Global Telecom Summit 2001 "Connecting India"
September 27-28, 2001

Address by Mr N Vittal, Central Vigilance Commissioner

Convergence has become a buzzword especially in the area of communications. We have seen how computers which were initially stand alone number crunchers got linked through telecommunications to form computer networks. The marriage of computers and communications gave birth to information technology. This coming together of communications and computers itself was possible because of the underlying unifying factor of digital technology. Digital technology reduces audio, video or text to a series of zeroes and ones, the binary digits.

The era of convergence is also symbolised by developments in the electronics. Earlier electronics was separated between hardware and software but as the 20th century came to an end, software became more important as a part of the electronic business of the world and hardware got lesser importance. Thanks to technologies like application specific integrated circuits (ASICs), it is possible increasingly to build a lot of software content in the hardware itself. Here again probably we are seeing one more dimension of the technological force of convergence.

The unifying power of digital technology is behind the convergence we see in information technology. New horizons in services and business opportunities arise when convergence takes place, as a natural consequence. The impact of convergence in communications is felt in business as well as government agencies connected with this sector.

The capital market is greatly influenced by the convergence of communication technologies. Information technology, communication and entertainment are coming together and we see in the modern capital markets the emergence of the ICE age. This impact on business of technical convergence in communications is very natural. After all, it is technology which is the basic driving force behind civilisation. Alvin Toffler looked at the entire sweep of civilisation in terms of the agricultural wave, the industrial wave and the post industrial wave. We are in the post industrial wave. Technology defines an age and our age is defined by information technology.

5. The impact of convergence is also felt in bureaucracy or regulatory agencies. For nearly a century after the invention of telecommunications, a distinction was made between the regulation of the carriage in the form of wire line or wireless telecommunications and content used in these carriages to reach a wider population. The Department of Telecommunications handled at the carriage aspect and the Ministry of Information and Broadcasting at the content aspect. The convergence in communication now is the driving force behind a rethink of this traditional separation between carriage and content.

6. This session is called "Convergence A Reality". It is obvious that we must realise the reality of convergence and modify our policy and approach to take full advantage of this reality. It is necessary to appreciate that the age of convergence is being driven by technology with its consequences both in government and in the market place, and, one cannot hold back the march of technology. However when we look at some of the government policies, we wonder whether the government thinks that the march of technology can be stopped a la King Canute by a policy diktat. Voice over Internet Protocol (VOIP) and Internet telephony are already available as a technological reality. Intelligent countries like Thailand have been able to use this technology particularly for rural communication and save at least 20% of the cost. But here in our country our policy approach seems to be still ambiguous. Sooner we accept this reality of technological convergence and allow VOIP /Internet telephony, the better. Otherwise we are only creating a window of opportunity for corrupt practices.

7. The second issue of the age of convergence from a commercial point of view to resolve the question whether the entire sector will be dominated by some giants in the industry who have deep pockets or we would also like to allow, apart from the big fish, some small fry also to flourish. The Chinese have the concept of the dragon dance. Years ago when I went to Shanghai, I was told that the relationship between the large and small industry is like a dragon dance. The large industries are the head of the dragon and the small are the tail of the dragon. One of the remarkable contributions made by Indian telecom in communication is the STD booths. Perhaps there is a significant scope for encouragement of retail services in telecom. This is possible through Direct Indialling.

8. One dramatic development in telecommunication is the unbundling of the telecom services, which were essentially monolithic for nearly a century. In India Department of Telecommunications, which controlled the entire spectrum of telecom services from manufacturing of equipment to providing telecom services in the customer premises, adopted dramatic changes by first privatising equipment manufacture and subsequently telecom services. In telecom services, there are basic service providers, cellular service providers, marginal and small-scale service providers like those operating Group Electronic Private Automatic Branch Exchanges (EPABX) or Direct In Dialling Services (DIDS).

9. The most innovative concept introduced by India in telecommunication services, which attracted global attention, and acclaim was the concept of STD/ISD booths throughout the country. The booths operated on the principle that access to telephone will be available for all those who cannot afford telephone at their own premises. This unique Indian contribution to telecommunication is widely appreciated throughout the world. The Direct In Dialling Services can be another innovation, which, if used imaginatively, can bring another success to the Indian telecom scene. This may also have the same social and economic impact as the STD booths.

10. The DID scheme operates on the principle that by taking one telecom line from the main service provider, the DID operator serves eight customers. In other words, the DID operator is able to reach customers at 12.5% of the cost of the main service provider. The advantage of this type of retail telecom services would be obvious from the fact that today there are 650 such DID operators who contribute a revenue of Rs.200 crores every year to BSNL and MTNL. The DID operators today operate under a franchise with the main operator namely BSNL/MTNL.

11. The DID operators have been prompt in making the payments. Their quality of service is better as complaints are attended .to promptly. This is for the simple reason that for DIDS, commission per call is the motivating force. To the DID operator, no call means no commission. The DID scheme has the following positive features -

i. The DID operator acts as a retailer of telecom services in a local area and is able to reach the customer at 1/8th the cost of the main service provider.
ii. He is able to give better service because of the principle 'no call, no commission'.
iii. The DID operator enhances the number of customers and consequently income to the main service provider of basic telecom services.
iv. In India, especially in rural areas the tele-density is very poor. Out of six lakh villages hardly four lakh villages have telephones and many of them may have just one telephone. If DID services are encouraged, the telephone density in the rural areas will increase. It is believed that a -1% increase in telephone density leads to a 3% increase in GDP. What is more, the investments can come from a large number of people and the local entrepreneurship is encouraged.
v. It has been proved that if telecom services are provided in rural areas, the income of the people goes up. Sam Pitroda pointed out long ago how in Karnataka when telephones were provided in rural areas to tomato growers they got a better price in Chennai than in Mangalore. They diverted their product to Chennai and got better profits.
12. When these benefits are available from DIDS, why is it that DIDS are not growing? There are two reasons. Firstly, there is lack of sufficient appreciation of the potential of DIDS. Secondly, DIDS are treated as a franchise exercise with the main telecom operators, in this case the BSNL, dictating the terms. This leads to ridiculous situations. The TRAI has said that DID operators should not charge more than 90 paise per call whereas the franchising conditions of the BSNL insist that the DID operators will have to reimburse Rs. 1.20 for every call to the BSNL. It is obvious that with such anomalies, the DID service can never grow.
13. The DID services cannot be operated without the connection with the basic service provider. This entry barrier to the retail services in telecom must be removed. In this context, the TRAI should emulate the initiative taken by OFTEL, which in the early stages of telecom liberalisation in Britain encouraged Mercury as a competitor to British Telecom and also insisted on connectivity being provided by BT, which is the 900-pound guerrilla in the telecom scope in Britain. In the Indian context, organisations like the BSNL pack the punch of the 900-pound guerrilla. Entrepreneurs who want to enter into the area of retail telecom services have no chance for survival. On the other hand, if an imaginative policy as suggested below is introduced, employment opportunities and economic potential of this retail services could be exploited especially in the current situation of economic slowdown

i. There will be no licensing or franchising of DID service. Any entrepreneur can enter the business and he will have to inform the authority to be designated by the government about his details and this will be promptly recorded and an identity number given.
ii. Every DID service provider will be entitled to get the connectivity with the main service provider and this will be subject to the standard terms which the TRAI may recommend. While full market forces should operate in the relationship between DID operators and the main telecom service providers, the basic purpose of TRAI and the government policy must be to ensure that there is a level playing field and the customer has a choice of directly getting the line from the basic service provider or through the DID operator. As the main service provider also benefits by addition of new customers who are reached by the DID operator, it is an arrangement which benefits both the main basic service
operators as well as DID operators.
iii. The basic service provider is not prohibited from trying to attract the same customer as the DID customer. This will take place, to begin with, in areas where there is a larger economic potential like in urban areas. In the rural areas, such competition may not take place and here the DID operators will be acting as pioneers and blazing a trail in
telecommunication.
14. If this policy is adopted, we would have taken an innovative humanitarian step in the global telecom scene next only to that of the STD booths, which are today appreciated worldwide.
15. The third aspect of the policy must be to see whether we are able to build on the existing strengths we have in the age of convergence. After all if convergence means coming together, why is it that we have thought it necessary to have separate long distance licences? Why not allow the existing network operators themselves to come together so that the investments made gets the optimum results? Physical convergence by permitting the various telecom networks to come together will bring optimum results from the capital already invested. By having separate long distance licences are we not repeating the famous mistake of Newton who wanted to have a big hole for the mother cat and a small one for the kitten in the cat box?

16. Regulation in the era of convergence as a reality is very important. When the era of convergence leads to greater investments coming into this sector, there is also the need for adopting the right attitude so far as regulation is concerned. Here I would draw your attention to what I would call the "4C Mantra".

17. The Indian telecom scene today is exciting. Policies are changing and technologies are exploding. The presence of new players and old players with their own corresponding vested interests lead to pulls and pressures on the policy makers. Is it possible for the regulatory authority, TRAI to evolve a set of core principles which can be used as a reference point for effective and meaningful telecom regulation in India? I would suggest a 4C mantra for telecom regulation in India. The 4 "Cs" are:

i. Customer's interest
ii. Competition in a level paying field
iii. Convergence of technologies, and
iv. Commitments both financial and legal, involving regulators, licensers, and licensees
18. The pole star for policy making and regulation in the emerging telecom scene must be the interest of the customer of telecom services. He must be able to get world class services at the most competitive rates. Every policy decision or tariff decision must be put to the acid test to see whether it benefits or hurts the customer. Brought up in a regulated economy for five decades after independence, our Indian industrialists, businessmen and service producers are accustomed to pass on all the financial burden to the customer who did not have much of a choice anyway. In the emerging scene of globalisation which encourages competition, we should not artificially create a situation wherein the customer is forced to pay a higher tariff for telecom services especially when technology and competition provide a possibility of the same services being provided more cheaply.
19. The second 'C' of the regulation mantra must be fair competition. In any competition all the players may not be having the same capabilities. It is the competitive strengths of the different players, which ultimately decides their market share and success in the market place. This market dynamics must be fully allowed to prevail. The only care which TRAI will have to take is to ensure that there is a level playing field. The presence of BSNL, the 900 pound guerrilla in the telecom scene makes it all the more necessary that TRAI will have to play a role similar to that of Oftel in Britain where Mercury by policy was supported to take on British Telecom so that the British customer of telecom services had a real choice. A similar role has to be played by the Indian regulatory authorities in ensuring that there is a level playing field.

20. This raises the next issue of convergence, the third "C1 of the 4C mantra. Convergence, thanks to digital technology and explosive growth in other communication technologies, is already taking place. There may be a tendency on the part of the regulators to limit the choice of technologies or sometimes restrict the inflow of technology. A classic example of the resistance to the on rush of technology is the present policy ban on the use of Internet telephony even though perhaps many are de facto enjoying the facility. It is not clear who stands to benefit by the present ban on Internet telephony. The situation is similar to that prevailed some years back when the DOT tried to regulate the use of fax machines and failed miserably.

21. The basic point to be remembered in the context of convergence is that whatever decisions the regulatory authorities take should be able to encourage competition. When it comes to competition, the critical word is pluralism. Pluralism would mean that when it comes to service providers, there could be a multiplicity of service providers. Further, pluralism should also be encouraged when it comes to the quality of service. There was a time when the entire telecom system was a monolith, the state controlled the sector totally. What the technological revolution in telecom has achieved is to unbundle the telecom sector and create different types of service providers with different levels of investment and the quality of service. This must be encouraged. It will be necessary to countenance the presence of more than one type of service and leave it to the customer to choose to pay what he can to the quality of service that he desires. This does not mean that there will be an endless spectrum of services of different quality. At least, broadly perhaps two or three levels can be identified. After all, in our country we may have the latest Mercedes cars on our roads in the cities but the bullock cart still has a role to play in the village. The Mercedes cars will not go into places where the bullock cart can go.

22. Pluralism of players and technologies will ensure that there is healthy competition. That brings us to the last of the "Cs" in the 4C mantra for telecom regulation namely, "commitments", both legal and financial. After all, telecom is a sector which attracts a lot of heavy investments and depending upon the policy parameters, investments have been made in different sectors. Now, because of the pressure of convergence and the emerging opportunities when the Telecom Regulatory Authority has to continuously fine-tune the rules of the game. It cannot also afford to take decisions in such a way that the entire operation gets entangled in endless litigation. There are four factors namely (i) licensing conditions, (ii) fees for access, (iii) tariff rates, and (iv) spectrum charges which the regulatory authorities can fine tune so that there is a level playing field created for the different players in the scene. This is really going to be the main challenge for TRAI.

23. It will not be possible for TRAI to so accurately fine-tune the parameters so that those made wrong investment decisions are propped up artificially. There was a lot of excitement recently in Europe about the spectrum auctions for the 3G, third generation mobile services. Already doubts are being raised whether the bids have been very high and investors will be able to recover the charges. This is, of course, part of the normal risks involved in a highly competitive, technology intensive and at the same time potentially profitable market.

24. If the telecom regulation in India goes by the 4C mantra, probably we are likely to ensure that the Indian telecom scene emerges as an example of a win-win exercise. The customer will never be losing and the players will have a level playing ground and, of course, will have to bear the risks and rewards that go with a healthy competitive environment.

25. Four engines ultimately determine the progress of the telecom sector. These are technology, political will, regulatory activism and market dynamics. So far as technology is concerned, we have seen the impact both in terms of convergence as well as new opportunity it affords for reaching even rural areas, employment opportunities, improving quality of life, etc. So far as political will is concerned, the government of India, as a result of liberalisation policies first came up with the 1994 National Telecom Policy followed by the 1999 New Telecom Policy. In 1998 came the ISP Policy and government must be now congratulated for coming up with the Communication Convergence Bill 2001 which is before the standing committee. The objects and reasons section of the bill clearly spells out government's approach behind this move. (Annexure).

26. I have been closely connected with the evolution of the Communication Convergence Bill as a member of the Group on Telecom and Information Technology. In the present Indian context, the Bill should be welcomed by all concerned with India taking the best advantage of the era of convergence.

27. I find that one issue that is being raised is whether there is need for having the following four types of licenses in the age of convergence as visualized in the Communication Convergence Bill 2001.
a) to provide or own network infrastructure facilities
b) to provide networking services
c) to provide network application services
d) to provide content application services

28. This broad classification to begin with is welcome because everyone who starts in the process of business may like to start with one point of entry. What is needed perhaps is to provide for easy movement from one type of service to another as the investments and the skills required for each type of services will be different.

29. In this era of liberalisation and convergence, a question may be raised whether there is need for licensing needed at all. At least the services where major investments are needed like the areas described in the communication convergence bill may call for licensing. Considering the concept of convergence, perhaps a & b can be combined. So far as (d) is concerned the question is whether there is any licensing. If not introducing a license only for (d) may require a review.

30. We should also make it clear that there will be a whole host of other services where investment requirement is not much and could be more in the nature of ancillary or retail services where no licensing will be required.

31. So far as the spectrum management is concerned, as explained in the statement of objects and reasons, in view of the strategic importance and international implications it is necessary to have the provision as provided in the Bill.

32. Perhaps the bureaucratic consequence and restructuring of the ministries as a consequence of the communication convergence bill 2001 is an issue that is likely to be hotly contested. Already we have a common minister heading both the Department of Telecom and Ministry of Information and Broadcasting. Perhaps their merger may be a first step towards the final emergence of a super ministry of communications which will include information and broadcasting also. Perhaps this will also achieve the goal of downsizing of the government. This will call for an imaginative approach. What is needed first is a change in the mindset. A conscious exercise may be made about bringing a cultural change in the mind set somewhat on the lines attempted by Shri V Krishnamurthy when he was Chairman of SAIL. Interventions by organization development experts in that case were able to bring about a mindset change leading to good consequences. The communication convergence bill may therefore also achieve the incidental advantage of downsizing of the government and perhaps evolving a more flexible and agile ministry of Communications. However, ours being a democracy, the process is likely to be not very fast or smooth and unless a consensus is evolved, we may not see many changes happening in reality.

33. Convergence is a technological reality. Convergence as reflected by the political will in the form of the Communication Convergence Bill is also a political reality. Will convergence will become a business reality and a bureaucratic reality is one question for which we still have to find an effective answer

Annexure

STATEMENT OF OBJECTS AND REASON

1. Convergence connoting the provision of different kinds of services over the existing infrastructure and the enhancement of existing technologies so as to provide a wide variety of services is a relatively new phenomena; in addition the rapid technological developments are leading to an inability to predict the emergence of new services. The existing legislations are proving inadequate in dealing with the emerging scenario of convergence. Furthermore, the existing licensing and registration powers and the regulatory mechanisms for the telecom, information technology and broadcasting sectors are currently spread over different authorities. Therefore a flexible type of legislation to accommodate and encourage permutation and combination of technologies and services is required. The Communication Convergence Bill proposes to establish a structured mechanism to promote, facilitate and develop in an orderly manner the carriage and content of communications (including broadcasting, telecommunications and multimedia) in the scenario of increasing convergence of technologies.

2. The Bill aims at facilitating development of national infrastructure for an information based society, and to enable access thereto; providing a choice of services to the people with a view to promoting plurality of news, views and information; establish a regulatory framework for carriage and content of communications in the scenario of convergence of telecommunications, broadcasting, data-communication, multimedia and other related technologies and services: and
establish the powers, procedures and functions of a single regulatory and licensing authority and of the. Appellate Tribunal.

3. These objectives are proposed in he achieved bv .setting up mi autonomous body to he known as Communications Commission of India with wide ranging powers, duties and function . The head office of the proposed Commission shall be located at Delhi, and its regional offices shall be located at Kolkata, Chennai and Mumbai. Commission shall consist of a chairperson, not more than ten Members and the Spectrum Manager as an ex-officio Member. The chairperson and Members, other than the ex-officio Member, shall be appointed by the Central government from amongst persons of eminence recommended by a Search Committee from fields such as literature, performing arts, media, culture, telecommunications, law, broadcasting technology, information technology, finance etc.

4. The Bill proposes to combine and bring under the purview of the Commission the licensing and registration powers and the regulatory mechanisms for the telecom, information technology and broadcasting sectors. It is also proposed to replace large number of categories of license with the following five broad categories to enable service providers to offer a range of services within each category, namely:-

(a) to provide or own network infrastructure facilities;
(b) to provide networking services;
(c) to provide network application services;
(d) to provide content application services;
(e) to provide value added network application services

5. This flexible licensing regime is expected to optimize the use of resources and encourage the development of infrastructure. The information technology enabled services such as call centers, electronic-commerce, tele-banking, tele-
education, tele-trading; tele-medicine, videotex, video conferencing shall not be licensed under this legislation and all the
facilities and services exempted from licensing or registration immediately before the commencement of this legislation
shall continue to be so exempt, until otherwise notified.

6. The Commission is envisaged to be involved in the assignment of the spectrum; it will carry out frequency management, planning and monitoring for non-strategic or commercial usage of spectrum; determine appropriate tariffs and rates for services; facilitate and regulate all matters relating to the carriage and content of communications; promote competition; take measures to protect consumer interest and promote and enforce universal service obligations; formulate and lay down codes and technical standards and norms to ensure in a technology neutral manner the quality and interoperability of services and network infrastructure facilities; report and make recommendations either suo motu or on such matters as may be referred to it by the Central Government etc.

7. The Commission is also proposed to be empowered with dispute resolution functions and will have the power to appoint Adjudicating Officers. It is also proposed to set up an Appellate Tribunal, to be known as the Communications Appellate Tribunal, to hear appeals against decisions or orders of the Commission, or against orders of Adjudicating officers imposing civil liabilities. The jurisdiction of the Appellate Tribunal may be exercised by its Benches, which shall ordinarily sit at Delhi and at such other places as may be notified. The Appellate Tribunal shall consist of a Chairperson and not more than six members. The Chairperson of the Appellate Tribunal shall be a person who is, or has been, a judge of the Supreme Court and shall be appointed in consultation with the Chief Justice of India. The members of the Appellate Tribunal shall be appointed from amongst persons recommended by the Search Committee and they should be, or should have been, Judges of High Court or should have held the post of secretary to the Government of India or any equivalent post in the Central Government or a State Government for a period of not less than two years, or should be persons who are proficient in any of the fields specified for appointment as Members of the Commission.

8. The Bill proposes to repeal the following legislations namely: -

(a) The Indian Telegraph Act 1885.
(b) The Indian Wireless Telegraphy Act 1933.
(c) The Telegraph Wires (Unlawful possession) Act 1950.
(d) The Telecom Regulatory Authority of India Act 1997.
(e) The Cable Television Networks (Regulation) Act 1995.

9. The Bill also provides that with effect from the dates cf establishment of the Commission and of the Appellate Tribunal, the Telecom Regulatory Authority of India and the Telecom Disputes Settlement and Appellate Tribunal respectively, established under the Telecom Regulatory Authority of India Act 1997, shall stand dissolved and proceedings pending before them shall stand transferred and deemed to be pending respectively before the Commission and the Appellate Tribunal.

10. The bill seeks to achieve the above objectives.

New Delhi;
The 29th August, 2001. Ram Vilas Paswan

PRESIDENT'S RECOMMENDATION UNDER ARTICLE 117 OF THE CONSTITUTION OF INDIA.

[Copy of letter No. 13-7/2001-Restg. Dated 29th August, 2001 from Shri Ram Vilas Paswan, Minister of Communications, to the Secretary-General Lok Sabha]

The President, having been informed of the subject matter of the Communications Convergence Bill, 2001 recommends the introduction and consideration of the Communications Convergence Bill, 2001 in the House under article 117(1) and (3) of the Constitution of India.