In the last part of this series, I plan to summarise all the provisions of the draft telecom bill, i.e the kind of empowerment it enables the Central Government and its implications on the telecom sector.
Licensing Provisions
As discussed in Part 1, both the Current Act (1885) and the proposed Draft (2022) give the Central Government similar powers to license all kinds of services, including OTT services. But the real question is whether the central government should go on the path of licensing them or let the status quo prevail. The answer to the above question will emanate from analyzing the principle which drives the process of licensing, how easy is to license them and what additional value the Central Government can unlock by licensing OTT services.
License Fees — These fees are set at some percentage of revenue generated by the licensed company. Since the major OTT company’s business models are nebulous (quite unlike the conventional telecom companies), and therefore, charging license fees as a % of revenue will become extremely difficult. For example, Whatapp doesn’t generate any standalone revenues but it does so only for its parent company Facebook. In fact, WhatsApp charges consumers nothing but earns revenues only from its business users. Hence, given this complication, DoT will find it extremely difficult to decide on a license fee payment strategy for OTT communication apps like WhatsApp. And if it so decides, then it has to be radically different from the current revenue share model in practice.
Legal Interception — Most OTT apps thrive on end-to-end encryption. Some app companies (like apple) even claim that they are incapable of reading the user messages in their transit between devices. So if these app companies can’t read the messages themselves, how will they enable the Central Government with Legal Interception — A mandatory requirement for all licensees?
Bottleneck Resources — One of the main principles of licensing is to enable some structure and discipline for accessing bottleneck resources like spectrum, and numbering. The OTT app companies need neither. None of them are even given any preference (priority) on carriage over the operator’s networks (Net Neutrality Rules). So in the absence of access to bottleneck resources and preferential treatment of carriage over the telecom network, what additional benefits the DoT can bring to the table for these app companies, and if none, then what purpose will it serve by bringing them under the purview of licensing?
Hence, licensing OTT apps serves no useful purpose. On the contrary, it will create huge confusion in the market (as DOT will not have the bandwidth to manage them all). This will stifle innovation and will not be in the interest of the overall growth of our digital economy.
The other important point to emphasize here is that — DoT by enlisting the definition of telecom infrastructure as only passive equipment, is putting to rest forever the demand of the tower companies for including active equipment as well in the purview of registration — which otherwise would have enabled the telecom operators to share active equipment to optimize cost, just like they do for the passive equipment.
Spectrum Management
As mentioned in Part3 of my note, the provisions included in this section are long overdue and will enable the DoT to greatly increase its flexibility in managing airwaves. DoT’s ability to manage airwaves got hugely constrained by the SC Judgment of 2012 — which directed the Central Government to assign airwaves through a process of auction. The proposed draft clearly lays out the objectives of spectrum management, i.e to best subserve the common good and ensure widespread access to telecommunication services. As stated in my earlier note (Part3), the piecemeal and discrete approach to spectrum assignment (in absence of any clearly articulated vision in form of an Act) led to a huge barrier to entry and drove many operators to bankruptcy.
Insolvency & Bankruptcy
In my earlier note (Part2), I explained why the implications of these new provisions in the Draft are significant. The good news is that it will allow a sick company to continue to function, even when it has lost all its capability to pay its dues to the government. Please note that a bulk of telecom operators’ liabilities are towards the government. VI — 76% of its total debt, and for Bharti and RJIO these numbers are also very significant.
But the bad news is that such a company will lose all its capability to invest in new networks and technology. Why? As the GOI will demand its dues to be paid first as soon as the company is able to find some resources. If it doesn’t, it (GOI) will have to face allegations of lending undue favors to corporates and businesses. Therefore, the promotors will lose interest as the company’s fate will hang in balance — neither it will be able to fully exit nor earn reasonable profits. In nutshell, the entity will virtually become a government-run entity and end up meeting the same fate as the existing loss-making PSUs.
Right of Way
As stated in my earlier note (Part4), the power of the Central Government to make Rules on facilitating ROW emanates from the current Act (1885) which is duly ratified by the Parliament. However, the current ROW Rules of 2016 are not in full synergy with its mother Act. Why? As the current Telegraph Act of 1885 does not empower the Central Government to sets rates and SLAs for granting RoW, on behalf of the States. Though the Draft Telecom Bill of 2022 tries its best to correct most of the incompatibilities between the Indian Telegraph Act of 1885 and the ROW Rules of 2016, however, the key issue here is the “Constitutional Validity” of some of these provisions — mostly related to the quantum of fees to be collected by State Agencies for granting ROW. As Schedule 7 of our constitution defines the distribution of powers between the Center and the States. And under this Schedule, Section(18) of Part II (Items for which only States are empowered to make laws) is reproduced below.
Land, that is to say, rights in or over land, land tenures including the
relation of landlord and tenant, and the collection of rents; transfer and
alienation of agricultural land; land improvement and agricultural loans;
colonization.
Hence, States have exclusive rights over land and have the exclusive privilege to decide rates and fees relating to their use. The Center’s powers over land in the concurrent list is for a matter of only “Acquisition and requisitioning of property” (Section 42 of the Concurrent List). Hence, any law encroaching on it might get disputed, especially in States which are not in alignment with the Center.
Telecommunication Development Fund
Scope
Indian Telegraph Act was amended two times, one in the year 2003, and one in 2006 in order to empower the Central Government to set up a Universal Service Obligation Fund (USOF). The term was defined in the Amendment Act of 2003 as:-
Section 3 (1A) — “to enable means the obligation to provide access to basic telegraph services to people in the rural and remote areas at affordable and reasonable prices”
Later in the Amendment Act of 2006, the phrase in Section 3 (1A) was simply replaced by “obligation to provide access to telegraph service”, i.e word “basic” was removed and all services were included under the purview of the USOF.
The proposed draft provisions (2022) expand this scope further, by including — a) urban areas; b)R&D of new telecom services, technology, and products; c) support skill development and training; d) support pilot projects, consultancy assistance, and advisory support towards the provision of USOF services; e) support introduction of new telecommunication services, technologies, and products.
Criteria
The 2003 Amendment of the 1885 Act empowered the Central Government to administer the fund in such a manner as may be prescribed by rules made under this Act [Section 9D(1)]. Hence, the GOI rules in 2004, decided that the criteria for the selection of beneficiaries for the USO fund will be done through a tendering process, barring a few exceptions.
When these exceptions (assignment of funds without tendering) were applied to private entities they failed miserably. One can recall the RDEL scheme. There were many allegations of fraud and misappropriation. Also, even the process of bidding failed to ensure optimal utilization of the funds. Hence, to overcome difficulties the Central Government started allocating these funds to only PSUs and Government owned entities, like BBNL, which hasn’t been able to attract much utilization of their OFC network built through the USOF.
Therefore, in my view, expansion of the scope of the fund will help, but the bigger impact will only happen when the efficiency of administering the fund can be enhanced, and this has to be done in parallel and has no direct linkage with the current process of enacting a new law with the increased scope of services under the USO purview.
Standards, Public Safety, and National Security
Power to Prescribe Standards
This DoT does it even today through the contractual provisions in the license document, and notice inviting application (NIA) for spectrum auctions. Hence, nothing much will change with the new Act in place. Only it will enhance the legality of DoT’s actions.
Provisions of Public Emergency or Public Safety
Same as above
National Security
Same as above
Protection of Users
Most of the proposed provisions under this section are already regulated by the TRAI. It tried its best to prevent unsolicited calls and even went to the extent of pushing telecom companies to use blockchain technology to identify and curb pesky calls. But still, we continue to receive these messages and calls. Hence, the layout of these provisions in the Act will be insufficient unless an effective mechanism is identified to contain these messages.
TRAI’s Powers
The Draft Telecom Bill makes no attempt to change any of the provisions of the TRAI Act of 1997, except for the mandatory requirement of the DoT to send back the recommendations with justifications back to the TRAI for its reconsideration. And if the TRAI reiterates its recommendations then DoT has no obligation to accept them and can reject them without assigning any reasons.
DoT’s point of view is that this mandatory back-and-forth is a waste of time. Yes, it might look like it is, as 99.99% of the time the TRAI sends back to DoT its original recommendation without making any changes.
But following the process is important, as it gives the public the opportunity to see through the justifications on the basis on which the decisions are made, and an opportunity to provide additional inputs to the DoT if required.
If such a process is considered a waste of time, then the same should extend to TRAI’s consultation process as well. Why waste such a huge amount of time if the decisions are made in advance and the reasons for taking those are not documented for public scrutiny and for future reference? In democracy following the process is as important as the intent itself, as it strengthens the system, ensures discipline, and makes the government more accountable by allowing public scrutiny.
Conclusion
In my view, the new Act (2022) will empower the Central Government with additional powers to regulate the sector and will also strengthen the legality of the current regulatory provisions already in practice. But since most of the provisions (proposed in the Draft) are already in place (in some form or the other)— empowered by the current Act of 1885, or contractually, nothing radically will change for the sector on account of the proposed Draft (2020). For example, the Draft (2022) lays out a set of services that the DoT can license, the same empowerment already existed in the current Act (1885) [Read — Part1]. Also, it does not make sense for the DoT to expand the scope of licensing by including OTT under its purview (for reasons explained above). The real focus should be on execution, as many of the provisions (proposed in the Draft) were already tried and executed (like pesky calls), but with very little impact. Only then can we achieve our objective of enhancing the efficiency of our digital economy.
Concluded
Earlier parts of this series — Part1; Part2; Part3; Part4
(Views expressed are of my own and do not reflect that of my employer)
PS: Find the list of other relevant articles in the embedded link.
