The Telecom Mess

Jan 25th 2000

Close on the heels of the Delhi High Court striking down crucial "decisions" regarding service provision and interconnection taken by the Telecom Regulatory Authority of India, the cabinet has decided to institute via an ordinance a whole new regulatory framework. There are three departures that are to be made in the new framework. First, a leaner regulatory authority, which must be mandatorily consulted by the government, is to be given well defined powers to investigate and make recommendations with regard to a range of issues varying from conditions and timing of entry and technology choice to service standards and interconnectivity charges and tariffs. Second, these recommendations are not to be mandatory on the government, which has the right to accept or reject them. Finally, the TRAI has been stripped of its quasi-judicial powers, but disputes relating to the policy or charges imposed must be taken by service providers to a telecom dispute settlement and appellate tribunal. Any appeal against the judgements made by the tribunal can only be filed in the Supreme Court.
These revisions are expected to deal with the lack of clarity with regard to the TRAI's powers, as well as the fallout of the High Court judgement striking down the TRAI's controversial Calling Party Pays ruling with regard to calls made from fixed to mobile phones. The High Court reportedly held that: "TRAI cannot lay down the terms and conditions to service providers on introduction of telecom service, installation of equipment, technology and regulate in respect of the telecom industry." It said that the regulator's powers in this regard were only "recommendatory" and the Government was not bound to abide by the proposals.
Introducing greater clarity regarding the powers of different institutions constituting the regulatory framework is, no doubt, a positive step. Over the last three years, despite the existence of a TRAI Act, which defines the role, powers, and jurisdiction of the regulatory authority, the TRAI has repeatedly sought to extend its brief, putting it on a collision course with the government. In this it has implicitly and sometimes explicitly used three arguments. First, that by combining in itself the roles of policy maker, licensor and operator, the Department of Telecommunications has the ability to dilute or sabotage the government's liberalisation drive, which threatens the monopoly profits that service providers under its control have earned in the past. Second, that an inappropriate licence fee structure that had emerged out of the process of auctioning licences to the highest bidder, adopted before the creation of the TRAI had resulted in inadequate entry by private operators, especially in basic services. And third, that appropriate regulation requires the TRAI to have a say in the determination of all aspects of telecom policy, including licensing issues such as the introduction of new service providers, compliance with licence conditions and revocation of a licence. This implies that the jurisdiction of the authority covers not merely service providers, including the service providing divisions of the DoT, but also the DoT as a policy maker and licensor.
In addition, the TRAI has tended to behave as if its role in this enlarged jurisdiction is not merely one of advisor but a decision maker whose decisions are binding on both the government and the private operators alike. This unilateral interpretation of the law, which the TRAI went about implementing in practice, resulted in a most unsavoury situation. First, it led up to a series of disputes between the DoT and MTNL one the one hand and TRAI on the other, souring the relationship between the two. Second, it encouraged private operators, who found themselves unable to meet financial and other commitments made when bidding for licences, to use the TRAI as the means to stall permissible penal action against them. Influenced in part by its own conflict with DoT, the TRAI has tended in these instances to rule in favour of private operators, inviting the allegation of partisanship. In the event, the TRAI found itself dragged to the courts which were called upon to interpret the existing law defining the Authority's powers (See accompanying Box). The court's decisions thus far have made it quite clear that the TRAI had clearly gone beyond its brief, necessitating the current exercise to restructure the regulatory framework.
But the new initiative does little to resolve the issues that arose during the course of liberalisation and the TRAI's initial tenure, relating to the likely consequences of the opening up of the telecom sector (i) for the spread of the telcom network; (ii) social benefits of competition; and (iii) the objectives and feasibility of regulation.

The Court as Arbiter
The decision of the government that the TRAI would not have the power to adjudicate in disputes between the DoT as licensor and the private operators as licencees merely incorporates into the legal framework a judgment that had been arrived at by the courts in  cases which challenged the TRAI's tendency to unilaterally assume such powers. Those cases were of two kinds. Those that challenged the TRAI's effort to intervene in disputes between the DoT as licensor and private operators as licencees, over issues regarding the implementation of the license agreement. And those that challenged TRAI's claim that it had the right to decide on the need and timing of entry of new operators.
The first of these became a problem when the TRAI decided to hear a set of petitions filed by private operators in the paging and cellular businesses against the effort of the DoT to encash bank guarantees in lieu of unpaid licence fees and revoke licences in some cases on account of non-payment of licence fees. Among the cases before the TRAI were petitions filed by Netherlands India Communications Ltd, Fascel Ltd, ICNET, Marcstat Communications, Koshika Telecom, Reliance Telecom, Bharti Cellular and Modi Korea Telecom Ltd. The hearings in many of these cases had to be stalled because the DoT filed appeals in the Delhi High Court, saying that TRAI was not competent to hear disputes between DoT (the licensor) and the licensees. It argued that under the conditions of the licence, disputes were to be settled through arbitration by an arbitrator appointed by the licensor. Following this appeal, the Delhi High Court stayed further proceedings. TRAI on the other hand held that DoT should not invoke the arbitration clause in the interests of justice, since it was one of the affected parties.
The second controversy dragged to the courts was the  decision of TRAI to insist that it had the right to decide on the need for and timing of entry by new operators into various telecom sectors. The clinching case in this regard was the was the controversy over the decision by Mahanagar Telephone Nigam Ltd. to launch cellular services based on the CDMA technology.
On the basis of a petition filed by cellular operators with the TRAI, the Authority issued an order in January 1998 directing MTNL to desist from launching cellular services till it has decided on the matter. Among the questions raised by the cellular operator's association was the right of the government to provide a licence to a new service provider without referring the matter to the TRAI. A month later the TRAI ruled that MTNL's licence to enter the cellular mobile and paging services business was invalid, since the Authority's recommendations were not sought before the licence was amended in October 1997 to include the above services.  It held that the Government would have to mandatorily seek the recommendations of the Authority on all matters pertaining to licensing including those that involve introduction of a new service provider. The TRAI simultaneously held that "the Internet policy, which was formulated and announced by the Government without obtaining TRAI's recommendation... cannot held to be valid." The order also held invalid the revocation of licences of paging service operators, since no recommendations were sought from TRAI.

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