universality of infrastructure services-legal, policy and regulatory framework (telecom) mohit saraf...
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Universality of Infrastructure Services-Legal, Policy and
Regulatory Framework (Telecom)
Mohit Saraf
Partner
Luthra and Luthra
Law Offices
TERI REGIONAL CONFERENCE DECEMBER 6, 2004
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Importance of USO obligation
Level Playing field for everyone Different level of infrastructure offers
different opportunities for growth
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However there is enough evidence to show that teledensity is positively correlated with GDP growth
Therefore in order to increase teledensity there is a need to drive telecom penetration in rural areas
Today’s rural markets do not appear to be viable However what may not be viable today may
become viable tomorrow. USO fund can bridge viability gap by providing cushion needed for initial investment in rural telecom
Need for Universalising Access
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Vast potential for exploiting telecom facilities in rural areas Increase access to info on urban markets for
farmers Showcase rural products and tourism Schools, hospitals and other public services can
be improved with access to internet Empirical evidence of faster growth of poorest 20
percent in telecom intensive economies FDI flows are also higher in telecom intensive
economies
Need for Universalising Access
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Various options to finance USO Direct support from Government Budget Seed finance by development bank or
agency Licensing or spectrum fees and auctions Operator Revenue Contribution [INDIA] Interconnect levies Virtual Fund Transfers
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Pre USO Fund Scenario in Indian Telecom Sector Pre-USO support for rural obligations
Access Deficit Charges (ADC) to support subsidized low cost rural telecom tariffs
Reimbursement of license fees and government grants to incumbent to support ‘legacy’ networks
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The USO Fund Advantage
Post 2002 we have chosen to adopt a USO Fund supported by transparent levies on all operators supplemented with government grants. Disbursement is through a bidding process
Purpose of USO fund and bidding process is to make the subsidy smart
Ensure that there is no pilferage and that the entire subsidy gets to the market
Deviates from the user pays principle but achieves larger goals
Smart subsidies also ensures that the cost of subsidy paid out is minimal
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USO – Legal and Policy Framework Overview
New Telecom Policy 1999 (“NTP 99”) spelt out guiding principles and targets for USO
Enactment of enabling statutory provisions in 2004 , with retrospective effect from 2002
Part IIA, of the Indian Telegraph Act, 1885 inserted by Indian Telegraph (Amendment) Act, 2003 constitutes USO Fund
Part X, Indian Telegraph Rules, 1951 inserted by Indian Telegraph (Amendment ) Rules 2004 details administration of the USO Fund (“Rules”)
Guidelines for implementation of Universal Service Support issued by DoT(“Guidelines”)
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USO Fund
Controversy over statutory basis of USO Fund and its disbursement Attempt to make USO fund operational without
enabling statutory framework Since USO Fund did not exist MoF unable to
release USO proceeds Enabling legislation and rules made in 2004
wref from 2002 Approx INR 3400 collected from 2002 will be
available for disbursement from this year
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Major Legal, Policy and Regulatory issues relating to USO
Issues relating to the purpose for which the USO Fund is used
Ensuring that USO disbursements are made in a transparent and non-discriminatory manner
Ensuring accountability of Universal Service Provider (“USP”)
Enabling Universal Service through non-USO Fund based options
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Defining USO Objectives The definition of USO in Policy not strictly
technology neutral No rationale for prescribing low speed data
services Does not clearly envisage the possibility of
new developments like Voice over Internet Protocol (VoIP)
But TRAI recommended Rules have created enabling framework even though there were gaps in Policy
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Enabling framework created by Rules Areas not clarified in Policy spelt out in detail
in Rules Telecom facilities which would qualify for
USO Fund support clarified Possible because Rules laid before Parliament Bidding mechanism laid down in Rules
enables USO Funds to get ‘value for money’ and incentivise efficient technology-cost mix
Defining USO Objectives
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Defining USO Objectives However further clarity in the statutory
framework would be desirable Priority of Stream I (Universal Access)
over Stream II (Universal Service) as per TRAI recommendations and as provided in Guidelines (DoT) not enunciated in Rules (Rule 525)
Detailed bidding procedure provided in Guidelines don’t find mention in Rules (multi layered bidding).
Need to examine whether some of the provisions mentioned in the Guidelines can be incorporated in the Rules
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Principles of Subsidy Regulation Law,Policy & Regulation should ensure
that Subsidies are targeted Subsidy disbursements are transparent
Non- Discriminatory/Level playing field Avoid Duplication
Subsidies obtain maximum value for money Universal Service Providers are held
accountable for proper discharge of their obligations
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USO Fund – A Smart Subsidy Presently Rules provide for bidding
process among eligible operators thus making the USO a ‘Smart Subsidy’ Ensures that USO Fund disbursements are
transparent and made in a non-discriminatory manner
Ensures that the services are allocated to most efficient service provider and thus introduces benefits of competition
Reduces reliance on approximate cost estimates
Ensures matching of costs and subsidies
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USO Fund DisbursementsStage set for phasing out of non-USO Fund subsidiesIncumbent currently beneficiary of Access Deficit Charge (ADC), reimbursement of license fees and grants for providing low cost rentals and maintenance of legacy networksSince post 2001 USO commitments to cover capex as well as opex, above benefits to be phased out Will minimize overlapping of subsidy provisions and ensure that incumbent is not overcompensated
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Accountability of Universal Service Providers Experience with Fixed Service Providers
Rural Roll out obligations Earlier, Fixed Service Providers had not
discharged USO obligations Rural Roll out obligations were a condition
of FSP Licence. Fixed Service Providers preferred to pay
LD’s rather than perform their obligations
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Administrator to enter into Agreement with Universal Service Providers.
There is also a suggestion for creation of ‘niche operator’ under the proposed Unified Licensing Framework who may be required to roll-out networks in rural areas
The Licenses/Agreements should be carefully drafted to adequately provide for safeguards in case USP/niche operators unable to fulfil obligations
Accountability of Universal Service Providers
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Universal Service beyond USO Fund
Present Fund corpus and accruals in coming years not likely to be sufficient for fulfilling all Universal Service Targets
TRAI has therefore suggested number of options
Niche operators Waiver of Spectrum Fees and Sharing of Infrastructure
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Niche Operators
Introduction of Niche operators with reduced license fee
Need to safeguard against cherry picking by appropriate bundling of areas with right to consumer to demand service provision (‘distribution licensee’ in electricity sector)
Better to limit number of operators so that unviable market is not further fragmented
License can be awarded to operator who quotes highest license fees
Further competition can be introduced after a fixed number of years (say 5) after the area ceases to be a Net Cost area.
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Universal Service beyond USO Fund TRAI options (contd)
Waiver of Spectrum Fees If across the board then this would make the rural
market viable without introducing market distortions Sharing of infrastructure
If incumbent is made to unilaterally required to share infrastructure might raise concerns of compensation and non-discrimination
Therefore alternatively sharing of infrastructure through models of ‘open access’ (Electricity Sector) could be utilized