Abstract
The Indian telecom industry has become a new ballgame altogether, with plenty of factors affecting the traditional telecom framework. This article tries to analyse the different provisions laid down in the Draft Indian Telecommunication Bill, 2022, which has been published for consultation purposes with industry stakeholders. The article, in a limited manner, goes on to analyse the controversy of including OTT Companies within the ambit of the Bill, which would be inefficient in the long run as it is not the sole factor affecting defaults happening in the telecom sector. The Bill is devised in such a way as to aid and lessen the burden of telecom defaulters, which shall be clear from the following analysis.
Introduction
In the recent past, the Indian economy has become one of the largest consumer industries, an incentive that has led to technological advancements and changing infrastructure. In the meantime, the telecom industry, amongst other industries, has witnessed several ebbs and flows in order to balance economic and public interests.
Thedraft Indian Telecommunication Bill, 2022 (“Bill”) has been published with an aim to consider the changing telecommunication (“telecom”) infrastructural needs and to keep in touch with the modern-day requirements of the stakeholders. This article explains the importance of spectrum and the need for its effective allocation, followed by the need to obtain an appropriate license to use the allocated spectrum and the implications of the new provisions in relation financial health of the telecom service providers (“TSPs”).
Spectrum – A Public Good
According to Section 2(15) of the Bill, spectrum has been defined as “the range of frequencies of radio waves”. The Department Of Telecommunications (“DoT”) has taken a philosophical route and described the spectrum as“Aatma”. The comparison is drawn to represent the omnipresent nature of the spectrum, an inexhaustible resource available worldwide. The same has been reiterated in the Indian jurisprudence whereby the spectrum has been identified as a public good. Further, the Court hasheld that the State is the “trustee” of the spectrum for the public at large.
The public trust doctrine is very much applicable in the case of the spectrum; even though it is a renewable resource, it has been internationally accepted as a scarce, finite, and renewable natural resource that is susceptible to degradation in case of inefficient utilisation. The Hon’ble Supreme Court in its landmark judgement ofCentre for Public Interest Litigation and Ors. v. Union of India and Ors. stated that,
“It (the spectrum) has a high economic value in the light of the demand for it on account of the tremendous growth in the telecom sector. Although it does not belong to a particular State, right of use has been granted to States as per international norms.”
Thus to keep pace with global standards and to prevent any misappropriation of such a natural resource, it is important for the State to effectively manage and allocate the spectrum to put it to good public use. The effective allocation of the spectrum falls within the realm of public policy, and thus, the Government cannot interfere with the processes established unless the procedure followed is unconstitutional or arbitrary in nature.
Spectrum Management
The assignment of spectrums is integral to identifying, determining, and allocating the spectrum for the purpose for which it shall be utilised. The recent5G auction, which was held to allocate the varying spectrum bands to the TSPs, has paved the way for carrying out an effective rollout of the 5G spectrum and would assist the operators in the telecom industry to deploy the telecom network and/or infrastructure within India accordingly.
Section 3 of the proposed Bill states that the Central Government has the sole and exclusive privilege to provide licenses, authorisations, and assignment of spectrum to provide telecommunication services, to establish, operate, maintain and expand telecommunication network and telecommunication infrastructure; and to use, allocate and assign spectrum.
While Section 5 of the proposed Bill embeds in the letter of the law the auction of the spectrum as the only mechanism/procedure through which spectrum shall be assigned by the Central Government in order to subserve the common good and ensure wide-spread access to telecommunication services, it also carves out an exception whereby the Central Government, through an “administrative process”, can allot spectrum for government or public interest purposes. Schedule 1 of the Bill mentions the specific services for which the government may choose to adopt the administrative process for allocating spectrum.
License – A Prerogative
The TSPs have to obtain a license from the State Government in consonance with the services provided by them in order to utilise the spectrum effectively. License is defined as permission granted by competent authority to engage in a business or occupation or in an activity otherwise unlawful. The licenses required to be issued to TSPs inter alia vary depending on the nature of services provided by them, the number of years they will be permissible, the terms and conditions, which may include provisions for further trading the spectrum assigned by the Central Government, the terms of use, etc. The Indian telecom licensing regime has seen a massive shift in terms of license fees payable by TSPs ranging from metro cities’ specific rates, later revised to a “pay per subscriber” model. Post-1995, the DoT allowed bidding for cellular licenses and wireline licenses.
The auction of the spectrum is an internationally preferred mode for licensing as it ensures less bureaucratic involvement and prevents red tape-ism. Too much administrative involvement would lead to circumstances like the2G scam. Upon conducting a CAG audit, there were certain discrepancies found in the Telecom industry, alleged to have accounted for huge losses to the Government of India (“GOI”). This led to the 2G scam being unravelled, whereby it was found that the then Ministers had been accused of having breached several laws and that they had overreached their extent of powers resulting in unconstitutional abuse of power.
The Court in theCentre for Public Interest Litigation and Ors. v. Union of India and Ors. (2012) 3 SCC 1 in paragraph 76 held that,
“…wherever a contract is to be awarded, or a licence is to be given, the public authority must adopt a transparent and fair method for making selections so that all eligible persons get a fair opportunity of competition. To put it differently, the State and its agencies/instrumentalities must always adopt a rational method for disposal of public property and no attempt should be made to scuttle the claim of worthy applicants. When it comes to alienation of scarce natural resources like spectrum etc., it is the burden of the State to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest.
In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process.”
The eligibility criteria for obtaining a license are notified by the DoT Ministry while inviting applications for allotment of the spectrum from the licensee who wishes to acquire spectrum. The licenses are granted for the right to use radio spectrum frequencies specifically available in the Licensed Service Area (“LSA”). The Existing licensee or the New Entrant can choose to pay for the license either through upfront payment or deferred payment. The Telecom industry is a highly capital-intensive industry; there are huge costs involved while acquiring alicense further to pay spectrum charges, and thus it is a bit difficult to penetrate the Telecom market easily. The Indian telecom market allows 100% FDI through the automatic route; thus, a foreign entity can operate a telecom service in India only through an Indian company with up to 100% foreign shareholding (subject to DoT approval for the foreign shareholding in excess of 49%). Hence, any foreign applicant will need to form or acquire an Indian company to obtain a Unified Licence subject to fulfilment of the prescribed procedure.
However, they are allowed to participate in the auction directly and apply for a Unified License subsequently through an Indian company, where they hold an equity stake, with a maximum foreign equity of 100% as per extant guidelines. Until a certain point in time, the Central Government allowed a certain amount of spectrum to be bundled with the license acquired by the Existing licensee or the New Entrant; but as of today, any licensee has to apply for the telecom license and bid for the spectrum separately, thus increasing the burden of huge compliance costs for the TSPs operating within the country.
TELECO vs. OTT
In recent times, the telecom industry has evolved greatly, leading to an increased burden on TSPs, and causing chaotic circumstances. The Telecom operators (Teleco) have tried to shift the blame on the Over The Top services (“OTT”) providers companies which are a product and means of the changing landscape of the world and are pioneering success in major industries. The outcry of Telecom is in reference to OTT not being subjected to payment of license fees which, according to them, is adding more pressure to their financial burdens.
However, the new provisions in the proposed Bill have tried to bring the OTT that provides communication services within its ambit to make license fees applicable to those providing these services. This, in the larger scheme of things, could turn out to be dangerous and is a very ambiguous and broad proposition that ought to cause outrage from the concerned stakeholders. In 2020, the industry regulator, TRAI, consulted with the industry stakeholders to recommend whether the DoT should include the OTT services within the ambit of the Telecommunication Bill or not; however, after due deliberation, the answer was negative. Even if it is right that OTT services cannot go unregulated, it should still not be forcibly included in the present proposed Bill, since the “same service, same rule” would not apply, and besides, it would not be feasible.
The OTT and telecom industries are fundamentally different industries, and they cannot be clubbed together. OTT services are not just limited to Netflix, Amazon Prime, and Hotstar. They also include other services which use the Internet as the basis to bypass the traditional network of cable. The provision in the Bill reads as follows: As per Section 2(21) of theAct,
““telecommunication services” means service of any description (including broadcasting services, electronic mail, voice mail, voice, video and data communication services, audiotex services, videotex services, fixed and mobile services, internet and broadband services, satellite-based communication services, internet-based communication services, in-flight and maritime connectivity services, interpersonal communications services, machine to machine communication services, over-the-top (OTT) communication services) which is made available to users by telecommunication, and includes any other service that the Central Government may notify to be telecommunication services.”
Therefore, it is vital to understand that OTT would not only cover the Big Tech Companies like WhatsApp, Facebook, and Google but also OTT services like PayTM, Zomato, Swiggy, Tinder, and Uber. Further, small start-ups also thrive on this technology to better their services, like PharmEasy, Nykaa, and Meesho, which are relatively large companies in India – small and medium-scale start-ups like which would not be able to take up such huge costs for compliance.
It is true that the OTT uses the existing telecom infrastructure to provide its services; however, the services provided by both stakeholders are not entirely the same, in the sense that OTT cannot be limited to voice and video calls which the telecom industry is contesting to coincide with its own kind of services. The contention of the OTT companies is, and rightly so that the voice and video call services are add-on features that are embedded in the software applications to enrich the customer experience. The public trust doctrine ensures that the State should utilise and maximise the natural resources in such a way that it maximises the larger public good. The services provided by the OTT companies should be at par with global standards, which is in the interest of the public at large. It is to be noted that the service provided by the OTT companies is nothing but the innovation of the existing technology to satisfy the common good, which is a concept appreciated under the public trust doctrine in India. The fundamental differences in the functioning of the OTT are factors that should not be avoided.
The revenue generation of the OTT companies is also distinct from that of TSPs – it is important to understand that the services of the OTT companies can only be utilised when data provided by TSPs is available since WiFi services are not so prevalent within the remote and even certain parts of urban India due to the lack of efficient telecom infrastructure and network. The disruptive technology used by the OTT companies is meant to exploit the already available resources, which is their ultimate strong point of it, to begin with, and they have been successful in doing so. The ill-functioning of a particular industry cannot be used as a factor to stifle innovation and consumer goods at large. Additionally, it is important to understand there are a lot of people within India who do not possess smartphones, in which case they are deprived of the services provided by OTT companies. Out of 1.2 billion people, the smartphonepenetration in India has reached only 750 million users, and there are still some users who do not have access to OTT services, unlike traditional mobile services.
Regulating OTT services under the draft bill does not seem to be a smart move as it will not only deny the public from global standards of innovation and technology but also act as an economic disincentive. It is important to understand that India is on its way to becoming a start-up hub and being par and competing with the technological giants of Silicon Valley; it is essential to make laws that would further such progress. In 2022, 20 start-ups were included in the already existing unicorns of India, which takes the total to106 as of today. Leaving the major OTT platforms aside, the present vision of India can be traced to have shifted to entrepreneurship, and the implementation of start-up-friendly laws is adding to its growth. In such an environment, it would not be conducive and counter-productive to apply a straight jacket formula to include all the OTT services within the telecom bill framework.
Most of the OTT software applications use the highlighted services to augment the user experience on the applications. As far as the big tech companies are concerned, even though there is currently 100% FDI allowed and available to them, they would become uninterested in investing and in incurring huge compliance costs. For example, inter alia other foreign companies, Netflix is already struggling to keep itself afloat from losses in the Indian economy since it is not able to tap the market through its pricing model, which will be jeopardised more if there are added costs.
The necessity for acquiring spectrum, which is the end goal of licensing, would maximise the number of players in the market and could lead to inefficient utilisation of the natural resource, which is ultimately detrimental to the larger good of the public. The burden is on the administrative wing to take these concerns into consideration and to create a framework that best suits all the stakeholders.
A TSP-friendly Environment
The telecom industry is the damsel in distress due to poor infrastructural conditions and not because of the entry of OTT companies. It was evidently in distress even before the advent of disruptive technology. The solution to this issue is not to increase the administrative control over more entities but it is rather to focus on the pre-existing ones, so in this case, it is important to mend provisions in such a way that they benefit the TSPs from defaulting. It would also lessen the huge compliance costs. The proposed Bill has taken into consideration this aspect by introducing provisions that would aid the TSPs in distress. To fortify the position of TSPs it has included in Section 6 of the proposed Bill, the provision for sharing, licensing, and/or leasing the allocated spectrum further in case of non-utilisation, which means it will help the telecom operators to adapt and to compete in a competent manner. This is also an efficient way to put to use the underutilised licensed spectrum. It is to be noted that in such a case, a telecom operator can only trade such a spectrum which has been licensee to it and should be in consonance with the terms and conditions under which the said license has been provided. This is an effective alternative to the mergers and acquisitions that often take place in the sector. Another upside to the TSPs is that in case of bankruptcy, Section 20 of the proposed Bill provides conditions under which the companies, which are licensees or assignees, could operate in case of failure, and the assigned spectrum would revert to the Central Government. The licensee or assignee under insolvency/ bankruptcy conditions must make sure to follow the following conditions:
“(a) continues to provide telecommunication services or operate the telecommunication network or utilise the assigned spectrum, as the case maybe;
(b) does not default in the payment of any dues under such license, or assignment, including any fees, charges, and other amounts payable under such license or assignment of the spectrum; and
(c) complies with such additional or modified terms and conditions as may be prescribed.”
Whereas as per Section 21 of the proposed Bill, to strengthen the position of defaulters, the Government has also added a special framework to strengthen the Telecom industry. The Government is empowered to undertake the following measures:
“(a) deferment of the payment of such amounts or part thereof;
(b) conversion of part or all of the amounts payable by the licensee, registered entity or assignee, into shares in the licensee, registered entity or assignee;
(c) write-off of such amounts or part thereof; or
(d) relief from payment of such amounts or part thereof.”
Analysis & Conclusion
The telecom industry has great potential, given the access it has to telecom networks; thus, it is important to exploit the underlying network and infrastructure wisely and make the best use of it. The current provisions in the Bill are too broad in nature and should be constrained to specifically mention the services that could be included within its ambit. The use of a broad definition would not be beneficial to any of the stakeholders in the long run and may lead to further self-destruction of the telecom infrastructure. Applying the “same service, same rule” is not the most appropriate way forward as OTT companies are engaged in carrying out services that are more than one of the similar features. Thus, it would be unjustified and completely averse to the public interest. Licensing as a tool to allocate spectrum should be used effectively by the Central Government given that it has exclusive privilege over such task and should not act in haste in order to exhibit the proposed Bill as modern-day legislation. Diverging from the common good by means of broadening its ambit would lead to an outflux of foreign companies and investments. Moreover, increased government intervention in the operation of such businesses could deteriorate the ease of doing business conditions in the Indian economy.
The need of the hour is to look at licensing from a macro perspective; getting into subsets of technology would lead to increased complexities in the existing infrastructure. However, the Central Government, as per the exceptions carved out for itself in terms of spectrum management in Section 3 of the proposed Bill, can use its privilege to exclude start-ups from the framework of the Bill. This would add to the start-up-friendly environment that the GOI is aiming to provide and will also affirm the entrepreneurial spirit within the Indian economy. The Bill is currently in the consultation phase; it is only a matter of time to see how the deliberations are taken forward, but like in the case of the Personal Data Protection bill, it is of utmost importance to take into consideration the point of view of the several stakeholders in the economy.
Disclaimer
The views expressed are that of the author and have nothing to do with the organisation she is associated with.
About the Authors
Ms. Ruddhi Bhalekar is an Associate at ANM Global.
Editorial Team
Managing Editor: Naman Anand
Editors-in-Chief: Hamna Viriyam and Muskaan Singh
Senior Editor: Aribba Siddique
Associate Editor: Ria Goyal
Junior Editor: Kaushiki Singh
Preferred Method of Citation
Ruddhi Bhalekar, “Draft Telecom Bill 2022 – Whether an Upshot for Telecom Defaulters?” (IJPIEL, 4 November 2022)
<https://ijpiel.com/index.php/2022/11/04/draft-telecom-bill-2022-whether-an-upshot-for-telecom-defaulters/>
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