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The Indian Telecom Sector

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The Indian Telecom Sector The Indian Telecom Sector Legal and Regulatory Framework Nishith Desai Associates July 1, 2011 Nishith Desai Associates (NDA) is a research based international law firm with offices in Mumbai, Bangalore, Silicon Valley, Singapore, Basel and New Delhi. We specialize in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner. We focus on niche areas in which we provide significant value and are invariably involved in select highly complex, innovative transactions. Our key clients include marquee repeat Fortune 500 clientele. Core practice areas include International Tax, International Tax Litigation, Litigation & Dispute Resolution, Fund Formation, Fund Investments, Capital Markets, Employment and HR, Intellectual Property, Corporate & Securities Law, Competition Law, Mergers & Acquisitions, JVs & Restructuring, General Commercial Law and Succession and Estate Planning. Our specialized industry niches include financial services, IT and telecom, education, pharma and life sciences, media and entertainment, real estate and infrastructure. Our Tax, Investment Funds and Technology-Media-Telecom (TMT) practices have been consistently ranked in tier 1 by Legal 500, while Chambers & Partners have ranked us # 1 for Tax, TMT and Real Estate - FDI. We‟ve received honorable mentions in Asian - Counsel Magazine for Alternative Investment Funds, International Arbitration, Real Estate and Taxation for the year 2010. We have been adjudged the winner of the Indian Law Firm of the Year 2010 for TMT by IFLR. We have won the prestigious “Asian-Counsel‟s Socially Responsible Deals of the Year 2009” by Pacific Business Press, in addition to being Asian-Counsel Firm of the Year 2009 for the practice areas of Private Equity and Taxation in India. Indian Business Law Journal listed our Tax, PE & VC and Technology-Media-Telecom (TMT) practices in the India Law Firm Awards 2009 as also Legal 500 (Asia-Pacific) that has ranked us #1 in these practices for 2009-2010. We have been ranked the highest for „Quality‟ in the Financial Times – RSG Consulting ranking of Indian law firms in 2009. The Tax Directors Handbook, 2009 lauded us for our constant and innovative out-of-the-box ideas. Other past recognitions include being named the Indian Law Firm of the Year 2000 and Asian Law Firm of the Year (Pro Bono) 2001 by the International Financial Law Review, a Euromoney publication. In an Asia survey by International Tax Review (September 2003), we were voted as a top-ranking law firm and recognized for our cross-border structuring work. Our research oriented approach has also led to the team members being recognized and felicitated for thought leadership. Consecutively for the fifth year in 2010, NDAites have won the global competition for dissertations at the International Bar Association. Nishith Desai, Founder of Nishith Desai Associates, has been voted „External Counsel of the Year 2009‟ by Asian Counsel and Pacific Business Press and the „Most in Demand Practitioners‟ by Chambers Asia 2009. He has also been ranked No. 28 in a global Top 50 "Gold List" by Tax Business, a UK-based journal for the international tax community. He is listed in the Lex Witness „Hall of fame: Top 50‟ individuals who have helped shape the legal landscape of modern India. He is also the recipient of Prof. Yunus „Social Business Pioneer of India‟ – 2010 award. We believe strongly in constant knowledge expansion and have developed dynamic Knowledge Management („KM‟) and Continuing Education („CE‟) programs, conducted both in-house and for select invitees. KM and CE programs cover key events, global and national trends as they unfold and examine case studies, debate and analyze emerging legal, regulatory and tax issues, serving as an effective forum for cross pollination of ideas. Our trust-based, non-hierarchical, democratically managed organization that leverages research and knowledge to deliver premium services, high value, and a unique employer proposition has now been developed into a global case study and published by John Wiley & Sons, USA in a feature titled „Management by Trust in a Democratic Enterprise: A Law Firm Shapes Organizational Behavior to Create Competitive Advantage‟ in the September 2009 issue of Global Business and Organizational Excellence (GBOE). Page 2 of 43 Table of Contents I. INTRODUCTION ................................................................................................................................ 4 II. AN OVERVIEW .................................................................................................................................. 5 III. INDIAN TELECOM AUTHORITIES ................................................................................................ 7 IV. TELECOMMUNICATIONS LAWS AND REGULATIONS ......................................................... 11 V. TELECOM SERVICES/LICENSES AND INFRASTRUCTURE IN INDIA ............................... 15 VI. SPECTRUM MANAGEMENT ........................................................................................................ 22 VII. FOREIGN INVESTMENT IN TELECOM SECTOR IN INDIA ................................................... 25 VIII. MERGERS AND ACQUISITIONS IN THE INDIAN TELECOM SECTOR .............................. 30 IX. SECURITY ISSUES IN THE TELECOM INDUSTRY ................................................................ 33 X. OPPORTUNITIES IN THE TELECOMMUNICATIONS INDUSTRY IN INDIA ....................... 38 XI. CONCLUSION .................................................................................................................................. 41 XII. REFERENCES ................................................................................................................................. 42 Page 3 of 43 I. INTRODUCTION The word “telecommunication” is a compound of the Greek prefix “tele” meaning 'far off', and the Latin “communicare”, meaning 'to share'. In its current usage, it refers to transmission of signals over a distance for the purpose of communication. In early days, communication between persons took place by means of drums, smoke signals, flags, etc. Emerging from such humble beginnings, the means now involve sophisticated high-speed, submarine optical cables laid on ocean floors and artificial satellites circling the Earth in space. As the demand for signal transmission has increased, the speed of transmission has also increased. Recently, scientists at Karlsruhe Institute of Technology in Germany have succeeded in transmitting 26 terabits (equal to about 700 DVDs or about 4 million average paperback books) of data per second at the distance of 50 kilometers.1 The telecommunications industry has impact on every aspect of our lives, from the simple reality of enabling telephonic communication between people in different locations to enabling supply-chains to work seamlessly across continents to create products and fulfill demands. Telecommunication services are now recognized as a key to the rapid growth and modernization of the economy and an important tool for socio-economic development for a nation. Telecommunications in India can be traced back to the 19th century when the British East India Company introduced telegraph services in India. The past two decades have been considered as the golden period for the telecommunications industry in India with exponential growth and development in terms of technology, penetration, as well as policy. All this has paralleled with the liberalization in this sector and huge investment by both domestic and foreign investors. 1 World Record in Ultra-Rapid Data Transmission. Science Daily, http://www.sciencedaily.com/releases/2011/05/110523101741.htm. Last Accessed: 28 June 2011. Page 4 of 43 II. AN OVERVIEW The modern system of communications in India started with the establishment of telegraph network. In order to ensure telegraph network‟s exclusivity and establish government control over electronic communications, various telegraph statutes were enacted by the Government of India which laid the foundation of the present regulatory framework governing telecommunications (both wired and wireless). In early days, India witnessed increasing number of wired telephone connections. Even when wireless communication was introduced in the form of cellular phones, it was not immediately accepted by the Indian masses, mainly on account of high price of cellular phones as well as high tariff structure prevalent at that point in time. Gradually, with the price of cellular handset as well as mobile (wireless) tariff reducing there was increasing adoption of wireless communications. Today the Indian telecom industry is already witnessing the lowest telecom tariff globally. Like elsewhere, telecommunications in India started as a state monopoly. In the 1980s, telephone services and postal services came under the Department of Posts and Telegraphs. In 1985, the government separated the Department of Post and created the Department of Telecommunications (“DoT”). As part of early reforms, the government set up two new public sector undertakings: Mahanagar Telephone Nigam Limited (“MTNL”) and Videsh Sanchar Nigam Limited (“VSNL”). MTNL looked after telecommunications operations in two megacities, Delhi and Mumbai. VSNL provided international telecom services in India. DoT continued to provide telecommunications operations in all regions other than Delhi and Mumbai. It is important to note that under this regime, telecommunication services were not treated to be a necessity
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