. With the
creation of TRAI, DoT surrendered its regulatory role, although it retained policy
making, licensing and operations within the same organizational boundaries.

5
Sec Delhi Science Forum and others vs. Union of India and another (1996) Supreme Court of India
Company Law Journal 47:2 (April-June 1996)
6
Delhi Science Forum vs. Union of India, op cit

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III. The Initial Years of Telecom Regulatory Authority of India

The Telecom Regulatory Authority of India Act 1997 established the Telecom
Regulatory Authority of India (TRAI) in January 1997, with a view to provide an
effective regulatory framework and adequate safeguards to ensure fair competition and
protection of consumer interests. To achieve the objectives of the TRAI Act, TRAI was
given power to issue directions to service providers, make regulations, notify tariffs by
Order, and adjudicate disputes arising between Government (in its role as service
provider) and any other service provider. More details are provided in Annex 1.

The passing of the TRAI Act had been long delayed in the legislative process. It is quite
possible that DoT did not want a regulator with teeth. Regulation of the industry would
imply in practice focus on the incumbent and even ‘reform’ of the incumbent provider in
terms of its operations especially towards the new entrants. TRAI was soon plunged into
adjudicating between DoT and cellular mobile circle licensees. It began with DoT hiking
PSTN to mobile tariffs in circles upto Rs. 10.00 per minute, making it 24 times more
expensive than PSTN to PSTN calls.

TRAI determined that DoT did not have the right to charge a huge premium to its
customers for PSTN to Mobile calls. The tender documents floated by DoT (and on the
basis of which it had received the bids) specified that the tariff for the service provided by
the licensee ‘shall be subject to the regulation by Telecom Regulatory Authority of India,
as when such an authority is set up by the Government of India’. Further, with respect to
the contention of the petitioners regarding connectivity TRAI held that “subject to the
technical integrity of the network and technical feasibility, operators should not be denied
points of interconnect and multiple GMSCs as they require for their optimal and efficient
operation of their networks”.7

In another case regarding non payment of license fee by private licensees who accused
DoT of delaying clearances prior to commercial launch, TRAI stated

“TRAI Act has been promulgated in the context of national objectives of

acceleration of rural and urban telephone penetration; attraction of private capital-
national and international-to upgrade telecom infrastructure and economic growth
enabled by a developed communications infrastructure. Investors in order to have
confidence to invest in the sector require an assurance that the DoT does not combine in
itself the dual role of the regulator and the monopoly operator, that an independent
authority plays a watchdog role of regulator under internationally accepted regulatory
practices. The distinction sought to be made by the respondents [DoT]in regard to their
role as licensors for receiving license fee divorced from their obligations as incumbent
monopoly network operators for providing interconnection etc is totally unsustainable in
the circumstances. This stance would also in part defeat the legislative intent of the

7
Aircel Digilink and others vs. Union of India and others TRAI Petition 1, 1997

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setting up of this authority namely speedy settlement of disputes between DoT and the
service providers”.8

In another case regarding issue of a cellular license to MTNL in September 1997, without
any recommendation from it, TRAI remarked:

“In a multi operator environment, an independent evaluation of the economic needs for a
new service provider is a condition precedent for on the one hand maintaining investors’
confidence and on the other achieving public policy objectives. This is particularly so at
this point in India when the Government in the DoT combines itself the roles of a licensor
policy maker and service provider”9

These disputes between TRAI and the Central Government related to whether in exercise
of its powers to regulate ‘service providers’, TRAI could regulate the functioning of the
government as a licensor and whether it was mandatory for the government to seek its
recommendations with regard to matters covered in the Act. The case was the Union of
India v Telecom Regulatory Authority of India in the High Court of Delhi and was
decided in July 1998. In this case, it was clearly held that the question of grant or
amendment of a license by the Central Government acting in its capacity as the licensor
falls outside the jurisdiction of the powers of the TRAI. The folly of this judgement lay
in the fact that issues which were subject to frequent change and review, for example
tariffs, were also a part of the license conditions and by implication beyond the
jurisdiction of the newly established regulator. That the terms and conditions of the
license are inviolate and not subject to ‘review’ by TRAI could not have been the intent
of the legislature if it was serious about lifting the quality of telecommunications in the
country to world class levels.

IV. The Telecommunications Tariff Order 1999

Although the High Court judgment held that TRAI had no power over licensor-licensee
disputes, TRAI’s powers of specifying the tariff regime remained intact. After going
through a comprehensive consultation procedure covering service providers, consumers,
policy makers and parliamentarians, TRAI issued its Telecommunication Tariff Order
(TTO) on March 9, 1999. The Order was a landmark for infrastructure regulatory
agencies in India in terms of attempting to rebalance tariffs to reflect costs more closely
and to usher in an era of competitive service provision. The chief features of the tariff
order were substantial reductions in long distance and international call charges, increase
in rentals and local charges and steep reductions (an average of about 70 per cent) in the
charge for leased circuits.

In the Explanatory Memorandum to TTO 1999, TRAI had stated implementation of

calling party Pays (CPP) would follow later due to technical considerations involved in
upgrading the incumbent’s network to allow for new billing systems. After consultation,
TRAI announced its final decision on CPP including the crucial aspect of the regime that

8
Fascel Ltd. And others vs. Union of India and others
9
Bharti Cellular and others vs. Union of India and another

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raised the price of PSTN to Mobile calls and specified a revenue share of about 2:1 for
mobile : PSTN. The target date for implementation of this regime was November 1,
1999. DoT and MTNL had both made submissions to TRAI that the regime would result
in revenue losses and sought change in the ratio that according to them favoured mobile
subscribers at the expense of PSTN subscribers.

A consumer organization Telecom Watchdog filed a public interest litigation against CPP
in the High Court of Delhi claiming regulatory capture of TRAI by private cellular
operators. MTNL argued that the license agreement made no mention of any termination
charges payable by PSTN operators to mobile operators and in the light of the earlier
High Court judgment of 1998 maintained that TRAI had no power to modify the license
agreement even under the garb of tariff fixation. In January 2000, the High Court struck
down the introduction of the CPP regime as specified by TRAI on the grounds that TRAI
did not have the power to revise license conditions nor to set revenue sharing terms. One
implication of this judgement was that TRAI’s powers did not extend to fixing the terms
and conditions of interconnection, but were merely limited to monitoring the terms
already defined in the licenses. At best, TRAI could monitor a revenue share
arrangement mutually agreed by both parties.

V. TRAI (Amendment) Act 2000

Successive court decisions had watered down TRAI of many powers critical to
independent regulation for a viable and competitive telecommunications sector. Thus,
the court decisions established:

1) that the government was not required to seek a recommendation from the
TRAI before issuing additional telecom licenses
2) that the TRAI did not have the power to adjudicate disputes between the
licensor and licensee
3) that TRAI did not have the power to alter provisions in the license agreements
4) that the TRAI could not make regulations on revenue sharing, without these
being negotiated between service providers.

On 24th January 2000, an Ordinance amended the TRAI Act 1997 and altered a number
of aspects. For example, the adjudicatory role of the TRAI has been separated and has
been provided to a Telecom Dispute Settlement and Appellate Tribunal (TDSAT)10. This
Tribunal has been provided the powers to adjudicate any dispute

(i) between a licensor and a licensee;

(ii) between two or more service providers; and
(iii) between a service provider and a group of consumers

TDSAT has been given additional powers compared to the powers that had been given to

10
In its present form, the CCI Bill also envisages the dispute settlement function to be performed by the
Communications Dispute Settlement Appellate Tribunal (CAT)

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the erstwhile TRAI. For example, it can settle disputes between licensor and licensee.
Further, the decisions of the Tribunal may be challenged only in the Supreme Court.

The remaining functions of TRAI have been better defined and increased, for instance
with respect to powers relating specifically to interconnection conditions. TRAI now has
the power to ‘fix the terms and conditions of inter-connectivity between the service
providers’ (TRAI (Amendment) Act 2000), instead of ‘regulating arrangements between
service providers of sharing revenue from interconnection’ (TRAI ACT 1997).

The new legislation signalled an attempt to re-establish a credible regulator. The

government would be required to seek a recommendation from TRAI when issuing new
licenses. The adjudication of licensor-licensee disputes would be undertaken by an
independent tribunal specialised in telecom. In terms of interconnection arrangements,
TRAI was given the powers to override the provisions of license agreements signed with
DoT. However, while there has been an increase in the powers of the Authority (other
than dispute settlement), the Act has led to a weakening of the guarantee that was
provided in the previous Act with respect to the five year working period for the TRAI
Chairman and Members. This statutory guarantee was done away with, and the revised
Act provides for less stringent conditions for removal of any Authority Member or
Chairman. The term of the Authority was reduced from five to three years.11

VI. WLL(M) and Limited Mobility

The new TRAI would grapple with a new competition issue almost as soon as it was
created. In February 1999, TRAI had protested the government’s intentions in to permit
MTNL and DoT into mobile without a TRAI recommendation. In June 1999, MTNL
announced a “limited mobility” service in Delhi based on Wireless in Local Loop (WLL)
technology, with tariffs identical to basic services rates, a flat Rs.1.2 for the first three
minutes of calling time. TRAI intervened asking MTNL for the basis for a ‘limited
mobility’ service. MTNL claimed that they already had a licence for the WLL service,
and that the limited mobility offering was merely an attempt to put the technology at the
disposal of those who might want “a poor man’s phone offering value for money”
targeted at the “very low end of the cellular subscribers”.

In September, when it became clear that if the MTNL licence permitted it to offer mobile
services, the same would necessarily be true of the licences of the private basic services
licensees, the DoT amended the MTNL licence to cover mobile explicitly. The new
provision made MTNL’s mobile licence “technology neutral”. The fixed line players
brought to the attention of Government of India as well as TRAI the fact that CDMA
technologies being used by fixed line players can also be used to provide mobility. They
demanded to be allowed to offer mobility services as a part of their fixed line licence.
In October 2000, DoT advised TRAI of the cost advantages of hand held instruments
over fixed wireless instruments (Rs. 6,000 against Rs. 15,000) and sought TRAIs
recommendation with respect to:
11
In a letter to the Minister, the TRAI Chairman has sought extension of the tenure of the Authority from
three to five years as is the case with other regulators, The Hindu August 15, 2006.

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“scope of Area of hand held subscriber terminals under Wireless Access System
operations, the basis for assigning WLL frequency and the amount of entry fee and
spectrum charges as a percentage of revenue to be charged from the Basic Service
Operator for extending the above facility in respect of existing as well as future Basic
Service Licensees, so as to ensure a level playing field with the Cellular Operators.12”

In the run up to January 2001 when TRAI made recommendations to the government on
Wireless in Local Loop with Limited Mobility (WLL(M)) as part of the Basic Service
license, extensive consultations were held with all stakeholders, including with the
Parliamentary Standing Committee on Communications. Cellular operators were opposed
to WLL(M) mainly on two grounds. Firstly they argued that WLL(M) was a ‘backdoor
entry’ for basic service in the mobile market and secondly, permission to offer mobility
under the basic service license would violate the terms of the mobile license. Amidst the
widespread controversy that this episode generated, TRAI provided its recommendations
to DoT that mobility be permitted for basic service, but it be restricted to the Short
Distance Charging Area (SDCA). The rationale was to allow operators to use new
technology to increase penetration in a cost effective manner. Mobility was viewed as an
additional or value addition to the Basic Service in order to increase the attractiveness of
the service to customers. While allowing limited mobility under the Basic Service license
the government granted concessions to CMSPs in order to provide for a level playing
field between the licenses (See Annex II for concessions).

Cellular Mobile Service Providers (CMSPs) challenged the decision dated 25.1.2001 of
DoT allowing Fixed Service Providers (FSPs) [also referred to Basic Service Providers
(BSP) or Basic Service Operators (BSO)] to provide mobility to its subscribers with
Wireless Access Systems limited within local area i.e. SDCA in which subscriber is
registered. Challenge to the decision was on various grounds, particularly, that the
decision was against the National Telecom Policy, 1999 (NTP-99), tender documents and
licence agreements of both the service providers. CMSPs contention was that allowing
FSPs with limited mobility would encroach the field exclusively occupied by them.

TDSAT dismissed the petition particularly on the ground that granting limited mobility in
WLL [WLL (M)] was a matter of policy of the Central Government which they could not
review. On appeal filed by the CMSPs in the Supreme Court the order of the Tribunal
was set aside and the matter remanded to the Tribunal. In a 2:1 judgement, TDSAT once
again dismissed the petition of CMSPs. Although the matter was once again taken to the
Supreme Court, it died a natural death with the introduction of the unified access license,
which is discussed below.

The dissenting voice in the 2:1 divided opinion given by TDSAT was that of the
Chairperson. He was extremely critical of the role of the government and especially the
TRAI in supporting the introduction of the hybrid limited mobility service. This was the
beginning of many bruising collisions between TRAI and TDSAT between 2003 and

12
www.trai.gov.in

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2005 which were strategically used by stakeholders to delay reform. This is further
discussed in Section VII.

Meanwhile, operationally implementation of the restriction of mobility became awkward

and difficult for TRAI as operators used ingenious ways of offering full mobility to
customers while seemingly remaining within the letter of the new license conditions.
TRAI has admitted that

“….artificial restrictions [would] encourage service providers to find loopholes in

licensing regime and they will use technology or loopholes in networks/regulation to by-
pass such restrictions. One such recent case is the mobility under WLL(M) where the
limited mobility within SDCA, granted to the operator has been converted into almost an
All-India roaming by the operator registering the subscribers almost all over the country
by using call-forwarding and multiple registration. Such aberrations lead to disputes and
litigation which hamper the growth of telecommunication sector. Ultimately no one
gains, since the ability of the technology should not have been restricted in the first place
by means of a technology neutral license”13

In the litigation intensive scenario, and one which was threatening to undermine the
framework of regulation, TRAI recognized the need to settle the mobility issue across
different license types by proposing a unified license regime for basic and cellular
operators. This regime covers both the access services and it is proposed that the scope
of the license be enlarged to include all services at a later stage. TRAI maintains that
the shift to a unified licensing regime is not at discord with NTP 1999 because CMSPs at
the time of migration to revenue share regime had accepted a multipoly regime.
According to TRAI the restriction on the number of CMSPs by licensor due to limitations
of availability of spectrum at a particular time should not be claimed as a contractual
right. NTP 1999 stated,

“The Licensee shall forego the right of operating in the regime of limited number of
operators after 01.08.1999 and shall operate in a multipoly regime, that is to say that the
Licensor may issue additional licenses for the Service without any limit in the Service
Area where the Licensee Company is providing Cellular Mobile Telephone Service.”14

The unification of access licences successfully ended crippling litigation in the sector.

VII. A Question of Legitimacy

While the level playing field issue relating to WLL (M) may have got settled after
protracted litigation and government intervention, litigation continued to be used as an
instrument of strategic involvement by service providers. Conflict between regulatory
institutions can be used to strategic advantage by self serving service providers, while
coordination between the agencies can effectively blunt such strategic attempts. For

13
Recommendations on Unified L:icensing, TRAI, October 27, 2003, www.trai.gov.in
14
Ibid

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example if a service provider is convinced that chances of successfully challenging a
TRAI or government order are high, it will do so.

One danger to augmenting competition in the telecommunication market in India has

been the lack of coordination between newly established regulatory agencies. The role of
TRAI in issues relating to passing tariff orders and interconnection regulations are
defined under section 11 (2) of the TRAI (Amendment) Act 2000. These orders and
regulations can be challenged by operators in the TDSAT. Soon after the Amendment to
the TRAI Act in 2000, TRAI made the Telecommunication Interconnection (Reference
Interconnect Offer) Regulation 2002. It was challenged in TDSAT, which held that TRAI
could not amend the terms and conditions of interconnection since these are embedded in
the license. Similarly in another case where TRAI issued a direction in 2003 to all service
providers to establish direct connectivity, TDSAT set aside the direction again citing that
TRAI could not vary terms and conditions of the license.

In 2003, TRAI issued a direction to all service providers that disconnection of

interconnection was not desirable and payment disputes should be settled through mutual
agreement and if mutual agreement was not possible, the aggrieved party could approach
TRAI for determination. This was challenged successfully in TDSAT, which held that the
power to settle disputes is not vested with TRAI. And finally, in a tariff Order when
TRAI reduced the ceiling IPLC tariff by 70 per cent in 2003, TDSAT stayed the Order
citing breach of transparency and natural justice.

These judgements (both the earlier High Court and recently those of the TDSAT) were
based on a strict interpretation of the statute and had a similar ring. Despite the fact that
the new Act assigned TRAI the power to fix terms and conditions of interconnection,
TDSAT interpreted the statute to mean that for licenses issued before 2000, the only
power TRAI had was to bring these conditions at par with licenses issued after 2000.
Timely interconnection provision and availability at fair terms is perhaps the most
important instrument in promoting competition in the telecom sector. Tariffs and
interconnection are items that are part of the license conditions but are also subject to
frequent review based on sector evolution. It could not have been the legislative intent to
preclude these from the regulatory review if indeed the intention was to lift the quality of
telecommunications in the country to world class levels.

Not for a moment should this mean that the regulator’s decisions should not be subject to
judicial review; on the contrary, the more power the regulator has, the more important are
transparent administrative procedures and opportunities for judicial review. In fact TRAI
has appealed many of the decisions of the TDSAT in the Supreme court with a view to
clarify its powers under the Act.

However, even within the existing statute, outcomes of the regulatory process could have
been different if the institutions involved in policy and regulation had demonstrated more
coordination among them. Specifically in the current context, greater coordination
between TRAI and TDSAT will send correct signals to the regulated entities. Outcomes
in the telecom sector, already a talking point would show further improvement.

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Some of this may be emerging if the recent judgement of TDSAT in the IPLC case is any
indication. Reversing its earlier judgement, TDSAT declared in November 2005, that
TRAI is an ‘expert body’ and its tariff fixation exercise for IPLC met all the principles of
natural justice and transparency. In another decision, that seemingly restores the TRAI’s
role and legitimacy, TDSAT has declared that the government must make public its
reasons for rejecting recommendations from an expert body like TRAI.

This is indeed welcome. As a general rule, we should not expect courts to become
heavily involved in the details of complex technical issues that are supposed to be
addressed by expert agencies. This would just create a second layer of regulation. The
telecom industry is highly capital intensive and its returns vastly sensitive to regulation.
If the costs of litigation are small compared to the gains that can be had from perpetrating
the status quo, litigation can be used effectively as a short term entry barrier by service
providers. Both private and public sector operators have successfully used this process.
The recent decisions of the TDSAT would certainly make operators think seriously
whether to use the judicial process to delay reform.

VIII. Conclusion

The creation of the new regulatory agency was a significant event in the need to establish
an institutional framework capable of achieving the objectives of NTP 94, which
recognized that India’s interest was in allowing private capital to relieve the constraint of
public investment in the telecom sector.

With the creation of TRAI, DoT surrendered its regulatory role, although it retained
policy making, licensing and operations. In 2000, BSNL was created out of DoT,
separating the policy maker from the service provider. However, there is a feeling that
BSNL is not completely free of political pressure. In this scenario, BSNL is in a position
to influence state policy and may not actually positively seek to transform itself from
being a national monopoly into a global player. In any case, it is unlikely to do so i.e.
become a global player while remaining under the states restrictive tutelle for all sorts of
reasons.

One characteristic of India's telecom reforms - and cause of much of the problems
attending it - is that major reform measures like private entry into services were
attempted in haste, without the policy having been thought through. The Telecom
Regulatory Authority of India Act 1997 which established TRAI in January 1997 came
three years after the announcement of NTP 94. Even after the regulator was established,
its role and legitimacy were questioned by the government itself.

In the early phase of reform, the disputes that occurred were between TRAI and the
Central Government in relation of the issue whether in exercise of its powers to regulate
‘service providers’ it could regulate the functioning of the government as a licensor and
whether it was mandatory for the government to seek its recommendations with regard to

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matters covered in the Act. After amendment in the TRAI Act, once again the role of the
regulator has been questioned by entrenched vested interests.

On the other hand, a serious attempt has been made to benefit from the lessons of the first
few years of ‘independent’ telecom regulation. The difficulties of the TRAI, as severe as
they were, were by no means unique to India. Other countries, including “developed”
countries, attempting the transition to competitive telecommunications were experiencing
or had experienced the same frustrations. As long ago as 1994, the World Bank’s
telecommunications policy team noted “The single most troubling issue in recent reforms
has been the slow progress in developing regulatory capabilities. All major reforms have
been predicated on the expectation that effective public regulation of the privatized
monopolies…can be implemented fairly quickly. Yet building regulatory institutions in
countries with little or no regulatory tradition in any sector is an arduous and slow
task”15.

15
World Bank. Telecommunications and Economic Development. Baltimore: Johns Hopkins University
Press,1997

Submitted under CUTS Competition, Regulation and Development Research Forum (CDRF) 12
First Research Cycle (2005-2007)
 Speaking Notes for Research Symposium,
“Political Economy Constraints in Regulatory Regimes in Developing Countries”,
22-24th March 2007

Annex I: Main Functions Entrusted to Telecom Regulatory Authority of India

• To ensure technical compatibility and effective interconnection between different

operators and service providers
• Regulate the revenue sharing arrangement between different service providers
• To lay down and ensure time frames for making available local and long – distance DoT
circuits between service providers
• To protect consumer interests through monitoring of service quality standards
• To ensure compliance of license conditions, universal service obligations and the stated
overall pricing policy by all operators and service providers
• To levy fees and other charges and to make regulations in that behalf
• To settle disputes between service providers
• To fix tariff for telecom service and ensure price regulation
• To render advice to the government in the national context on technology options,
service provision and other allied matters concerned with telecom
• Any other matter referred to it by the government
TRAI is to exercise recommendatory functions on the need and timing for introduction of
new service provider and the terms and conditions of license to a service provider.
In the exercise of its powers and the performance of its functions, TRAI shall be bound
by directions on questions of policy given by the Government.
TRAI is vested with judicial authority and powers. Appeals against its decisions will lie
with the High Court.

Source: Telecom Regulatory Authority of India Act (1997)

Submitted under CUTS Competition, Regulation and Development Research Forum (CDRF) 13
First Research Cycle (2005-2007)
 Speaking Notes for Research Symposium,
“Political Economy Constraints in Regulatory Regimes in Developing Countries”,
22-24th March 2007
Annex II

Concessions to CMSPs when limited mobility was permitted [WLL(M)]

• The amendment dated 25th September, 2001 to the old CMTS license agreement,
permitted the CMSPs to provide "Fixed Phones" based on existing GSM cellular
network infrastructure in their Licensed Service area.
• Under the unified licensing regime, the above mentioned CMTS license
conditions need to be modified to the extent that the choice of the technology is
left to the service provider.
• The Cellular Mobile Service Providers were also permitted to use mobile PCOs.
• The annual revenue share license fee, which was higher for mobile services, was
brought down to level of Basic Services i.e., at 8%, 10% and 12% for Category C,
Category B and Category A Circles respectively.
• The CMSPs were allowed to retain 5% of the long distance call charge.

Concessions to CMSPs when Full mobility was permitted [WLL(M)]

• 2% concession in revenue share for 1st & 2nd CMSP in each service area for 4
years starting from financial year 2003-04

Submitted under CUTS Competition, Regulation and Development Research Forum (CDRF) 14
First Research Cycle (2005-2007)