Ever since its inception in the mid-1990s, this industry has faced a host of challenges in spite of it being the poster boy of economic reforms and one of the major contributors towards the socio-economic as well as GDP growth of the country.
However, to date, the most difficult time for the industry has been the year 2011-12. The landmark judgment of the Hon’ble Supreme Court quashing approximately 144 licenses of some of the telecom operators was a watershed moment in the life of the telecom industry! It brought to a head the precarious financial health, sustainability and growth of an industry which is critical to the growth of the nation and the wellbeing of its citizens. To add to the misery, the Hon’ble Supreme Court’s adverse judgment on AGR has also been a setback for the industry.
The challenges the industry faces today to keep mobile tariffs affordable are manifold. The profitability and sustainability of the telecom industry is at stake due to high regulatory costs such as very high spectrum prices, cost of implementing security measures, MNP, huge penalties arising under modification of contract terms and unreasonable expectations of the Government from the operators. Not to forget the high prices that the operators paid for 3G spectrum in the country; intense and gruelling price wars and the fact that the returns on the investments have not been adequate till date. Further, the operators are finding it difficult to receive funds from the FII’s and banks that are shying away from funding the industry due to policy instability and uncertainty. The industry needs immediate attention from the Government as Licensor, to address these critical issues which are constraining the essential growth of the sector.
Amidst these challenging times, I present the Annual Report for the year 2011-2012.
STATUS ON POLICY AND REGULATORY ISSUES
The growth story of Indian telecom had been quite compelling till recently, but, current trends indicate significant reversal in key financial and operating parameters. The recent downgrading on India’s rating by Standard and Poor is yet another indication of the poor investor sentiment that is troubling the market. Under these circumstances, when there was a pressing need for swift and bold policy initiatives from the Government to restore investor confidence, business sustainability and public interest, the industry was taken aback by the arbitrary, regressive and inconsistent recommendations announced by the TRAI on the auction of spectrum including reserve price, refarming, one time spectrum charges on the incumbents, etc. These recommendations fly full in the face of the National Telecom Policies, both the existing and the proposed, and directly harm the Consumers and Rural Connectivity. Since, these recommendations are still under consideration by the Government and the EGoM, we hope that the policy decisions that will emerge finally, will keep in mind the deteriorating financial state of the industry and the benefits to all the stakeholders, including consumers, industry and the Government.
Last year, the long awaited NTP 2012 was released by the Government. While there were several important policy directions which we support, such as rural penetration, Broadband rollout, tariff affordability, amongst others, it was disappointing to note that the policy did not address crucial issues that would be decisive in reviving the industry from its present troubled state. The significant issues of the industry like poor financial health, high spectrum charges, unnecessary redistribution of spectrum from 900 MHz to 1800 MHz, high reserve auction pricing, huge tax burdens on the sector remain unaddressed in the new policy.
It is notable that the need for a new telecom policy was mooted primarily to ensure the financial health of the Telecom Sector which in turn would translate to affordable tariffs, enhanced data and voice services to customers and a sustained revenue stream to the Government. Yet, the policy is silent on the most important aspect of the Financial Viability of and Investment Returns to the industry. On top of that, new initiatives like free national roaming, national MNP, etc. have been included, which are complex matters requiring wide industry consultation, regulatory and legal assessment and competent analytical evaluation to determine cost/benefits, impact on tariffs, impact on operators, before national resources are squandered on initiatives that have dubious value to consumers, operators and the nation. The emphasis on affordability and rural penetration is welcome, however, it is not new as the industry has already made services affordable to all segments of society and has achieved significant rural penetration.
COAI is hopeful that the Government will rapidly move into implementation mode with the involvement of industry to address the key issues that will restore the industry to its former growth trajectory and contribution to national GDP. COAI is committed to assisting the Government in achieving this objective.
Regarding the Regulatory outlook, we are hopeful of an open outlook and a ‘light touch’ approach from the Regulator towards all the stakeholders of the industry with emphasis on the sustainability of the telecom industry and its much required development and expansion. It would be imperative for TRAI to ensure that the sustained growth of the industry, which has translated into affordable consumer tariffs, innovative offerings, enhanced technology, increased rural penetration, attraction of domestic and foreign investments; continues its previous growth story.
A “light touch regulation” approach would be beneficial for the industry as opposed to focusing on micro-management of the sector which often leads to distortions of market dynamics. Greater availability of spectrum and sharing of the same should be facilitated so as to help the sector to optimize its performance. The industry requires support such as reduction in the multiple levies and fees so as to expand with increased penetration levels, especially for rural penetration, where an incentivized approach is necessary. More liberal M&A norms would provide a much required impetus to the sector. One of the major objectives of the Government being ‘Broadband for all’, a public-private partnership (PPP) approach towards the National Optical Fibre Network implementation initiative would be helpful. Unnecessary and untried actions, like redistribution of existing spectrum from 900 MHz to 1800 MHz should be avoided as it affects the efficiency as well as the financial health of the industry without any documented benefits.
It is also essential to allow the industry the necessary freedom to innovate so as to explore newer levels of technological advancements which would benefit consumers and enable India to enhance its presence in the global telecom arena. On a broader scale, we are looking forward to a consistent, predictable, balanced perspective on the issues of the industry and towards the protection of the interests of the consumers, the stakeholders as well as the Government.
INDUSTRY INITIATIVES AND ACHIEVEMENTS
Amidst the difficult times, COAI dealt with various issues of importance to the industry.
Ø Encouraging Telecom Equipment Manufacturing in India: Last year, a number of policy measures were announced by various ministries on domestic manufacturing. COAI commissioned a study with M/s. Booz and Company to better understand the requirements based on the proposals by the Government and present a report on “Telecom Manufacturing Policy – Developing an Actionable Roadmap”, in March 2012. This Report is based on detailed analysis of the domestic and international telecom markets, extensive and in depth discussions with all stakeholders in the Government, regulatory bodies, industry, academia and companies who are manufacturing in the country. This actionable roadmap is to assist all stakeholders to work towards making India a center for telecom equipment manufacturing. It highlights the challenges on the supply side and demand side that need to be addressed by the industry and the government. The report also recommends areas where the Government can support the industry in this critical national requirement.
Ø EMF Issues: COAI was able to manage a few favourable circulars from DoT. The frequency to submit the self – certification is now to be after every two years versus the previous requirement to be done every year. New norms were issued by DoT based on the Inter Ministerial Committee (IMC) recommendations on reduced EMF exposure by Base Transceiver Stations. COAI pointed out that the reductions in base station emissions of 1/10th of existing limits have no scientific basis and have been based on erroneous assumptions and there will be no gain or any health benefit for consumers from the adoption of reduced limits but such a change will come at substantial cost to Indian consumers. The Government has considered the industry position and has extended the date of compliance for new EMF exposure norms to September 1st 2012, so as to provide time to review industry submissions and impact analysis. In addition, the Prime Minister’s office has tasked the Department of Science and Technology to review the matter and conduct a scientific study to determine appropriate norms for India.
COAI is continuously working towards creating awareness and negating myths associated with the alleged health hazards from the EMF emitted from Mobile towers and has organized workshops/ media briefings in Mumbai, Delhi, Jaipur & Chandigarh for this purpose. In addition to obtaining media coverage, successful meetings were held with the State Government officials at both locations, which is part of the PR strategy adopted on the issue. The workshops went off well and the media coverage received has been positive. Even the media who had negative opinions of the subject published a more balanced point of view after being provided with appropriate scientific studies and reports. Given that EMF concerns are now spreading beyond the Metros, COAI is developing a national program to address the issue.
Ø Subscriber Verification Issues: There was also some success for the industry in dealing with the situations in sensitive areas like J&K and Assam and North East regions. Border ID Cards & Tibetan Refugee Certificate as POI/POA issued by the Government Authorities are now acceptable as POI/POA in J&K. Caste Certificate and Domicile Certificate issued by State Governments were once again included by DoT in the list of valid Proof of Identity and Address for NESA. Due to the continued efforts of COAI, it was able to convince DoT to put a timeline for storage of documents of churned/ disconnected subscribers for a period of three years unless otherwise directed by the Licensor or court of law. This has great financial impact on the industry as many resources were involved in storing and managing these documents in the warehouses.
Last year, the operators also faced problems at circle levels as the State Police in various states commenced actions, which were outside the ambit of the DoT guidelines. This created many operational and legal issues for members in addition to disrupting distribution channels and subscriber acquisition. COAI has taken the lead in getting the issues resolved at various state police levels, including Karnataka, AP, Gujarat, MP, etc. In Karnataka, various police actions were taken against company employees and distribution chain. However, due to the continuous involvement of COAI with the state police, a conjoint program based on frequent meetings and compliance reports was instituted. This has led to positive results for both the Police and operators.
Ø Penalties on Non-Compliance to Susbcriber Verification Guidelines: TERM Cell has been imposing large penalties on operators and that too in an incorrect manner for non-compliance to DoT guidelines on Subscriber Verification. The industry had to initiate litigation to get the issue resolved. The Hon’ble TDSAT heard the plea of the industry and realized the anomaly in imposition of penalty. It gave a favourable Order for the industry stating that the financial penalty should be calculated on the principles as it is followed in the Income Tax System i.e. rate of financial penalty to be calculated separately for each slab and the total amount of penalty arrived at.
Ø Pre-Budget and Post-Budget submissions: On the Indirect Tax side, nine of the ten indirect tax related points represented by COAI were addressed by the Ministry of Finance. The expected benefit to the industry due to this is estimated to be well in excess of Rs. 1,000 crores.
The Government had issued a circular with regard to applicability of service tax on import of telecommunication services, which exposed the industry to pay service tax for pervious 5 years along with interest and penalty. Various representations were made on the appropriate interpretation of the law and circular issued resulting in withdrawal of the circular. This saved the industry more than Rs. 500 crores of cash outflow on account of improper imposition of taxes and more than Rs. 150 crores on account of interest.
Ø USSD based Mobile Banking Services (MBS): The Department of Finance had asked the operators to reserve *99# for all payments through USSD and also to provide the USSD/SMS service at a fixed rate of Rs0.25 per message to the NPCI. COAI recommended that the charges for USSD based MBS should be left to the mutual negotiations between service provider and banks. On the request of COAI, DoF has agreed not to force the amount of Rs0.25 per message and resolve the issue with a dialogue between banks, NPCI and telecom operators. A committee chaired by COAI has been constituted under the aegis of Joint Secretary DoF, to discuss the issue pertaining to mobile based payment systems and also come up with a roadmap to facilitate the payment through the mobile phones.
Ø Interconnect with BSNL: BSNL issued notice to the operators for disconnection, in case they did not pay the distance based carriage charge to BSNL in respect to the intra-circle cellular calls handed over by them at the LDCC TAX of BSNL. COAI pointed out to BSNL that the amount claimed by them of Rs. 165.62 cr at a pan-India level, is erroneous, inflated and not in consonance with TRAI Regulation. BSNL went ahead and disconnected the PoIs between operators and BSNL fixed line/ mobile subscribers in Punjab and other states. COAI made various representations to DoT, TRAI, Telecom Ministry and also to BSNL on illegal disconnection of PoI of Private operators by BSNL. TRAI directed BSNL to restore all the PoI of the private operators in the Punjab circle, after which BSNL restored all the PoIs.
Ø Unsolicited SMS: This was a major area of concern for the consumers/ subscribers. COAI worked with TRAI for implementation of “The Telecom Commercial Communications Customer Preference Regulations, 2010” and the same was launched by TRAI on September 27, 2011. TRAI at the behest of COAI, gave 9 months to the operators to implement the regulation, increased the number of SMS from 100 to 200 per day and exempted some categories from this regulation. The number of Unsolicited SMSs have now comedown drastically leading to a substantial reduction of customer complaints on this account.
Ø Establishment of the Appellate Authority as proposed by TRAI for Customer Complaint Redressal: TRAI proposed the establishment of an Appellate Authority comprising of a Government representative, a company representative and a representative of Consumer Advocacy Group (CAG). COAI worked with TRAI to come up with a more workable solution comprising of one representative of consumer organization registered with TRAI and one member from the service provider, to render advice to the Appellate Authority on every appeal filed before the Appellate Authority. TRAI issued a Regulation in this regard, which has been implemented by all the operators.
Ø Security issues: The industry remains concerned with the increasing trend of Government to pass on the cost of Government requirements, particularly those related to security, on to operators and in some cases to the vendors. The requirement of LBS (Location Based Services) has been inserted in the name of National Security and seeks to pass the entire burden onto the Licensees. COAI brought to the attention of the DoT several technical issues which made implementation of LBS impossible. We continue to discuss the matter with DoT for a proper resolution.
Ø 700 MHz Band Plan: COAI actively participated in the proceedings of the various international ITU meetings to discuss the band plan for 700 MHz band. There were different types of proposals on the use of 700 MHz band (both at national level as well as international level) including use of the band only in FDD mode, only in TDD mode or a mix of both FDD and TDD modes. However, during many meetings at the national level, COAI was able to convince the Indian Administration to send a proposal to ITU suggesting band plan for 700 MHz band either only in the FDD mode or only in TDD mode and not a mix of both. COAI well represented India during the AWF & WP5D meetings and the Indian delegation was at the forefront of the discussions. Finally, the ITU has recommended both the band plans (only FDD or only TDD) for 700 MHz band and the same may be adopted by various countries depending on their choice of technology.
Ø TCOE (Telecom Centres of Excellence) initiative: The TCOEs have been effectively working over the last 3 years and by now have come out with 11 Patents, 44 Research Papers and 26 Products have reached up to Proof of Concept stage with 14 IPRs. The completed technologies ready for Commercialization are 27 and the TCOEs are working on 70 projects. The technologies launched by TCOEs this year are Digital Mandi for Kisan by BITCOE (BSNL IIT Kanpur Telecom Centre of Excellence), Mobile Social Networking Platform by TICET (TATA Teleservices IIT Bombay Centre of Excellence in Telecommunications) and Automatic Customer Acquisition Form (Auto CAF) by RITCOE (Reliance IIT Madras Centre of Excellence). These three Technologies were launched successfully by Hon’ble MoC&IT/ MoS in the operators’ network in 2011. Variable Phase Power Plant by BITCOE is in the pipe-line to be launched during forthcoming India Telecom 2012. BITCOE has also been registered as a Consultant for advising companies for transition to IPv6.
Ø Telecom Sector Skills Council of India (TSSCI): COAI, as the lead promoter along with TCOEs and ICA is setting up TSSCI under the aegis of National Skills Development Council (NSDC). The purpose of forming TSSCI is to ensure adequate availability of skilled manpower to boost growth & productivity of this dynamic sector with an aim to skill & up-skill 5 million people over a period of 10 years in 150 trades related to the industry.
Ø Development Organization of Standards for Telecommunications in India (DOSTI): COAI, along with TCOE, AUSPI and Indian Telecom Industry is in the process of establishing an Indian Standards forum through DOSTI. DOSTI is a non-profit legal entity in PPP mode which will operate along the lines of ETSI, ARIB, TIA, TTA and CCSA. The key activities of the organization is to develop and promote India-specific standards in the Telecom Domain.
OTHER ACTIVITIES OF THE ASSOCIATION
COAI remained active in its endeavor to be at the forefront of national and international events held in the year 2011-12. COAI took the lead in coordinating the Indian Government Delegation to 3GSM World Congress 2011, held in the month of February at Barcelona. The delegation successfully represented the Indian Telecom Industry and highlighted the immense opportunities present in the country. COAI organized for Mr. Kapil Sibal, Hon’ble MoC&IT to be the Guest of Honour at the Leadership Summit Programme. COAI also took the lead in organizing the “India Show” hosted by the Indian Government delegation. This year COAI also coordinated the entire proceedings of the prestigious event ITU WP 5D Goa Meeting held from 12 to 19 Oct 2011, including – raising sponsorship funds, coordinating the arrangements with the event management agency, hosting lunches on all days, and managing the social programme. COAI also organized various Seminars and Workshops on issues of interest and benefits for its members, industry and creating awareness amongst the consumers. The issues included Mobile Broadband, EMF Radiations, LTE, Location Based Services, Network Audits, etc. COAI and its members continued our active participation in Organization such as CII, FICCI, ASSOCHAM, NASSCOM, GSMA, 3GPP, ITU among others, as well as activities of many telecom events in India.
Recognizing the growing ecosystem of a converged communications industry, COAI continued to expand its Associate Membership by inducting such new members as, ZTE Telecom India Pvt. Ltd., Polaris Wireless Inc., Sony Ericsson, etc.
This year, COAI had commissioned a 360 degree Image Study coordinated by IMRB (Indian Market Research Bureau) to gain knowledge of the stakeholders’ perspective of the Telecom Industry as well as COAI. The successful completion of the exercise has led to the development of a new logo for COAI which we expect to rollout shortly, along with renewed focus on areas highlighted by the study to enhance the effectiveness of the Association as a Thought Leader in the telecom industry and prepare it for leadership in the new century.
The COAI Executive Council headed by Chairman, Mr. Sanjay Kapoor, Vice Chairman, Mr. Himanshu Kapania and comprising senior representatives from all member operators, gathered quite a few times over the last year to deliberate on a variety of issues impacting the industry. They were competently assisted by expert advice from the various Working Committees that had been set up in COAI.
Many special committees and working groups formed in COAI also discussed various issues related to certain specific projects like Subscriber Verification and Security related Issues, National Do Not Call Registry, Infrastructure Sharing, MNP, EMF, etc. and continued to work unremittingly on the related issues.
In the end, I want to express my deep appreciation for to all the Committees and Working Groups and their Chairmen and Vice Chairmen for their unstinted support and cooperation. We are grateful to you all for taking time out of your busy schedules to contribute towards various industry issues and helping the Association in representing them in a proficient and timely manner.
I would like to especially thank the Chairman, Mr. Sanjay Kapoor, who provided bold, decisive leadership to the Association and the industry during this turbulent time. His steady hand on the tiller of the Association ensured we would safely weather the storm buffeting the industry. In addition to leading Airtel through a period of brutal competition, rollout of 3G + 4G services, amongst a host of other things, Sanjay always found the time to be available for consultation and leadership. For this, we remain extremely grateful. I also thank the Vice Chairman, Mr. Himanshu Kapania for all the support and guidance that he has provided during his tenure. It was a great learning experience for all of us.
I would like to record my profound gratitude to the COAI Secretariat team which has always extended excellent support and assistance in all our endeavours. I appreciate their willingness and persistence in making the Association the premier voice of the industry and in setting ever higher benchmarks for Excellence. Their hard work, burning of the midnight oil and willingness to go that extra mile, is what makes COAI who we are. My grateful thanks to each one of them.
GROWTH DRIVERS FOR FUTURE
Key factors, which will fuel the growth of the sector in the coming year include increased consumer access to services owing to launch of newer telecom technologies like BWA and LTE, increased rural penetration better devices, rollout of m-banking, m-governance, e-education, e-health, M-to-M applications, VAS services in the vernacular and meeting changing consumer behavior. As improved broadband capacity helps to overcome network bottlenecks, cloud-based offerings from telecom operators and ICT providers will continue to grow. Also, as 3G expands in 2012, it will fuel 4G and smart devices like tablet, smart phones, smart TV will become the focus for video and digital content consumption.
Despite the tough times now, we are hopeful that a balanced approach will be adopted by the Government in the near future, keeping in view the interests of the consumers, suppliers as well as the investor community. The NTP- 2012 highlights many of the important issues to be addressed. However, its success depends largely on timely prioritization and implementation with the active participation of industry, a “light touch” regulatory environment, and converged and enabling Governmental decision making by all relevant government departments and entities. COAI is committed to working closely with the government to ensure that the interests of the customers and the investors in the industry are developed, protected and enhanced.
RAJAN S. MATHEWS
July 29, 2012