TELECOMMUNICATIONS An Overview Indian telecom continues to register a significant growth in the current fiscal year.

This has been due to the impact of economic reforms and pro-active policies of the government. Today,India has become the second largest wireless network in the world by surpassing USA. With the current pace, where about nine million telephones are being added every month, the target of 500 million connections by 2010 is well within our reach.Handsets are being sold at a price, which are within the reach of the common man which in turn has made India one of the most sought after telecom manufacturing destinations. The rapid growth in the telecom sector can be attributed to the various pro-active and positive policy measures taken by the government as well as the dynamic and entrepreneurial spirit of the various telecom service providers both in private and public sector. The government is now looking forward to achieve the target of 600 million telephone subscribers by the end of Eleventh Plan and to achieve rural teledensity of 25% by means of 200 million rural connections at the end of 11th Plan. Overview of Telecom Sector Network Expansion : Total 15.26 million telephone connections (Wireline and Wireless) have been added during January 2009 as compared to 10.66 million connections added in December 2008. The total number of telephone connections reaches 400.05 million at the end of January 2009 as compared to 384.79 million in December 2008. With this growth, the overall tele-density has reached 34.50% at the end of January 2009 as against 33.23% in December 2008. Wireless Service: The total wireless subscribers (GSM, CDMA & WLL(F)) base stood at 362.30 million at the end of January 2009. A total of 15.41 million wireless subscribers have been added during the month of January 2009 as against 10.81 million wireless subscribers added during the month of December 2008. Wireline Subscribers: In the wireline segment, the subscriber base has decreased to 37.75 million in the month of January 2009 as against 37.90 million subscribers in December 2008 registering a drop of 0.15 million. Broadband Growth: Total Broadband subscribers base has reached 5.65 million by the end of January 2009 as compared to 5.45 million by the end of December 2008. Increasing Role of Private Sector:To encourage participation of private players to create a competitive environment in this sector several steps have been taken. These measures were directed at removal of state monopolies, reduction in entry barriers to new firms, creation of a level playing field between incumbents and new entrants, and most importantly, forward looking and even-handed regulation which has promoted competition and also effective consumer interests. Consequently, the private sector is now playing an important role in the expansion of telecom sector. The share of private sector in total telephone connections is now 77.44 per cent as per the latest statistics available for October 2008 as against a meager 5% in 1999. Rural telephones: Rural telephones have gone up from 12.3 million in March 2004 to 109.05 million in October 2008 with a teledensity of 13.04%. The target of 100 million rural telephones by 2010 has been achieved well in advance. Out of more than 22.71 lakh Public Call Offices (PCOs) functioning in the country, two lakh are in the rural areas. The Mobile

Grameen Sanchar Sewak Scheme providing telephone at the doorstep of villagers in about 12,000 villages is also in place. Telecom Equipments: Indian telecom industry manufactures a complete range of telecom equipment using state-of- the-art technologies designed specifically to match the diverse terrain and climatic conditions of the country. Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecom, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector. The last four years saw many renowned telecom companies setting up their manufacturing base in India. During 2008-09, production of telecom equipment is expected to increase from Rs,412,700 million (2007-08) to Rs. 518,000 million. During 2007-08, highest increase has been recorded in wireless equipment manufacturing including cellular mobile phones where the production has gone up from Rs.105,450 million in 2006-07 to Rs. 286,000 million in 2007-08, recording a growth of 171%. Tariff Rebalancing Measures: There has been a dramatic fall in the tariffs due to increased competition. The minimum effective charges for local calls have fallen considerably in recent months especially for cellular service. The long distance domestic as well as international charges have also fallen considerably. Foreign Direct Investment: Foreign direct investment (FDI) is one of the important sources to meet the huge funds that are required for rapid network expansion. The FDI policy provides an investor-friendly environment for the growth of the telecom sector. The policy of the Government of India is to strive to maximize the developmental impact and spin-offs of FDI. At present, 74% to 100% FDI is permitted for various telecom services. The total FDI equity inflows in telecom sector have been 1261 million USD during 2007-08. Telecom Regulatory Authority of India (TRAI): TRAI was established under the Telecom Regulatory Authority of India Act, 1997 enacted on March 28,1997. The goals and objectives of TRAI are focused towards providing a regulatory framework that facilitates achievement of the objectives of New Technology Policy (NTP) 1999. TRAI has endeavored to encourage greater corporation in the telecom sector together with better quality and affordable prices. Investment Opportunities:

Manufacturing of equipment and components Exports of telecom equipment and services Setting up a national long distance bandwidth capacity in the country Telebanking Telemedicine Teleeducation Teletrading E-commerce Telecom and value added services

"One-India" Tariff Plan The Ministry of Communication and Information Technology had mooted the idea of introducing " One India Plan" scheme with the objective of providing an affordable tariff throughout the country. In consonance with this vision, the public sector operators (BSNL & MTNL) launched the "One India plan" with effect from March 1, 2006. The new plan enables the customers of BSNL & MTNL to call from one end to other of India at the cost of Rs. 1.00 per minute anytime of the day to any phone. The new plan makes the tariff technology inependent, taking away the distinction between the fixed line tariff and cellular tariff.

Policy Framework:

New Telecom Policy Addendum to NTP (1999) Broadband Policy (2004) Amendment to Broadband Policy (2004)

FDI Policy for Telecom sector

Under Basic and cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services, equity cap of 74%(including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible Preference shares, and proportionate foreign equity in Indian promoters/ Investing Company) is available with FDI limit to 49% under automatic route subject to guidelines notified in the PN 3(2007). Under ISP with gateways, radio-paging, end-to-end bandwidth equity cap of 74% is available. FDI is limit to 49% under Automatic Route and FIPB route beyond 49% Subject to licensing and security requirements notified by the Dept. of Telecommunications. Under (a) ISP without gateway,(b) infrastructure provider providing dark fibre, right of way, duct space, tower ;(c) electronic mail and voice mail,Equity Cap of 100% with FDI upto 49% under Automatic route and FIPB route beyond 49% is available subject to the condition that such companies shall divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Also subject to licensing and security requirements, where required. Under Manufacture of telecom equipments, 100% Equity cap under automatic route subject to sectoral requirements is available.

Major Policy Achievements (a) Guidelines for intra service area Merger of Cellular Mobile Telephone Service (CMTS)/ Unified Access Services (UAS) Licences: Government has issued detailed guidelines permitting intra service area Merger of CMTS / UAS Licences for proper conduct to Telegraphs and Telecommunication services. The guidelines will ensure merger and acquisition would take place within the guidelines approved for the better and efficient telecom performance. (b) Adoption of international commission on Non-Ionizing Radiation protection (ICNRP): Adoption of ICNRP Guidelines in Telecom Sector in India regarding basic restriction and reference levels for limiting EMF exposure. These conditions to be incorporated in import licenses of mobile sets. Manufacturers of mobile sets in India are being asked to adopt these standards and self certify the products. Similarly the custom authorities should notify that

mobile handsets being imported should bear certification of the manufacturer that they meet these standards. (c) Approval for setting up 7 Centres of Excellence: Approval for setting up of 7 centres of excellence have been given during the year. 7 Centres of Excellence have already been set up at various locations in the country to give fillip to research and development in the telecom sector. (d) Setting up of Centre of communication security, research and monitoring: Approval has been given for setting up Centre for Communication security research and monitoring with a Centralized model for telecom lawful interception, monitoring and analysis. (e) Guidelines for infrastructure sharing Government has issued detailed guidelines on sharing of both active and passive infrastructure to different service providers in order to reduce input of telecom Access service providers and facilitate further reduction in tariff as well as enhanced tele-density in rural areas. (f) Total amount disbursed under the USO Fund upto 31.03.2008 was Rs. 6371.44 Crores. New initiatives in the Telecom Sector (a) 3G Services and Broadband Wireless Services With the introduction of 3G and BWA services in the country, additional value added services such as high resolution video and multi media services in addition to voice, fax and conventional data services with high data rate transmission capabilities will be available to the public. BW services will ensure quick roll out and enhanced penetration of broadband especially in rural areas, where there is problem of last mile connectivity. It will facilitate availability of e-governance services like e-medicine, e-ticketing, e-education etc, through broadband to the large section of rural population. Auctioning of 3G and Broadband spectrum will be done through e-auctioning by a specialized agency separately. New players would also be able to bid thus leading to technology innovation, more competition, faster roll out and ultimately greater choice for customers at competitive tariffs. Guidelines for 3G Services:

The 3G licenses would be granted through an e-auction process which shall be executed by a specialized agency to ensure transparency in the selection process. Any person can bid for 3G spectrum who(i) holds a UAS license or (ii) fulfils the eligibility criteria for obtaining a Unified Access Service License (UASL) as per Department of Telecommunications guidelines dated 14.12.2005 and has previous experience of running 3G telecom services.

Spectrum shall be auctioned in blocks of 2x5 MHz in 2.1 GHz band (1920-1980 MHz paired with 2110-2170 MHz). The number of blocks to be auctioned would be decided

subject to the availability of spectrum in different telecom service areas. In exceptional cases of non-availability, the number of blocks may be less than 5 in a telecom service area. The actual number of blocks to be auctioned in each telecom service area will be announced well before the auction.

All the bidders shall have to match the bid of the highest bidder (H1). One block shall be allocated to MTNL in Delhi and Mumbai/Metro service Areas and BSNL in other Service Areas at a price equal to the highest bid in the respective service area. Spectrum in the 450 MHz band, in 800 MHz band for EVDO services, and in 1900 MHz band (1900 1910 paired with 1980 -1990 MHz) will be auctioned if and when become available. This will be notified separately.

(b) Broadband Wireless ACCESS Services

The BW licenses would be granted through an e-auction, process which shall be executed by a specialized agency to ensure transparency in the selection process. Any person (i) who holds a UAS license or (ii) any person who fulfils the eligibility criteria for obtaining a Unified Access Service License (UASL) as per Department of Telecommunications guidelines dated 14.12.2005 and has previous experience (iii) A and B category Internet Service Providers (ISPs) can participate in the auction. Spectrum shall be auctioned in the 2.3 GHz (2.3 2.4 GHz) and 2.5 GHz (2.5 2.69 GHz) bands after refarming with the existing users. Two blocks of 20 MHz each (TDD) in the bands shall be auctioned, telecom service area wise. Spectrum shall be auctioned in the 700 MHz and 3.3-3.6 GHz bands, if and when become available. This shall be notified separately. All the bidders will have to match the bid of the highest bidder, H1. One block shall be allocated to MTNL in Delhi and Mumbai/Metro service Areas and BSNL in other Service Areas at a price equal to the highest bid in the respective service area. The Reserve Price for one block of 20 MHz (TDD) spectrum shall be:

(i) Metro & Category A Cities Rs.80 Crore (ii) Category B Cities Rs.40 Crore (iii) Category C Cities Rs.15 Crore

Mergers and acquisitions shall be as per the policy guidelines on the subject issued by Department of Telecommunications vide No. 20-100/2007-AS-I dated 22nd April 2008 or any subsequent revision thereof.

If licensee does not achieve the stipulated roll out obligations, its performance bank guarantee shall be encashed. If it fails the 5 years roll out obligation, its spectrum assignments shall be cancelled. No annual spectrum charge shall be payable for BWA services in the first year from the date of allocation of spectrum. The operators will have to pay an annual spectrum charge of 1% of AGR after a period of one year. Trading/sharing of spectrum, if any, shall be governed by Government policy.

(c) MOBILE NUMBER PORTABILITY (MNP) SERVICE LICENCE Mobile Number Portability (MNP) allows subscribers to retain their existing telephone number when they switch from one access service provider to another irrespective of mobile technology or from one technology to another of the same or any other access service provider. The applicable Guidelines for grant of MOBILE NUMBER PORTABILITY (MNP) SERVICE LICENCE in the country has been announced by the Government on 01.08.2008. The bid document containing detailed terms and conditions is being issued separately. The salient features are as below:

MNP zones: For the purpose of grant of Licenses for MNP operation in India, the whole country is divided into 2 MNP zones (Zone 1 & zone 2) consisting of 11 Licensed Service Areas (LSAs) each with 2 Metro service areas in each zone. There shall be only one licence for MNP services in each MNP zone. Initially MNP is to be implemented in all Metro and category A service areas within 6 month of award of the Licence for MNP services. Paid up capital: The applicant Company shall have a minimum paid up capital of an amount Rs.10 Crores on the date of the application. Networth: The applicant Company and its equity holders shall have a combined networth of at least Rs.100 Crores (in proportion to their direct equity). Experience: The Applicant / bidder should have implemented and operating successfully NP solution for a mobile subscriber base of not less than 25 million in one or more countries for at least 2 years. Either the applicant Company or its share equity holders having direct equity of 26 % or more in the Company shall have required experience. In case of successful award of license, the equity holder(s) whose experience has been taken into account for fulfilling the eligibility conditions and evaluation purpose, shall not be allowed to dilute its equity shareholding in the Company below 26% equity share capital for at least four years from the date of submission of bid. Entry Fee: One time, non-refundable, Entry Fee of Rs. 1 (one) Crore is required to be paid for grant of MNP services licence.

Licence Fees: The Licensee shall also pay Licence fee annually @ 1 (one) % of Adjusted Gross Revenue (AGR) of the licensee Company. There shall be a moratorium of licence fee payment for first two years from effective date of the licence. Method of Selection: The pre-qualified applicant(s)/ bidder(s) shall be subjected to a Techno-Economic Evaluation for final selection.

Useful Weblinks

Department of Telecommunications Telecom Regulatory Authority of India (TRAI)

Telecommunications Consultants India Ltd. Private Investment Promotion in Indian Telecom