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Ergo Update

06-Apr-2020

In an encouraging move that may deliver a vital thrust into the investment-intensive, yet cash-stripped Indian telecom sector, the Telecom Regulatory Authority of India (TRAI) in its recommendations dated 13 March 2020 (Recommendations) has proposed that ‘passive’ telecom infrastructure providers registered with the Department of Telecommunications (DoT) as Infrastructure Provider Category – I (IP-I), should be allowed to ‘own’ certain active telecom infrastructure, for establishing and providing to ‘eligible service providers’. Presently, IP-I entities are not allowed to own ‘active’ elements.

Although inconsistent with the current regulatory framework, TRAI has touted its Recommendations as a gamechanger and a catalyst for unburdening the telecom industry, if accepted by DoT. In TRAI’s view, effective utilisation of telecom resources by encouraging IP-I entities (instead of each telecom service provider (TSP) separately) to incur deployment and maintenance costs and recovering the same through multi-operator sharing, is a must. TRAI also refers to the National Digital Telecommunications Policy, 2018 which recognises that sharing of active assets by IP-I entities must be encouraged and facilitated.

Background

DoT, in March 2009, had allowed IP-I entities to provide certain active elements only for / on behalf of” TSPs i.e. licensees under the Indian Telegraph Act, 1885 (Telegraph Act). This was in addition to the ‘passive’ assets such as dark fibers, telecom towers and rights of way, which the IP-I registration already allowed. However, since the March 2009 notification did not specifically restrict ‘ownership’ in active assets, certain IP-I entities started owning active elements, particularly for providing in-building distributed antennae systems (DAS) to TSPs at locations such as malls, metro stations, airports, etc.

This ambiguity was resolved only in November 2016, when DoT in its notification stated that IP-I entities may not ‘own’ any active elements and may only install them ‘on behalf of’ licensees under the Telegraph Act (who should own such active elements). The notification also required IP-I entities owning any active assets to either obtain a license under the Telegraph Act (such as Unified License or Virtual Network Operator license) or transfer the active assets to a valid licensee, within 6 months.

This caused an uproar in the telecom market. Various stakeholders raised their voice against this notification citing its detrimental and regressive effects. These effects included reduction in overall business offering of IP-I entities, impact on existing TSP customers of such active assets, incidence of license fees on IP-I entities (if they obtained a telecom license), technical and commercial restructuring, and contradiction with the Government’s commitment towards digital connectivity across India.

Taking cognizance of the stakeholders’ concerns, TRAI suo moto initiated a consultation in August 2019 for expansion of the scope of IP-I entities; based on which it has now released the Recommendations.

Salient Recommendations

[A]       IP-I entities may own certain active infrastructure: The most crucial recommendation of TRAI is to expand the scope of the IP-I registration to allow IP-I entities to ‘own’, establish, maintain, and work “all such infrastructure items, equipment, and systems which are required for establishing wireline access network (WAN), RAN, and transmission links, including, but not limited to, feeder cables, antennae, base stations, in-building solutions (IBS), and DAS”, within any part of India, on a non-discriminatory, multi-sharing basis.

It is notable that TRAI has recommended an expansive meaning for the assets which IP-I entities should be allowed to own and provide. However, it has also clarified that: (a) ‘core’ network elements such as switches, MSCs, HLR, integrated nodes, etc., should be excluded; (b) spectrum of any kind including microwave spectrum should not be allocated; and (c) IP-I entities should not provide end-to-end bandwidth services (other than to ‘eligible service providers’). According to TRAI, these assets / services still must be owned and operated by TSPs, because the purpose of IP-I entities is facilitation of telecom infrastructure deployment, and not provision of telecom services itself.

[B]       Eligible service providers: TRAI has proposed that IP-I entities may share their assets (active or passive) with any ‘eligible service provider’, i.e. an entity authorised to “establish, maintain, and work a telegraph to deliver telecommunication service”. Through this, it seems, DTH and cable TV operators (governed by the Indian Wireless Telegraphy Act, 1933 and Cable TV Network Operators Act, 1995 and covered within the meaning of ‘telegraph’) may also be able to avail infrastructure from IP-I entities, in addition to TSPs (licensed under the Telegraph Act). This will trigger business growth for IP-I entities. 

[C]         Licensing and compliances: For owning wireless active equipment (such as antennae), TRAI recommends that IP-I entities may obtain licenses under the Indian Wireless Telegraphy Act, 1933, which prescribes nominal license fees under its rules. However, it will be important to ascertain the additional compliances (such as register of assets) which IP-I entities will need to adhere to under such a license.

With regard to technical compliances, TRAI has recommended that (a) an IP-I entity’s assets should meet applicable standards set by international bodies or forums recognised by the Telecommunications and Engineering Centre (TEC) wing of DoT, subject to periodic modifications by TEC, DoT or TRAI; and (b) the current provisions under the telecom licenses relating to security conditions, sharing of infrastructure, confidentiality of information and electromagnetic frequency exposure, could be adapted and applied to IP-I entities. However, TRAI has not clarified the nature and extent of these adaptations, which is critical to assess the additional compliances that IP-I entities will have to undertake for their new service offerings and models.

Observations

The Recommendations demonstrate TRAI’s positive intent to unburden the telecom sector financially and operationally, which as per TRAI may ease entry of new players and increase consumer choice.

Further, since TRAI has not recommended a revenue-based licensing regime, IP-I entities will be incentivised to capitalise such an opportunity and provide new service offerings for active as well as passive assets. This will also provide stimulus to the IP-I sector which has been suffering due to the cash-crunch in the telecom industry and loss of customers due to consolidation or winding up of TSPs.

However, even if DoT adopts the Recommendations, it is possible that DoT may still impose penalties or take other coercive measures, against IP-I entities which have been owning and providing active elements (such as DAS) in the past without a license, especially after the November 2016 notification.

Most importantly, the extent of security, technical and other compliances (proposed to be derived from telecom licenses) will also be key factor in determining the actual benefit from this expansion, if granted by DoT. As a corollary, the manner in which TSPs will ensure compliance with their licensing conditions, when using active assets provided by IP-I entities, will also be a point of consideration.

-       Harsh Walia (Partner) and Abhinav Chandan (Principal Associate)

For any queries please contact: editors@khaitanco.com

Harsh Walia (partners)

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