TELECOMMUNICATION REFORMS IN INDIA

This chapter gives a snapshot of the telecom reforms on India and the factors responsible for initiating
the same and setting the framework for studying the impact of the same on the industry and the
consumers. This chapter sets out to explain the telecommunication reforms in India by looking into all
the relevant literature and policy documents in order to bring out the list of reforms which were brought
about in this sector, the main reasons for the reforms being brought about and the impact these
reforms can have on the creation of regulatory framework, telecommunication industry and the
consumers.

2.1. Introduction: The term “reform” means many things to many people but some of the mostly used
and accepted interpretations according to the American Heritage Dictionary, 2000 are as follows, i. To
make right what is wrong i.e. amend, correct, mend, rectify etc; ii. It means to improve by alteration,
correction of error, or removal of defects; iii. Put into a better form or condition; iv. A change for the
better; an improvement; v. It means an action to improve social or economic conditions without radical
or revolutionary changes, etc. Reforms are the need of the hour, in every area of our society starting
from reforms in political scenario, economic scenario, infrastructure, etc, as everything has to change
according to the situation and not continue as it was always. This is the same scenario in all parts of the
world, including India. Though economic liberalization in India can be traced back to the late 1970s,
economic reforms began in earnest only in July 1991. A balance of payments crisis at that time opened
the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform
package. And this reform 38 express goes on sometimes haltingly and sometimes at full speed. These
are the views expressed by Arvind Panagariya (2002) while enumerating the accomplishments of Indian
economic reforms as well as the list of things yet to be achieved when he said Indian reforms continued
in a stop-go fashion. This study tries to in particular look into the telecommunication reforms in India, as
it is an industry on its own as well as an engine of growth for other sectors. The reforms in our country
have been said to be crisis driven which though has been beneficial it is always better to have reforms
which are consensus driven for the betterment and general good of the public rather than wait for the
crises to happen (Dr. Vijay l. Kelkar, 2001). The telecommunication reforms which fall under the meso-
economic reforms i.e. the sector specific reforms also to some extent followed the similar pattern.
These reforms were initiated due to the sorry picture of the telecommunication sector in India.
2.2. Pre Reform Era in the Indian telecommunications sector: The pre reform era in Indian
telecommunications did not present a very encouraging picture as it was characterized by low tele-
density of 0.6 per 100 population prior to 1990’s (source: DOT), monopolization of telecommunications
services infrastructure and equipment by the government till 1980’s and high call charges (R.U. S.
Prasad, 2008). The telecom service was treated as a luxury and not as a necessity; the government funds
were insufficient to satisfy the ever growing demand for telecommunication services. The lack of funds
for provision of telecom services manifested in the form of the long waiting list for a telephone, poor
quality of service which resulted in wrong billing, cross connections due to faulty / ill maintained
telephone lines, obsolete instruments and machinery in the telephone department were the order of
the day in the pre reforms era (R.U. S. Prasad, 2008). 2.3. Phases of telecommunication reforms in India
The heralding of the telecommunication reforms in India basically revolutionized the telecom sector.
These reforms have been divided into three phases, The first wave of reforms took place in the 1980’s;
the second phase started off in the last decade of the previous century i.e. in the early 1990’sand the
third phase of reforms started in the late 1990’s nineties with the announcement of the New Telecom
policy in 1999 and are 39 continuing till date. The reforms which have transformed the telecom sector
were undertaken in three phases. They have been enumerated and discussed in the following sections.
2.3.1. The First Phase of telecom reforms in India:- The first wave of the reform process was initiated in
the telecommunication sector in the 1980s under the prime minister ship of Rajiv Gandhi, with a mission
‘better communication’. These reforms though were not very groundbreaking, set the ball rolling in the
telecom sector. This period saw the Private companies being allowed to manufacture customer premise
equipment (1984), setting up of Centre for Development of Telematics (C-DOT) for the manufacturing of
indigenous technologies in 1984. A US green card holder named Sam Pitroda had galvanized the
research establishment C-DOT to invent a cost-effective rural telephone exchange which helped to
spread connectivity across the country by a simple innovation called the Village Public Telephone (VPT).
In 1986, domestic telecom operations in 2 two metros (Delhi & Mumbai) and international services were
corporatized through the creation of ‘Mahanagar Telecom Nigam Limited’ & ‘Videsh Sanchar Nigam
Limited’ out of DOT. In 1989 the telecom commission was setup having administrative and financial
powers of the government of India to deal with the various aspects of telecommunications and
proliferation of individual STD/ISD PCO network was undertaken on a large scale across the country
through private individual franchisees. The following points enumerate the picture of
telecommunication services in India, before the reform process actually caught up (listed out by R.U.S.
Prasad, 2008),  Telecommunications services in India lagged even the developing countries in its
performance,  Tele-density in India was 0.8 per hundred in 1991  High cost for local, long-distance and
international calls when compared to others.  Low customer satisfaction (long waiting period for phone
services)  Rate of growth of GDP from Telecom was an average of 6.3% per annum during 1980-1 to
1991-2 (Arvind Virmani, 2004). 40 Lack of competition or private operators in the telecom sector in
India, was a very distinguishing feature in this era,  Though MTNL and VSNL were setup as 100%
government owned corporations in 1986 distinct from BSNL, but they still were monopolies in their
respective areas.  There was no operational license framework for private operators and for foreign
investment in telecom industry. The regulatory and adjudication mechanism in place was a weak one as
the  Telecom commission was set up only in 1989  There was no independent regulatory body for
telecom sector.  There was no adjudication framework other than courts. Constraining factors
hindering the reforms during early waves of telecom reforms in India (listed out by R.U.S. Prasad, 2008)
are as follows,  Very little experience with management of a liberalized sector led to lack of confidence
in success of these policies in the telecom sector.  Entrenched trade-unions in the telecom sector saw
this as curtailing their bargaining power and opposed these reforms.  Bureaucratic processes and public
sector officers saw these reforms as reducing their administrative powers and diminishing their role in
the operation of telecom sector, therefore they were not very much in favour of these changes taking
place in the telecommunication sector.  Some technocrats within telecom expressed concern about
high cost involved in upgrading telecom infrastructure and reservations in regard to success of
liberalization policy.  Based on the existing telecom situation, people expected that tariff to end
customer will be high and not sustainable as they thought the private operators would not be concerned
for the general public but would concentrate on their own gains, if telecom sector was to be liberalized
and privatization was to be introduced. 41  Expected prolonged legal battles among various parties i.e.
those not satisfied with the implementation of new telecom policies and legislations (private operators,
government officials, consumers etc). 2.3.2. The Second Phase of telecommunication reforms in India:-
The second wave of reform process in the Indian telecom sector commenced with the liberalization of
the economy in India and announcement of New Economic Policy in 1991which set the foundation for
sustained liberalization in India. Telecom sector also followed suite in taking ahead the liberalization
process. It started out by de-licensing the manufacture of telecom equipment in 1991; Value added
services (e.g. e-mail, radio paging, mobile telephony, voice mail, data services using VSAT's, and video
conferencing etc) were opened for private and foreign players on franchise or license basis in 1992;
National Telecom Policy was announced in 1994 with major thrust on universal service and better
quality telecom services. National Telecom Policy in 1994 (NTP 94) was the first comprehensive policy to
usher private operators in telecom sector. The main objectives of NTP 94 were as follows, 1. Availability
of telephone on demand as early as possible. 2. Achievement of Universal service obligation, i.e. the
provision of basic telecom services access to all people at affordable and reasonable prices. 3. Provision
of world class service quality in telecom services and the widest permissible range of services. 4. To
ensure that India emerges as a major manufacturing base and major exporter of telecom equipment. 5.
And at the same time protecting the country’s defense and security interests. The targets set down
under NTP 94 for the country to achieve are listed below. 1. Telephone should be available on demand
by 1997. 2. All villages should be covered by 1997. 3. In the urban areas a PCO should be provided for
every 500 persons by 1997 42 4. All value-added services available internationally should be introduced
in India to raise the telecom services in India to international standard well within the VIII Plan period,
preferably by 1996. This policy though first of its kind started out with very ambitious targets as listed
above but its success was not as expected which can be seen in the practical difficulties which arose
during its implementation process. NTP 1994 also recognized that the required resources for achieving
these targets would not be available only out of Government sources and concluded that private
investment and involvement of the private sector was required to bridge the resource gap. The
Government invited private sector participation in a phased manner from the early nineties, initially for
value added services such as Paging Services and Cellular Mobile Telephone Services (CMTS) and
thereafter for Fixed Telephone Services (FTS) (Mahesh Uppal et al, 2006). It allowed the entry of private
sector into both the “Basic” (or last mile wire line) and the ‘new’ cellular mobile sector that had been
left completely unexploited by the public monopoly. Foreign direct investment up to 49% of total equity
was also permitted in these two areas. To facilitate entry of private operators in the telecom sector the
whole country is divided into 23 service areas consisting of 19 telecom circles based on the statehood
and 4 metros, for the provision of various telecommunication services (DOT). Telecom Circles are
divided into 4 categories/groups: 'metro circles' and then 'A', 'B', and 'C' circles. The 'metro' circles cover
very dense population areas in the very largest Indian cities: Delhi, Kolkata, and Mumbai. The 'A', 'B', and
'C' circles cover various geographic territories of varying population sizes. 'A' circles are the largest in
terms of population coverage, followed by ‘B’ in the density of population and ‘C’ circles contain the
smallest population among all the circles. The service providers conduct their operations based on the
licenses issued for the provision of their services.Process for awarding license was based on bid amount,
rather than on financial or technical abilities of the bidder (Arvind Virmani, 2004). Given the lack of
entrepreneurial experience in Telecom, there were excessively high bids in many circles, as the Telecom
sector had been reserved for the government by law. As a result many private projects were judged by
potential lenders as financially un-viable and 43 many companies failed to setup sustainable operations,
to make these operations more viable Government changed one-time license fees payment to a
percentage of revenue, but there continued to be a lack of transparency in policy decisions, licensing
terms and weak regulatory regime (Arvind Virmani, 2004). All these were major drivers for setting up of
an Independent regulatory body TRAI in 1997. The earliest telecom services run by the private sector
were mobile. Cellular services started in all four metros in August 1995. By early 1997, virtually all
private cellular licensees had begun operations. Basic services, with only six licensees, were slow to
begin and were able to start operations only in 1999, because of delays and uncertainties occasioned by
disputes on licensing terms. Issues during the whole process of second wave of reforms: There were a
lot of issues which arose during this whole process of second wave of reforms, like the operational
difficulties which started emerging for the private sector after they became fully functional, some of
them are listed below,  The investments required to set up infrastructure were huge.  The license fees
bid by operators were also exorbitant (as they miscalculated the earnings).  The entry costs for
customers to use the service were low,  Charges paid by users to make and receive calls, were
prohibitive therefore restricting usage.  The operator estimates for minutes of usage were wrong.  The
revenues from the services were nowhere close to meeting license fee commitments that the
prospective operators had bid. There were frequent and long delays by the government in providing
clearances and permissions for radio frequencies and rights of way, which dampened the private
operators business plans (this was taken to court for settlement claiming substantive damages). All
these resulted in defaults in license fee payments as soon as the initial payments required for obtaining
the licenses were made. In addition to some of the objectives of NTP 1994 not being fulfilled and
concerns of private operators and 44 investors about the viability of their businesses, there has been a
blurring of technologies in the telecom, IT, consumer electronics and media industries world-wide.
Convergence of both markets and technologies is a reality that is forcing realignment of the industry. At
one level, telephone and broadcasting industries are entering each other's markets, while at another
level technology is blurring the difference between different conduit systems such as wireline and
wireless. As in the case of most countries, separate licenses have been issued in our country for basic,
cellular, ISP, satellite and cable TV operators each with separate industry structure, terms of entry and
varying requirement to create infrastructure. However, this convergence allowed operators to use their
facilities to deliver some services reserved for other operators, necessitating a relook into the existing
policy framework. Therefore a high powered government committee led by Deputy Chairman, Planning
Commission was announced by the Prime Minister in late 1998. The committee was asked to make
recommendations for a new telecom policy and for resolving issues facing basic and cellular operators
(Department of telecommunications, www.dot.gov.in ). This led to the formation of the new telecom
policy 1999, ushering with it the third wave of reforms. 2.3.3. The Third Phase of telecommunication
reforms: The most important telecom reforms, sometimes called as the third generation reforms have
taken place during this phase. It started out with the announcement of the much awaited New Telecom
policy in April 1999. This policy was brought about to ease many of the bottlenecks which surfaced
during the liberalization of the telecom sector during the 1990s. Objectives and targets of NTP 1999 are
as follows (Department of telecommunications, www.dot.gov.in ),  Availability of affordable and
effective communications for the citizens is at the core of the vision and goal of the telecom policy. 
Provide a balance between the provision of universal service to all uncovered areas, including the rural
areas, and the provision of high-level services capable of meeting the needs of the country's economy;
45  Encourage development of telecommunication facilities in remote, hilly and tribal areas of the
country  Create a modern and efficient telecommunications infrastructure taking into account the
convergence of IT, media, telecom and consumer electronics and thereby propel India into becoming an
IT superpower;  Convert PCO's, wherever justified, into Public Teleinfo centers having multimedia
capability like ISDN services, remote database access, government and community information systems
etc.  Transform in a time bound manner, the telecommunications sector to a greater competitive
environment in both urban and rural areas providing equal opportunities and level playing field for all
players;  Strengthen research and development efforts in the country and provide an impetus to build
world-class manufacturing capabilities  Achieve efficiency and transparency in spectrum management.
 Provide Internet access to all district head quarters by the year 2000.  Enable Indian Telecom
Companies to become truly global players. In order to achieve these objectives the telecom policy
brought in many changes like,  Unlimited competition would be allowed instead of controlled
competition in all services except those, like mobiles, which were dependent on spectrum availability. 
The move to a revenue sharing regime from the license fee commitments made by operators was now
officially accepted.  Technology restrictions were lifted in the telecom sector.  BSNL/MTNL’s entry in
cellular services would be treated as the third mobile operators in their areas of operation, which then
could have only two private players each.  The regulator TRAI would be strengthened  NTP-99 also
proposed the setting up of a Universal Service Obligation Fund (USOF) to support services in rural and
other remote areas. 46 2.4. Major milestones in the reform process: Implementation of the policy went
on as follows which became major milestones in the reform process, 2.4.1. Migration Package: Following
the announcement of the NTP-99, the government issued the “migration package”, to facilitate the shift
from license fee to revenue sharing regime after a payment of an entry fee, under this unlimited
competition was permitted with the acceptance from all operators. The advent of the year 2000 saw the
telecom regulator TRAI being endowed with more powers in terms of fixing tariffs, interconnection and
the entry of new operators into the market and being relieved of dispute settlement duties which were
duly handed over to a new body i.e., Telecom Dispute and Settlement and Appellate Tribunal (TDSAT).
2.4.2. Access Deficit Charge (ADC): It was introduced on all types of calls to compensate BSNL for
operating in rural areas. However, by 2005 the TRAI began phasing out the ADC and by 2007 had
reduced it to fairly low amounts. 2.4.3. Formation of Bharat Sanchar Nigam Limited (BSNL): Based on the
reference made in NTP-99 Department of Telecommunication was duly restructured in order to
separate the functions of policymaking, planning, licensing and rendering of telecom services, with the
former being handled by department of telecommunications and the latter being handed over to the
corporatized service wing of DOT i.e., Bharat Sanchar Nigam Limited (BSNL) in 2000. 2.5. Major issues
(Key Regulatory issues) taken place in the last decade from 2000 to 2010 in the telecommunication
sector in India, 2.5.1. Convergence of technologies: Convergence of technologies and a need for a policy
to take advantage out of it also was an issue addressed in NTP-99. Centered on it a Convergence bill was
introduced in 2000, but did not become law, related, indirectly at least, to the same issue of
convergence, the 47 government announced the merger of the Ministry of Information Technology
(MoIT) and Ministry of Communications (MoC) on December 22, 2001 into a new entity called the
Ministry of Communications and Information Technology (MoCIT) (Mahesh Uppal, et al, 2006). 2.5.2.
Unified Access licensing (UASL): Unified Access licensing (UASL) regime was introduced as opposed to
separate licenses for basic and mobile services in 2003. Under this, operators were free to provide,
within their area of operation, services, which cover collection, carriage, transmission and delivery of
voice and/or non-voice messages over Licensees network by deploying circuit, and/or packet switched
equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing,
Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers
falling within its service area on non-discriminatory basis. The license for Unified Access Services is
issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the
territorial jurisdiction of a licensed Service Area. The frequencies are assigned by WPC wing of the
Department of Telecommunications from the frequency bands earmarked in the applicable National
Frequency Allocation Plan and in coordination with various users subject to availability of scarce
spectrum (Department of telecommunications, www.dot.gov.in ). 2.5.3. Universal Service Obligation
Fund The Universal Service Obligation (USO) policy came into effect in 2002 aiming to widen the reach
of telephony services in rural India. Universal service is defined as the availability of certain “basic
telecom services at affordable and reasonable prices” to all citizens (National Telecom Policy, 94). The
universal service fund is based on an implicit assumption that competition among private providers will
not generate service in rural areas and that the magnitude of the subsidy can be minimized by allowing
only one firm to receive a subsidy in each area (Roger. G. Noll et al 2006). The Universal Service
Obligation Fund (USOF) another major step in the telecom reforms was set up on April 1st, 2002– into
which telephony operators pay a universal service levy - to address this urban-rural “digital divide” by
providing subsidies to operators for expanding access to 48 phones and Internet in rural areas. The
Administrator, USF, heads the Universal Service Obligation Fund and he is empowered to formulate
procedures for implementation of the USO and disbursement of funds from the USOF. In addition, the
Central Govt. may also give grants and loans for this purpose ( www.usof.gov.in ). Table No-2.1 Universal
Service Obligation Fund Position (Rs. Crores) Financial Year Funds collected as UAL Funds allocated and
disbursed Reimbursement of LF and spectrum charges Potential available balance 2002–03 1,654 300
2,300 -946.39 2003–04 2,143 200 2,300 -356.78 2004–05 3,458 1,315 1,766 377.46 2005–06 3,215 1,767
583 865.32 2006–07 3,941 1,500 - 2440.73 2007–08 5,406 1,290 - 4115.8 2008–09 5,515 1,600 - 3915.14
2009–10 5,778 2,400 - 3378 2010–11 6,115 3,100 - 3014.56 2011-12 6723.57 1687.96 5035.61 2012-13
6735.46 625 6110.46 2013-14* 3955.03 1789.36 2165.67 Grand total 54637.98 17574.32 6,949
30115.58 Source: Universal Service Obligation Fund (USOF). Available online at www.usof.gov.in; *
2013-14 based on collection and disbursement up to 31.12.2013 The figures presented from the usage
of USOF leaves a lot wanting as depicted in the above table- 2.1, as out of the total funds collected till
2014 only around 32 % have been utilized. This leaves a lot for asking with the rural tele-density being
41.02% in 2013 which is far behind urban tele-density 146.96% in 2013 and many areas lacking proper
communication connectivity in India it would do a world of good if the funds were aptly utilized. 49
Domestic long distance telecom services were opened for private entry in 2000-01 and International
Long Distance telecom services were opened for competition in 2002. 2.6. National Long Distance:
“Domestic Long Distance Telecommunication Service” or DLD means the telecommunication services
required to connect one local area of a public telecommunication network to another, within the
territorial limits of India so as to allow for transmission of voice and non-voice signals across different
geographical areas (Telecom Regulatory Authority of India, 2001). In 2000 the domestic long distance,
usually referred to as national long distance (NLD), market was opened up to private operators without
any restriction on the number of operators. This was done to promote setting up long distance
bandwidth capacity in the country, provide a choice to consumers and promote competition. 2.6.2. List
of licenses issued for providing National Long Distance Service (NLDS) Table No.2.2 List of Licensees for
National Long Distance Service (NLDS) as on 13.05.2013 S. No. Name of the Licensees License (Signed
on) 1 M/s Bharat Sanchar Nigam Ltd. Incumbent Operator 2 M/s Bharti Airtel Limited 29.11.01 3 M/s
Reliance Communications Limited 28.01.02. 4 M/s Videsh Sanchar Nigam Ltd.(Tata Communications
Limited) 08.02.02 5 M/s Mahanagar Telephone Nigam Ltd. 10.05.06 6 M/s Power Grid Corpn. Of India
Ltd. 05.07.06 7 M/s RailTel Corpn. Of India Ltd. 07.07.06 8 M/s HCL Infinet Ltd. 11.07.06 9 M/s i2i
Enterprises Ltd. (BT Global Communications India Pvt. Ltd.) 11.07.06 10 M/s Tulip IT Services Ltd. (M/s
Tulip Telecom Limited) 08.08.06 11 M/s Shippingstop Dot Com (India) Pvt. Ltd. ( M/s Loop Telecom Pvt.
Limited) (surrendered w.e.f 8.11.2010) 18.09.06 12 M/s AT&T Global Network Services India Pvt. Ltd.
09.10.06 13 M/s Vodafone Essar South Ltd. 10.11.06 14 M/s Sify Communications Ltd. 21.11.06 15 M/s
Idea Cellular ltd. 23.11.06 16 M/s Dishnet Wireless ltd. 13.12.06 17 M/s BT Telecom India Pvt. Ltd.
(surrendered w.e.f 2.05.8) 20.02.07 50 18 M/s Tata Teleservices Ltd. 30.07.07 19 M/s Spice
Communications Ltd. 08.08.07 20. M/s Oil India Limited 27.12.07 21. M/s Verizon Communications India
Private Limited 03.01. 08 22. M/s Cable & Wireless Networks India Private Limited 15.02.08 23. M/s
Equant Network Services India Private Limited 20.06.08 24. M/s Swan Connect Communications Private
Limited (surrendered on 22.08.2009) 12.08.08 25. M/s Citicom Networks Private Limited 03.10.08 26.
M/s Swan Telecom Private Limited 06.10.08 27. M/s SingTel Global (India) Private Limited 05.03.09 28.
M/s Datacom Solutions Private Limited 18.03.09 29. M/s Unitech Long Distance Communication Services
Limited 28.04.09 30. M/s Pacific internet India Private Limited 22.01.10 31. M/s Hughes Communication
India limited 11.10.11 32. M/s Telstra Telecommunications Pvt. Ltd 11.10.11 33. M/s Infotel Telecom Ltd
14.02.12 34. Bharat Broadband Network Limited 1.04.13 Source:
http://www.dot.gov.in/sites/default/files/DOC140513-001.pdf The above table No - 2.2 gives the
current list of companies offering the NLD service in India. The NLD services were offered only by the
government controlled incumbent operator BSNL at the beginning of this decade and with the NLD
services being liberalized the market was opened for the private companies. The pioneer in the private
operators entering this field was Bharti, which was accorded the license in the year 2001 and started
operations in 2002. It was followed by Reliance and VSNL which received license in 2002 and were
functional by 2003. The scenario of competition became much keener with the government reducing
the entry fee from Rs. 100 crores to Rs. 2.5 crores in the year 2005. 12 licenses were issued in 2006 itself
making the competition much stiffer, with 4 being issued in 2007, 6 in 2008, about 3 in 2009, one each
in 2010, 12 and 13 bringing the finally tally to 31 NLD operators out of a total of 34 as 3 licenses were
surrendered. 2.6.3. Total revenues from NLD services The total revenues from NLD services and the
resulting market scene have been presented below by highlighting the performance of the 5 top
companies of this segment (ranking being shown in the parenthesis). 51 Table No-2.3 National Long
Distance Service Operators (Based on Revenue) (In Rs. Crores) Company/ year 2002-03 Rs. 2003-04 Rs.
2004-05 Rs. 2005-06 Rs. 2006-07 Rs. 2007-08 Rs. 2008-09 Rs. 2009- 10 Rs. BSNL 5,500 (1) 4,510 (1) 5,041
(1) 6,792 (1) 4,665 (1) 2,870 (1) 3,159 (2) 3,600 (2) Bharti 430 (2) 341 (2) 482 (2) 801 (2) 1,035 (2) 2,410
(2) 4,905 (1) 4,800 (1) Reliance - 177 (3) 381 (3) 689 (3) 635 (3) 1,893 (3) 2,729 (3) 2,100 (3) VSNL /Tata
communication s(2008) - 48 (4) 231 (4) 595 (4) 505 (4) 692 (4) 1,050 (5) 1,045 (5) Vodafone - - - - - 420
(5) 1,403 (4) 1,900 (4) Idea Cellular - - - - - 354 713 1,000 Sify - - - - - NA 147 134 Tulip Telecom - - - - - NA
126 195 Railtel - - - - 116 (5) NA 119 192 Aircel - - - - - NA 53 278 Others 40 64 126 140 230 1,093 103 472
Total 5,970 5,140 6,261 9,017 7,186 9,732 14,432 16,400 Source: Various issues of Voice and Data.
http://voicendata.ciol.com and Subhashish Gupta, 2007. The early entrants (competitors) in NLD
services Bharti, Reliance, VSNL received their licenses between 2001-02 and 2002-03. BSNL who had the
benefit of being the incumbent in NLD services was the market leader from the advent of competition in
2002-03 to 2007-08 but from 2008-09 onwards that coveted position was taken over by Bharti a private
player emerging as the market leader. The top three positions in the NLD market was continuously held
by the three companies BSNL, Bharti and reliance. The total revenue in this sector continuously showed
an increase with the exception of 2003- 04 and 2006-07 during which phase the competition which
brought down the tariff rates of the NLD services but the increase in the usage was not sufficient to
compensate for the 52 reduction in the tariff. The reduction in tariff due to the introduction of
competition in NLD segment has gone down very well with the consumers, as it has drastically brought
down the call rates of long distance domestic calls over the decade. 2.7. International Long Distance
telecommunication services (ILD): “International Long Distance Telecommunication Service” means
telecommunication services required to connect a local area of a public telecommunication network
within India to a local area of a public telecommunication network in another country so as to allow for
the transmission of voice and non-voice signals (The Telecommunication Interconnection (Charges and
Revenue Sharing) Regulation 1999). India had agreed under the General Agreement of Trade in Services
(GATS) to review the opening up of international telephony in 2000 (Dr. Nehaluddin Ahmad, 2008).
However, open competition was allowed in this sector from April 2002 with no limit on the number of
service providers in this sector. The introduction of competition in the international long distance
market (ILD) coincided with that in the NLD market which also opened up in 2001. Table No -2.4 List of
Licensees for International Long Distance Service (ILDS) as on 13.05.2013 S. No. Name of the Licensees
License Signed on 1 M/s Reliance Communications Limited 25.02.02. 2 M/s Bharti Airtel Limited
14.03.02 3 M/s Data Access (India) Limited (Licence under suspension) 27.03.02 4 M/s Bharat Sanchar
Nigam Ltd 29.01.03 5 M/s Videsh Sanchar Nigam Ltd.(Tata Communications Ltd.) (Effective from
01.04.02) 05.02.04 6 M/s i2i Enterprises Ltd. (BT Global Communications India Pvt. Ltd.) 11.07.06 7 M/s
AT&T Global Network Services India Pvt. Ltd. 09.10.06 8 M/s Vodafone Essar South Ltd. 13.11.06 9 M/s
Sify Communications Ltd. 21.11.06 10 M/s Dishnet Wireless ltd. 13.12.06 11 M/s BT Telecom India Pvt.
Ltd. (surrendered on 21.02.10) 20.02.07 12 M/s Tulip IT Services Ltd. 06.07.07 13 M/s Spice
Communications Ltd. 08.08.07 14. M/s Verizon Communications India Private Limited 03.01.08 15. M/s
Cable & Wireless Networks India Private Limited 15.02.2008 53 16. M/s P3 Technologies Private Limited
28.02.2008 17. M/s Mahanagar Telephone Nigam Limited 18.06.2008 18. M/s Equant Network Services
India Private Limited 20.06.2008 19. M/s Swan Connect Communications Private Limited (surrendered
on 22.08.09) 12.08.2008 20. M/s Citicom Networks Private Limited 03.10.2008 21 M/s Swan Telecom
Private Limited (M/s Etisalat DB Telecom Privated Limited) 06.10.2008 22. M/s SingTel Global (India)
Private Limited 05.03.2009 23. M/s Videocon Telecommunications Ltd (earlier M/s Datacom Solutions
Private Limited 18.03.2009 24. M/s Unitech Long Distance Communication Services Limited 28.04.2009
25. M/s Pacific Internet India Private Ltd. 22.01.2010 26. M/s Telstra Telecommunications Pvt Ltd.
11.10.2011 27. M/s Infotel Telecom Limited 14.02.2012 Source:
http://dot.gov.in/sites/default/files/DOC140513_0.pdf The ILD market was a government monopoly
with VSNL being the incumbent in the beginning of the century. The initial licenses were issued to 3
companies in 2002 bringing the number of ILD service operators to 4. There was a gradual entry of more
and more players into the ILD market starting from 2002 and at present 24 ILD service providers are
operating in the Indian telecom market. A major development in this category of service was the
privatization of the incumbent state operator for ILD, Videsh Sanchar Nigam Limited which was
privatized in 2002, with the Tata Group acquiring a controlling stake in the company. And on 13th
February 2008 it was christened as Tata Communications. Many of these firms are also offering
international connectivity services to cater to all corporate segments. 54 Table No-2.5 International Long
Distance Service Operators (Based on Revenue) (In Rs. Crores) Company/ year 2002-03 Rs. 2003-04 Rs.
2004-05 Rs. 2005-06 Rs. 2006-07 Rs. 2007-08 Rs. 2008-09 Rs. 2009-10 Rs. VSNL/Tata communications
(2008) 4562.64 2718 2080 3579 7648 6966 8193 9235 Data Access 575.502 835 285 - - - - - Bharti 299.46
505 810 958 1,240 1897 2632 2600 Reliance communications. ltd - 288 655 2714 2,110 1545 1729 1800
AT&T - - - - 176 294 370 398 BSNL - - - - - 477 1052 1090 Vodafone - - - - - 104 572 800 BT - - - - 79 105
280 454 Aircel - - - - - NA 44 250 Verizon - - - - - NA NA 243 Equant Network - - - - - NA NA 170 Others
7.08 - - - 253 144 128 560 Total 5,444.68 4346 3830 7251 11,506 11,532 15,000 17,600 Source: Various
issues of Voice and Data and Subhashish Gupta, 2007. Tata Communications (erstwhile VSNL) started
out as the market leader and continues to do so in the ILD market. The introduction of competition
resulted in the much awaited reduction in ILD tariff (by 40%) (Dr..Nehaluddin Ahmad, 2008) and
increase in the service usage in total minutes (from 3,120 million minutes to 3,700 million minutes)
(V&D, 2004) but the increase in the usage of the service was not sufficient to compensate the same fall
in tariff therefore the initial opening of the ILD market saw the fall in the total revenues. Due to lower
prices Voice over Internet protocol (VOIP) increased at a brisk pace. VSNL and Bharati were the two
main players in the international connectivity 55 market, which was growing at 65% mainly due to the
Business Process Outsourcing (BPO) boom (Subhashish Gupta, 2007). 2.8. Interconnection: Meaning of
interconnection: In telecommunications, interconnection is the physical linking of a carrier's network
with equipment or facilities not belonging to that network. The term may refer to a connection between
a carrier's facilities and the equipment belonging to its customer, or to a connection between two (or
more) carriers. Various authorities have defined the term interconnection; some of them are given
below, In United States regulatory law, interconnection is specifically defined as "the linking of two
networks for the mutual exchange of traffic."The World Trade Organization defines interconnection as:
Linking with suppliers providing public telecommunications transport networks or services in order to
allow the users of one supplier to communicate with users of another supplier and to access services
provided by another supplier, where specific commitments are undertaken (WTO Telecommunications
Services: Reference Paper). The following are some of the definitions of the important terms connected
with interconnection given by
TRAI(http://www.trai.gov.in/WriteReadData/trai/upload/Regulations/39/interregu.pdf),
“Interconnection” means the commercial and technical arrangements under which service providers
connect their equipment, networks and services to enable their customers to have access to the
customers, services and networks of other services providers. “Interconnection Charge” means the
charge for interconnection by an interconnection provider to an interconnection seeker.
“Interconnection Provider” means the service provider to whose network an interconnection is sought
for providing telecommunication services. “Interconnection Seeker” means the service provider who
seeks interconnection to the network of the interconnection provider. 56 Levels of Interconnection:
Interconnection can happen at different levels, of which some are shown below,  New competitive
local telephone carriers interconnect with the incumbent carrier so they can attract subscribers in the
common service territory, and enable those subscribers to call subscribers on the incumbent‘s network
(Telecommunication Regulation Handbook, 2011).  Traditional wireline telephone and new wireless
mobile carriers interconnect so that subscribers of the traditional phone service can call wireless
subscribers, and vice versa (Telecommunication Regulation Handbook, 2011).  Customers of the
incumbent telephone carrier make calls to their dial-up Internet Service Provider, which in turn is a
customer of a competing local carrier (Telecommunication Regulation Handbook, 2011). The price at
which interconnection is offered is said to be at the heart of defining competition in a multiple network
environment, Therefore the interconnection norms play a significant role during the liberalization of
telecom services. And especially when the incumbent holds a dominant position regulation of
interconnection terms becomes necessary so as to create a level playing field because the incumbent
has no incentive to permit interconnection. In order to avoid restrictive pricing of interconnection either
to discourage competition or to earn high profits by the incumbent the regulator has to play a significant
role. Therefore one of the primary tools used by regulators to introduce competition in
telecommunications markets has been to impose interconnection requirements on dominant carriers
(McCarthy Tetrault, 2001). Interconnection Regime in India Interconnection is the lifeline of
telecommunications and is considered to be vital from both the service provider and the consumer’s
perspective. Telecommunications users cannot communicate with each other or connect with services
they require unless necessary interconnection arrangements are in place. A variety of access networks -
fixed and mobile, national long distance network and international long distance networks have 57 to
interconnect with each other to make local, national and international calls possible. This plurality
makes the types and numbers of interconnections large and needless to mention easy to slide into
disorder if not managed effectively. Therefore it is very important to have an effective interconnection
usage charges (IUC) regime in place to facilitate interconnection arrangements among various co-
operating and competing service providers in order to ensure that all service providers are able to gain
access, on reasonable terms and conditions, to the interconnection facilities and services necessary to
provide efficient service to their own customers
(http://www.trai.gov.in/Content/RegulationUser.aspx?id=0&qid=1). The total number of regulations
passed with respect to interconnection by TRAI amount to 28 in number till date which are the outcome
of consultations held with the various stakeholders (TRAI brought out around 56 consultation papers on
IUC). In India when competition was introduced in telecommunications i.e., in 1994 the interconnection
framework was a part of the license agreement of the Fixed line service providers that specified actual
amounts that each party could charge the other but the actual charges were mostly arbitrary i.e., they
were not well planned, leaving a lot to the discretion of the interconnecting parties and the Cellular
service providers had to seek interconnection agreements separately. But this system left a lot wanting
in an asymmetric situation, as the new entrants were at a disadvantage when compared to the
incumbent. This scenario warranted the regulator to pitch in to save the situation and TRAI did just that
by bringing out the Telecommunication Tariff Order in March, 1999 and a regulation on Interconnection
Charges and Revenue sharing in May, 1999 (The telecommunication interconnection (charges and
revenue sharing) regulation 1999 (1 of 1999)). But the initial effort by the regulator could not be termed
as very effective, as in its 1999 regulation it did not specify any interconnection charges as such but
allowed for negotiation between the two parties to determine the access and lease prices. As it
recognized the unequal balance of power between the negotiating parties (all interconnection was
mostly with the incumbent due to its network spread) it specified 58 detailed principles and regulatory
guidelines on which interconnection charges between interconnection seekers and providers would be
based and if mutual agreement for interconnection charge could not be reached within three months of
initiating such a process, TRAI might intervene to settle the matter. In this phase of interconnection
regulation the interconnection charge (set-up charge) was to be cost based & revenue share was to be
based on usage charge. The TTO specified the applicable rentals and per minute charges along with
specifying the basis of sharing revenue, which is presented below, For Fixed service providers the
revenue sharing was as following, Table No-2.6 The revenue sharing of Fixed service providers S. No.
Type of Service Originating Service Provider Terminating Service Provider 1. Local Calls Bill and Keep - 2.
National Long Distance 40% 60% 3. International Long Distance 45% 55% Source: The
telecommunication interconnection (charges and revenue Sharing) regulation 1999 (1 of 1999) Dot was
the main benefactor of this division as most of the calls terminated in its network due to its initial
position of vast reach. The mobile operators also were at the losing end because of the receiving party
pays billing in vogue because of which they did not get any revenue share for National Long Distance
and International Long Distance calls, since most of the calls terminated in the DOT network. The
National Long Distance competition policy in 2000 to reduce tariff and provide choice to consumers
ushered in a new phase in interconnection. Whereas earlier DOT was the sole NLD service provider
initially the interconnection regulation was made in accordance with it. Therefore TRAI brought out a
consultation paper in 2001, specifying the General Framework for Interconnection (GFI) for the multi-
operator environment in NLD. To support the same on 12th July, 2002, TRAI issued the
Telecommunication Interconnection (Reference Interconnect Offer) Regulation, 2002 (2 of 2002). The
regulation mandates that service providers with significant market power i.e., more than 30% market
share to publish an RIO(Reference Interconnect Offer) on WTO guidelines 59 “stipulating the various
technical and commercial conditions including a basis for Interconnect Usage Charges for Origination,
Transit and Termination” to act as reference model. All RIOs are to be approved by the regulator. In
order to create a more level playing field among the interconnecting parties and rebalancing of tariff,
TRAI issued the Telecommunication Interconnection Usage Charges (IUC) Regulation, 2003 on January
24, 2003 and implemented from May 1, 2003. This regulation covered the interconnection usage
charges for telecommunication services like basic service, which includes WLL (LM) services, cellular
mobile service providers and long distance operators throughout the territory of India. The IUC for
origination, transit, and termination was based on the principles of element based charging i.e. one
operator charging the other for the resources consumed for carriage of its calls in terms of minutes of
use (MOU) for various unbundled network elements and the charges also differed on the type of
network. The ADC component was included in the IUC to make up for the loss of revenue to the fixed
line operators due to reduction in NLD and ILD charges but not increasing the local charges in order to
keep them affordable. The next notable regulation was passed in 23rd February 2006, which has been
implemented from 1st March 2006, in which TRAI put a ceiling on carriage charges while other items of
IUC remained the same. This boosted the use of long distance networks and also resulted in a reduction
of long distance tariff. The ADC (Access Deficit Charge) as a percentage of Annual Gross Revenue was
decided to be phased out on 1.4.2008 according to ‘The telecommunication interconnection usage
charges (ninth amendment) regulations, 2008 (2 of 2008)’. The latest regulation pertaining to IUC which
is in vogue is the “Telecommunications Interconnection Usage Charges (Tenth Amendment) Regulations,
2009”. This reduced the termination charge for all types of domestic calls viz., fixed to fixed, fixed to
mobile, mobile to fixed and mobile to mobile has been reduced to 20 paise per minute. But the
termination charge for incoming international calls was raised to 40 paise per minute from 30 paise per
minute. A lot of deliberations are still on regarding the effect of new networks and services like 3G,
WiMax and NGN on IUC. 60 2.9. Calling Party Pays (CPP) ‘Calling Party Pays is a Mobile (cellular) phone
billing method in which a subscriber pays only for the calls made and nothing for the calls received’.
After a long consultative process, finally TRAI issued the Telecommunication Interconnection Usage
Charges (IUC) Regulation, 2003 on January 24, 2003. This regulation was instrumental in introducing the
regime of Calling Party Pays (CPP), which is perhaps the biggest factor in growth of telecom services in
India (telecom guide). Under the CPP regime, the calling party who initiated the call was to bear the
entire cost of the call. This regime came to be applicable for mobile to mobile calls as well as fixed line to
mobile calls. So far India had followed the Receiving Party Pays (RPP) system where the subscriber used
to pay for incoming calls from both mobile as well as fixed line networks. Shifting to the CPP system has
greatly fuelled the subscriber growth in the sector. 2.10. Foreign Direct Investment (FDI) Generally
speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy
and are “Usually preferred over other forms of external finance because they are non-debt creating,
non-volatile and their returns depend on the performance of the projects financed by the investors. FDI
also facilitates international trade and transfer of knowledge, skills and technology” (Planning
Commission of India.2002). One of the major contributors to growth in the Indian economy post
liberalization has been foreign direct investment. All the sectors in our country’s economy have
journeyed on the vehicle of FDI at least in part towards their growth and telecom has not been any
different. For the Telecom industry being a capital-intensive and with vast stretches of land not fully
connected due to the lack of telecommunication network looked towards not only private investors but
FDI also. The NTP-94 set the stage for FDI in the Indian telecom sector in order to achieve its objective of
providing universal service and improving quality of telecom services. But it was not very successful in its
attempt as the limit for foreign investors was only 29% with a lot of other regulations added on. The
actual breakthrough came with the NTP-99, which set the ball rolling by increasing the FDI limit to 49%.
Post NTP -99 the sizeable 61 inflow of foreign funds actually started around 2002-03. The limit of FDI in
telecom was further increased to 74% in the budget of the year 2004-05. Currently with the FDI limit
being set at 100% it looks set like a real contributor to growth of the telecom sector. Telecom sector
with its huge potential for growth has been highly successful in attracting FDI with the government
policy favoring it expect for a few developments lately. Table No. 2.7 FDI flows into telecom sector Year
U.S. $ in millions 2002-03 223 2003-04 116 2004-05 125 2005-06 624 2006-07 478 2007-08 1261 2008-
09 2558 2009-10 2554 2010-11 1665 2011-12 1997 2012-13 304 2013-14 174 Source: Department of
Industrial Policy and Promotion, Government of India.
http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx The FDI flows into our country
in the telecom sector have been very favorable, as can be seen from the above table no.2.7. The FDI
showed a remarkable hike in the year 2005-06 from 2004-05 which can be attributed to the increase in
the FDI limit from 49% to 74% in 2005. From there on it has shown a steady increase till 2009-10. The
funds flowing in 62 the form of FDI reduced from 2010 onwards which can be attributed to the various
scams, courts judgments cancelling government orders resulting in the reduced trust in the existing
policy implementation and also the global market scenario. This source of funds are essential for the
furtherance of growth in this sector which can be done by having a stronger policy environment and
encouraging diversification of telecom usage in order to encourage latest technology. 2.11. Spectrum
The objectives of the Indian government to encourage higher teledensity in the country and offering of
better quality services led to the identification of the lacunae that the government funds were
insufficient to foster this growth (NTP 94 and NTP 99), thus attempting to bring in private investment for
this purpose leading to the impetus of multiple operators in basic and especially the mobile
telecommunications sector. Spectrum has been a bone of contention from the time of introduction of
mobile services with the numerous cellular service operators vying for the limited spectrum being
offered. The word spectrum refers to a collection of various types of electromagnetic radiations of
different wavelengths. Spectrum is a valuable, scarce and finite natural resource but unlike other
resources it will not deplete when used. But it will be wasted if not used efficiently (V. S. Moni, 2010).
Radio Frequency Spectrum is the entire range of wavelengths of electromagnetic radiation which is used
as carrier of wireless transmission and thus a basic requirement for providing wireless services. It is a
finite but non-consumable global natural resource and commands high economic value in the
telecommunication sector (Performance audit report by CAG, 2010). Spectrum or airwaves are the radio
frequencies on which all communication signals travel. In India the radio frequencies are being used for
different types of services like space communication, mobile communication, broadcasting, radio
navigation, mobile satellite service, aeronautical satellite services, defense communication etc and other
personal communications systems (such as wireless microphones and garage-door remote controls).
The part of the spectrum used for mobile phones, broadcasting, satellite, and 63 other wireless
communications falls in the range of fairly low radio frequencies from 3 kilohertz up to about 300
gigahertz (Australian Government, 2010). Allocation of spectrum: When the pie size is limited and the
parties claiming a right to it is more then, in order to avoid a conflict allocation becomes mandatory. The
same is reflected in the case of spectrum which as mentioned above is a finite resource so as to make
sure interference free operation for each service making use of the radio frequency. Agencies in charge
of allocating spectrum: The International Telecommunication Union (ITU) is the body handling the
allocation of radio frequency or spectrum at the international level. The ITU allocates spectrum
frequencies for the use of various countries in order to facilitate international telecommunications
cooperation to support trade, transportation, communications, and protection of mutual interest. Radio
Regulations of International Telecommunication Union (ITU) mentioned in the international frequency
table issued by the ITU governs the frequency for every country (V. S. Moni, 2010). India falls in the
region -3 of the geographical division used for frequency allocation by ITU (National Frequency
Allocation Plan, 2011). The Wireless Planning and Coordination Wing (WPC) created in 1952 is a branch
of the Ministry of Communications and Information Technology of the Government of India is the
National Radio Regulatory Authority responsible for Frequency Spectrum Management in India. (Nishith
Desai, 2011). National Frequency Allocation Plan (NFAP) The National Frequency Allocation Plan (NFAP)
forms the basis for development and manufacturing of wireless equipment and spectrum utilization in
the country. Frequency bands allocated to various types of radio services in India are as follows. 64
Table No-2.8 National Frequency Allocation Plan (NFAP) 0-87.5 MHz is used for marine and aeronautical
navigation, short and medium wave radio, amateur (ham) radio and cordless phones. 87.5-108 MHz is
used for FM radio broadcasts 109- 173 Used for Satellite communication, aeronautical navigation and
outdoor broadcast vans 174-230 MHz not allocated. 230-450 Used for Satellite communication,
aeronautical navigation and outdoor broadcast vans 450- 585. Not allocated. 585-698 Used for TV
broadcast 698-806 not allocated. 806-960 Used by GSM and CDMA mobile services 960-1710
Aeronautical and space communication 1710- 1930 Used for GSM mobile services 1930-2010 – Used by
defence forces 2010-2025 – Not allocated 2025-2110 – Satellite and space communications 2110-2170 –
Not allocated 2170-2300 – Satellite and space communications 2300-2400 not allocated. 2400- 2483.5
Used for Wi-Fi and Bluetooth short range services 2483.5-3300 Space communications 3300-3600 not
allocated. 3600-10000 Space research, radio navigation 10000 – used for satellite downlink for
broadcast and DTH services Source: V. S. Moni, 2010; Wireless Planning and Coordination Wing (WPC).
65 The above allocation does not confer ownership rights to those services automatically. NFAP-81 was
in force till December 31, 1999 when usage of frequency bands was primarily done by the government
agencies with partial usage by private parties for their dedicated networks. However in order to manage
the limited spectrum better, to adhere to the international norms of spectrum and to make provision for
the rapidly developing technology various NFAP were introduced such as NFAP 2008, NFAP 2011 and
currently work is progressing on the NFAP 2013. Spectrum management: Spectrum management is the
process of regulating the use of radio frequencies to promote efficient use and gain a net social benefit.
Auction of spectrums was introduced in the telecommunication market after the failure of the
administrative process of allocating spectrum. In auction theory, an auction is said to take place takes
place when there is a seller who wishes to allocate an object to one of ‘n’ buyers (Andrea Prat et al,
2000). Auctions are used in order to increase the efficiency of the usage of spectrum and earn maximum
revenue out of it. However, auctions of spectrum also have certain drawbacks such as collusion and
higher price of telecom services due to high license fees (ibid). 2.12. Merger and Acquisition: Synergy in
action is how merger and acquisitions can be described. Here there is a marriage of two companies so as
to bring about the maximum benefit for both entities within the minimum time and with least
inconvenience. Merger is a transaction that involves the combination of two or more separate
businesses into one, with broadly equal holding and governance rights assigned to the respective
shareholders of each company (Allen & Overy, M&A Index, 2012). The phrase mergers and acquisitions
(abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management
dealing with the buying, selling and combining of different companies that can aid, finance, or help a
growing company in a given industry grow rapidly without having to create another business entity
(Harpreet Singh Bedi, 2010). 66 Indian Telecom sector has been a potpourri of M&A activity in the past
decade and the trend is still going very strong. The telecom market of India is one of the most attractive
ones in the whole world showing a growth of 30-40% growth in its subscribers per annum. The following
bodies mainly govern the M &A deals in the Indian telecom sector, Department of telecommunication
(DOT), Securities and Exchange Board of India (SEBI), Foreign Exchange Management Act (FEMA),
Competition Commission of India. The M&A deals are governed by the following norms prescribed by
the above mentioned organizations, Department of telecommunication (DOT) Based on
recommendations of TRAI, DoT issued guidelines on merger of of CMTS / UAS licenses in 2008. The
following are some of the important provisions:  The companies have to take the consent of DOT prior
to the proposed merger.  Merger of licenses shall necessarily be restricted to the same service area. 
The merged licences will in the category of UASL only but not CMTS.  Any merger, acquisition or
restructuring, leading to a monopoly market situation in the given service area, shall not be permitted. 
No M&A activity shall be allowed if the number of UAS/CMTS access service providers reduces below
four in the relevant market consequent upon such an M&A activity under consideration. Consequent
upon the merger of licenses, the merged entity shall be entitled to the total amount of spectrum held by
the merging entities. In case the merged entity becomes a “Significant Market Power” (SMP) post
merger, then the extant rules & regulations applicable to SMPs would also apply to the merged entity.
TRAI has already classified SMP as an operator having market share greater or equal to 30% of the
relevant market (M&A guidelines, 2010). In addition to M&A guidelines, DoT has also issued guidelines
on foreign equity participations and management control of telecom companies. 67 Spectrum is the
most attractive offering which makes M&A a very desirable option. Though it is a non depletable
resource, it is a scare one and there are a lot of parties vying for it. With the mobile market which holds
the potential for high growth being highly dependent on this resource, it will do the telcos a lot of good
if they can get as much spectrum as possible in their kitty. The reasons for the telecom sector being an
attractive proposition for the M&A deals: M&A is a convenient way for the foreign companies to acquire
license for operating in a particular geographical territory in India. With the markets of the telcos from
the developed companies facing saturation, India is the most lucrative opening available with a
relatively lower teledensity and a young population presenting a good market. Acquisition of telecom
infrastructure and network is a very vital benefit derived as the network roll out involves Right of way
(ROW) approvals, coordination with local government departments, acquiring base transceiver station
(BTS) and Base Station Controller (BSC) sites on rentals, acquiring municipal and local approvals to set up
tower and antenna, obtaining electrical connection for the sites, import of equipment, installation of
tower, equipment and shelter, Standing Advisory Committee for Frequency Allocation (SACFA) and
Telecommunication Engineering Centres (TEC) approvals, integration of various sites and final launch of
services in a geographical area etc. Generally the time to roll out a network in a circle takes minimum 6
months to 1-year time (Sanjoy Banka, 2006). The above mentioned sector specific benefits come along
with the usual benefits of M&A like the Brand value, Human resources, higher EBITDA etc. The following
are the details of the list of mergers and acquisitions in our country on an overall basis and with
particular reference to telecom sector in terms of the number/ volume of deals taken place and the
value of these deals from 2001 to 2010. The data for 2001 to 2005 and from 2006 to 2010 is shown in
different tables. 68 Table No-2.9 Volume / Number of Merger and Acquisitions in India Year Grand Total
(Manufacturing & service) Computer software and Telecom sector Proportion 2001 1320 174 13.18%
2002 1439 122 8.48% 2003 1165 81 6.95% 2004 1062 81 7.63% 2005 1091 90 8.25% Source: Various
copies of CMIE reports, cited in Harpreet Singh Bedi, 2010; Mergers & acquisitions newsletter, Volume
II, (Oct – Dec 2012); Rajat Kataria, 2010. Table No-2.10 Volume / Number of Merger and Acquisitions in
India Year Grand Total (Manufacturing & service) Telecom sector Proportion 2006 1099 19 1.73% 2007
1077 23 2.14% 2008 1070 33 3.08% 2009 1095 20 1.83% 2010 1039 16 1.54% Source: Various copies of
CMIE reports, cited in Harpreet Singh Bedi, 2010; Mergers & acquisitions newsletter, Volume II, (Oct –
Dec 2012); Rajat Kataria, 2010. The total volume of deals in M&A is listed in table one and two. But the
column three in table one of 2001 to 2005 shows a cumulative figure M&A deals in computer software
and telecom sector where as table 2 shows the exclusive deals in the telecom sector. The proportion of
M&A deals volume from telecom sector are not a very significant compared to the total number of M&A
deals in India. 69 Table No-2.11 Value of deal or deal size of Merger and Acquisitions in India Year Grand
Total (Manufacturing & service) Rs. Crores Computer software and Telecom sector Rs. Crores Proportion
2001 27454 1812 6.60% 2002 34800 1536 4.41% 2003 22556 2614 11.59% 2004 60003 4320 7.20% 2005
103879 7506 7.23% Source: Various copies of CMIE reports, cited in Harpreet Singh Bedi, 2010; Mergers
& acquisitions newsletter, Volume II, (Oct – Dec 2012); Rajat Kataria, 2010. Table No-2.12 Value of deal
or deal size of Merger and Acquisitions in India Year Grand Total (Manufacturing & service) U.S$(in bn)
Telecom sector U.S$(in bn) Proportion 2006 19 3.40 17.89% 2007 38 13 34.21% 2008 30.30 11.20
36.96% 2009 18.50 1.70 9.19% 2010 31.40 14.62 46.56% Source: Various copies of CMIE reports, cited in
Harpreet Singh Bedi, 2010; Mergers & acquisitions newsletter, Volume II, (Oct – Dec 2012); Rajat
Kataria, 2010. The total value of M&A deals is listed in table 2.10 and 2.11. The table 2.10 shows the
total value of mergers in India and the value of M&A in computer software and telecom sector together
valued in crores of Indian currency from 2001 to 2005. The table 2.11 shows the value of M&A deals in
India and telecom sector exclusively in U.S dollars ($) in billions. The proportion of the value of telecom
sector deals has shown a continuous increase from 2001 onwards till 2010 except for a steep fall in
2009, inspite of recession in the global market the telecom held its strong sway. The major leap in the
percentage of M&A deals 70 came with the increase in the FDI limit to 74% from 49%. The tables below
depict the average value per M&A deal in the telecom sector in crores till2005 and from 2006 in US
dollars. Table 2.13 Average value per M&A deal in the telecom sector (in crores) year Average value per
M&A deal in the telecom sector (in crores) 2001 10.41 2002 12.59 2003 32.27 2004 53.33 2005 83.4
Source: Various copies of CMIE reports, cited in Harpreet Singh Bedi, 2010; MERGERS & ACQUISITIONS
NEWSLETTER Volume II, (Oct – Dec 2012); Rajat Kataria, 2010. Table 2.14 Average value per M&A deal in
the telecom sector (in US $ in Millions) year Average value per M&A deal in the telecom sector (in US $
in Millions) 2006 178.95 2007 565.22 2008 339.39 2009 85 2010 913.75 Source: Various copies of CMIE
reports, cited in Harpreet Singh Bedi, 2010; MERGERS & ACQUISITIONS NEWSLETTER Volume II, (Oct –
Dec 2012); Rajat Kataria, 2010. Table No. 2.13 shows the average value per deal showed a continuous
increase from Rs. 10.41 crores in 2001 it increased to Rs. 83.40 crores in 2005, showing a very optimistic
picture of the M&A scene. The same can be said for the period from 2006 (Table No. 2.14) with an
average deal value of $ 178.95 million in 2006 it reached an all time high in 2010 with a value of $
913.75 million, showing how the valuation of Indian telecom businesses are continuously on the rise. 71
The table below gives a snapshot of the major merger and Acquisition deals taken place in India from
1998 to 2010. Table No-2.15 Few major M&A deals in the telecom sector in India Company/Service
Name Stake Sold % Buyer Seller Year Deal size US $ Orange, Mumbai 41% Hutchison Group, HongKong
Max Group, Delhi 1998 560 Mn Command Cellular, Kolkata 100% % Hutchison & Indian Group Usha
Martin & Others 2000 N. A Modi Telestra, Calcutta 100% Bharti Group, India B.K.Modi and Telestra 2000
N. A Reliance CDMA Qualcomm, San Diego, US Reliance Infocomm 2002 N. A Aircel, Chennai 79.24%
Sterling Group, Chennai RPG Group 2003 Rs. 210 cr Hutch Essar 3.17% Essar Group Max India 2005 146
Mn Idea Cellular 48.14% Aditya Birla Group Tata Group 2005 N.A Bharti Airtel 10% Vodaphone Bharti
Group 2005 1.5 bn BPL Mobile and BPL Cellular Promoters 2005 1.15 Bln Hutch, India 8.33% Max India
Kotak Mahindra, India 2006 225 mn Hutch Essar, India 5.1% Hutchison Group, Hong Kong Hinduja 2006
450 mn Aircel, TN, Chennai and NE 74% Maxis, Malaysia Sterling Group 2006 750 Mn Spice, (Punjab and
Bangalore) 49% Telekom Malaysia, Malaysia N.A 2006 178 Mn Hutch, India 67% Vodafone, UK
Hutchison, Hong Kong 2007 11.1 bn Shyam rajasthan 10% Siestema, Russia Shyam telecom, India 2007
11.4 Mn Shyam, rajasthan 41% Siestema, Russia Shyam telecom, India 2008 58.1Mn Spice, Karnataka,
punjab 40.8% Idea Cellular, india Spice telecom India 2008 Rs. 2716 crores Tata teleservices Ltd 26% NTT
Docomo, Japan Tata teleservices Ltd 2008 2657 Mn TataTeleservices’ Wireless arm 49% Quippo
Teleservices Infrastructures’ TataTeleservices’ Wireless arm 2009 483 mn Zain Africa - Bharti Airtel Zain
Africa 2010 10. 7 Bn Source: Telecom India Daily, 2009; Rajat Kataria, 2010 72 India, with its huge
market base of present and potential customers, with the easing of regulations for the participation of
foreign entities with Indian companiesand the technological advancements like Internet, Mobile, WiFi &
WiMax etc offers ample opportunity to augment the growth story. Spectrum and network acquisition
would be the two main drivers for M&A deals in the Indian telecom sector due to the allocation of
spectrum based on the subscribers and the cost associated with the network laying, if the rural market
can be tapped with the proper use of technology and marketing strategy it would only be a win-win
situation for all the stakeholders. 2.13. Mobile Number Portability (MNP) Mobile number portability
(MNP) was a much awaited initiated taken towards the best interest of the consumer. Previously when a
customer was not satisfied with the services of his network provider he would think twice before
changing the service provider as this change would result in a lot of repercussions like having to intimate
all concerned of the changed number and losing touch or missing out on an important piece of
information if the change in number information did not reach the concerned parties. “With number
portability you can retain your telephone number, even when the address or telecom provider is
changed.” (Systor Trondheim AS) MNP or Mobile number portability enables consumers to retain their
mobile numbers when changing service providers, service types and/or locations (Dr Rajiv Kumar Singh,
2012). The Internet Engineering Task Force (IETF) has defined three types of number portability: service
provider portability, location portability and service portability. Service provider portability: It enables a
customer to retain his existing mobile number when changing from one service provider to another in
the same area. Location portability: It enables a customer to retain his existing mobile number without
impairment of quality, convenience or reliability when shifting from one geographic location to another.
73 Service portability: It enables a customer to retain his existing mobile number without impairment of
quality, convenience or reliability when switching from one service technology to another service
technology for example, from CDMA to GSM. Mobile number portability in India: The process for
introducing MNP in India was set in motion by the regulator, when the Telecom Regularity Authority of
India (TRAI) issued draft regulations (On March 8, 2006) to facilitate mobile number portability in India
and submitted its recommendations to the Department of Telecommunication (DoT). This facility was
introduced on 1st January 2011 in India with the DoT recommended service provider number portability
including service portability (portability between GSM and CDMA) for all mobile service operators. It
was decided to implement the allcall-query approach for mobile number portability. The All-call-query
approach is a direct routing scheme that utilises a centralised ported database. In this scheme, the
originating network directly queries the central ported database to determine the routing number
required to transfer the call to the recipient operator. After determining the routing number, the call
from the originating network is directly routed to the recipient operator network. In this way, the
involvement of donor operator is eliminated. For the provision of MNP, our country is divided into two
zones the north-west zone and south-east zone. The north-west zone comprises Gujarat, Haryana,
Himachal Pradesh, Jammu and Kashmir, Maharashtra, Punjab, Rajasthan, UP (East), UP (West), Delhi and
Mumbai. The south-east zone comprises Andhra Pradesh, Bihar, Assam, Karnataka, Kerala, Madhya
Pradesh, North East, Orissa, Tamil Nadu, West Bengal and Kolkata. Dot has awarded licence to two
Mobile Number Portability Service providers Syniverse Technologies, and ‘MNP Interconnection
Telecom Solutions India’ to work as MNP clearing house administrators (medianama, 2013). MNP
clearing house administrators manage a central mobile number portability database that keeps record
of all ported-in and ported-out numbers. Further, the operators also maintain their own MNP database
called local number portability database. 74 The charge for porting is in India is Rs. 19, and the porting
should be done within 7 working days in all over India except in Jammu and Kashmir, Assam and North
East service areas, where it is 15 working days. If the customer is not happy with the new service
provider, he can switch again after 90 days (Margaret Rouse, 2010). Customers of telecom operators
whose licences were cancelled by Supreme Court on February 2, 2012 will no longer be able to opt for
mobile number portability (MNP). In the direction, the TRAI has asked to stop accepting porting request
from Tata Teleservices (3 service area), Unitech Wireless , now Uninor (15 service area), Videocon (11
service area), Loop (13 service area), Etisalat (15 service area), S Tel (5 service area) and SSTL (10 service
area) where the companies lost their licences. A MNP request can be processed only when the number
is on active network (The Hindu Business line, 2012).The table presented below gives the total number
of MNP Requests received in India. Table No-2.16 Zone wise MNP Requests December 2012 ( in Mn)
Zone 1 Service Area No of MNP requests Delhi 2.64 Gujarat 6.93 Himachal Pradesh 0.31 Haryana 2.93
Jammu & Kashmir 0.01 Maharashtra 6.80 Mumbai 2.83 Punjab 2.62 Rajasthan 7.59 UP East 4.88 UP
West 4.63 Total Zone 1 42.17 Zone 2 Service Area No of MNP requests Andhra Pradesh 7.4 Assam 0.32
Bihar 1.58 Karnataka 9.89 Kerala 3.4 75 Kolkotta 1.48 Madhya Pradesh 4.75 North East 0.14 Odisha 1.82
Tamil Nadu 4.86 West Bengal 2.25 Total Zone 2 37.89 Total All India 80.06
http://www.indiatelecomonline.com/mnp-status-december-2012/ There were a total of 80.06 million
requests received for Mobile number portability in our country. Karnataka falling in zone 2 with 9.89
million requests heads the list of subscribers asking for MNP in the whole country. The states like
Maharashtra, Rajasthan, and Andhra Pradesh fall in the category of a high MNP requests. 2.14. Capital
Employed: It is also referred to as the annual capital expenditure. In simple terms it is the fund deployed
to operate the business. This fund is the gross annual investment in telecom (including fixed, mobile and
Internet services) for acquiring property and network. This should include all operators (both network
and virtual operators) offering services within the country. The term investment means the expenditure
associated with acquiring the ownership of property (including intellectual and non-tangible property
such as computer software) and plant by the operator. This includes expenditure on initial installations
and on additions to existing installations where the usage is expected to be over an extended period of
time. This applies to telecom services that are available to the public only, and excludes investment in
telecom software or equipment for internal use, expenditures on research and development and fees
for operating licenses and for the use of radio spectrum (ICT Indicators, March 2010). 76 Table No-2.17
Capital employed in the telecom sector (Rs. Crores) Year Capital employed (Rs. Crores) Trend percentage
2000-01 N. A N. A 2001-02 103146 100% 2002-03 127733 124% 2003-04 154067 121% 2004-05 153864
149% 2005-06 170087 165% 2006-07 189834 184% 2007-08 N. A N. A 2008-09 N. A N. A 2009-10 286837
278% 2010-11 337683 327% 2011-12 327939 317% 2012-13 297430 288% Source: Annual reports of
DOT, TRAI and Performance indicator reports of TRAI N. A-not available Despite several controversies
like the 2G spectrum scam, the telecom sector witnessed over 17 per cent increase in investment in
2010-11 over the previous financial year, says the annual report of the Telecom Regulatory Authority of
India (Trai). The capital employed in the telecom sector increased to Rs.3, 37, 683 crores in 2010-11
from Rs.2, 86, 837 crores in 2009-10, 2.15. Chronological list of all telecommunication reforms brought
about in India from 2000 onwards. 2000  Regulatory mechanism further strengthened through TRAI
(Amendment) Act, 2000. The Act provides for establishment of a separate dispute settlement
mechanism called Telecom Dispute Settlement and Appellate Tribunal. 77  Corporatisation of
Department of Telecommunication’s operational network wing into a public sector undertaking called
Bharat Sanchar Nigam Limited on October 1st, 2000.  National Long Distance Service opened for
competition.  BSNL and MTNL permitted to enter as third cellular operator in their respective circles.
2001  New licenses for basic services issued and additional basic service operators permitted.  Fixed
service providers permitted to provide limited mobility in the form of Wireless in Local Loop on a
restricted basis.  Fourth cellular operator, one each in four metros and thirteen circles was permitted
and in all, 80 licenses (56 in private sector, 22 to BSNL, and 2 to MTNL) were issued.  TRAI issued its first
Interconnection Regulation for Basic and Cellular services.  Communication Convergence Bill, 2001 was
introduced in Lok Sabha on August 31, 2001 and referred to standing committee.  National Long
Distance service opened up to competition. 2002  International Long Distance service opened up to
competition.  License fees were reduced.  Internet or IP telephony service allowed. 78  Tariffs for
national roaming service were brought under regulation and ceiling tariffs notified.  Tariffs for cellular
mobile services were forborne provided that every service provider shall specify a monthly rental and
airtime charge per minute with pulse duration of 30 seconds, as Reference Tariff Package of the service
provider.  Reference Interconnect Offer (RIO) regulation issued.  Universal Service Obligation Fund
(USOF) was established. 2003  Interconnection Usage Charges (IUC) and Calling Party Pays (CPP) regime
was introduced for cellular services.  National and international long distance tariffs also forborne
subject to a ceiling of Rs. 8.40 per minute in NLD.  Basic service tariffs except rural fixed-line forborne
by TRAI.  Government allows the issuance of unified licences that will allow local wireline players to
provide cellular service and vice versa.  DoT amends NTP 1999 to recognise unified telecom licence and
unified access licence that will allow local wireline players to provide cellular service and vice versa. 
TDSAT allows basic operators to offer WLL limited mobility services.  TRAI imposes ADC charges on
cellular operators with effect from December 15, 2003.  Government approves intra-circle mergers. 79
2004  Broadcasting notified as telecommunication service under Section 2(i)(k) of TRAI Act.  Intra-
circle guidelines established.  Broadband Policy 2004 formulated.  TRAI issues regulation on Reporting
System on Accounting Separation making it mandatory.  TRAI issues directive on carrying forward
unused balance during grace period applicable at the time of recharge for cellular prepaid subscribers. 
TRAI mandates that a tariff plan once offered by a service provider shall be applicable for a minimum
period of six months from the date of enrolment of the subscriber to that tariff plan. No increase in any
item of tariff permitted during the six month-period. However, the operator is free to reduce tariffs at
any time.  27 UAS licenses issued. 2005  FDI limit increased from 49 to 74 per cent in the
telecommunication services.  TRAI announces new Access Deficit Charges (ADC) regime.  TRAI fixes
ceiling tariff for international bandwidth (ceiling tariff is reduced for higher capacities by about 70 per
cent and lower capacity by 35 per cent).  TRAI revises ceiling tariff for domestic bandwidth (revised
ceiling tariff for different capacities marked a reduction with respect to the prevailing market rate in the
rage of 3 to 70 per cent). 80  TRAI provides its recommendations on the growth of telecom services in
rural areas.  Entry fee for NLD licences reduced from Rs 100 crore to Rs 2.5 crore.  Entry fee for ILD
reduced from Rs 100 crore to Rs 2.5 crore. 2006  Number portability proposed by TRAI.  Annual
licence fee for NLD as well as ILD reduced to 6 per cent of AGR.  TRAI issues amendment to IUC, moving
away from a per-minute ADC regime to a revenue share regime. Revenue share fixed at 1.5 per cent of
adjusted gross revenue (AGR) to be paid to BSNL.  22 UAS licenses issued.  DoT announces new criteria
for additional spectrum. TRAI issues recommendations on number portability and next-generation
network (NGN). 2007  TRAI issues the ‘Telecom Unsolicited Commercial Communications Regulations’.
 TRAI issues ‘Telecom Consumers Protection and Redressal of Grievances Regulations’.  TRAI issues
“International Telecommunication Access to Essential Facilities at Cable Landing Stations Regulations,
2007”. 81  TRAI issues Telecommunication Consumers Education and Protection Fund Regulations. 
One UAS license issued.  TRAI orders reduction in tariff for national roaming services.  Domestic
Leased Circuits Regulations, 2007 issued. 2008  Access Deficit Charges (ADC) abolished.  122 UAS
Licensees issued. 2009  TRAI issues the Regulations on the Standards of Quality of Service of Basic
Telephone Service (Wireline) and Cellular Mobile Telephone Service.  Interconnect usage charges
reduced.  Mobile Virtual Network Operator (MVNO) guidelines for 3G as well as 2G disclosed.  TRAI
issues regulation on Telecommunication Mobile Number Portability.  DOT releases guidelines on Voice
over Internet Protocol (VoIP). 2010  3G and Broadband Wireless Access (BWA) spectrum auctions
completed.  Mobile Number Portability implementation in Haryana service area was tested on a pilot
basis. 2011  Mobile number portability launched countrywide. 82  The Telecom Commercial
Communications Customer Preference Regulation issued.  Draft National Telecom Policy 2011 released.
Source: TRAI. (www.trai.gov.in) 2.16. Chapter summation: This study analyzes the effect of telecom
reforms in India at three different levels starting with the effectiveness of the regulator whose
formation was a major result of the reform process and is essential for the success of the other reforms
and improved competition, the extent of competition achieved due to the various reforms brought
about and the comparison of relative performance of the public sector versus the private sector and the
effect on the consumer the most important stakeholder in the telecom reform process. This chapter
gives a snapshot of the various telecom reforms brought about in order to set a background for the
analysis of the above mentioned aspects. The subsequent chapter analyses the effectiveness of the
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