Telecommunications And Media:Legal And Regulatory Environment

MADHURENDRA NATH JHA

Telecom – Silent Revolution

2nd Largest in the World

Second only to China

Since 2004, number of telephones grew @ 40% p.a. (exception of 2005)

India, USA & China

Month Country No. of Mobile

Subscribers

Addition in No. of Mobile Subscribers

End of Feb’ 08

India 250.93 million

8 – 9 million / month

Last Count

USA 256 million 2 – 3 million / month

Jan’ 08 China 534.58 million

6 – 7 million / month

Regulatory Framework Supreme Court

TDSAT

TRAIDoT Ministry of I & B

TRAI: Market Regulator

• Soft Gloved, Light Touch, In Sync with Market • as technology cannot be policed

• India is plugged into the global market• Promoter of Technology • Pro-active and Sound Policy Making• Promotes Competition• Social Focus: increase access, lower price,

provide choice • Increase teledensity • Promotion of consumer interest

• Choice, lower prices and availability

• Relatively Efficient Regulator • Reason for slow paced reforms in electricity sector- lack of efficient power

regulator

Media and entertainment:

The Indian Entertainment & Media industry can be categorized as follows:

Filmed Entertainment (Movies)

Television

Music

Radio

Print (Primarily Newspapers & Magazines)

FDI Policy for the Telecom 

Sr.. Sector/Activity FDI Cap/Equity Entry route

1. Basic and cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS) Global Mobile Personal Communications Services (GMPCS) and other value added telecom services 

74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares, and proportionate foreign equity in Indian promoters/Investing Company)

Automatic upto 49%. FIPB beyond 49%.

2. ISP with gateways, radio-paging, end-to-end bandwidth.

74% Automatic upto49%  FIPB beyond 49%

3. a) ISP without gateway, * b)  Infrastructure provider providing dark fibre, right of way, duct space, tower( Category –I); c) Electronic mail and voice mail

100% Automatic upto 49%  FIPB beyond 49%

4. Manufacture of telecom equipments 100% Automatic

FDI in Media Sector

Sector Sectoral Cap Entry Route FM Radio 20% FIPBCable Network 49% FIPB

Direct-to-home 40% FIPB

Setting up hardware facilities such as up-linking, HUB, etc.

49% FIPB

Up-linking a News & Current affairs TV channel

26% FIPB

Up-linking a non-news & current affairs TV channel

100% FIPB

Publishing of newspaper and periodicals dealing with news & current affairs

26% FIPB

Publishing of scientific magazines/ specialty journals/ periodicals

100% FIPB

Satellites – operation and establishment

74% FIPB

Grant of LicensesUnified Access ServicesCarrier ServicesRegistration Certificate Infrastructure provider Category –I (IP-I)Voice Mail Service / Audiotex / Unified Messaging ServicePublic Mobile Radio Trunk Service LicenseGlobal Mobile Personal Communication by Satellite Service LicenseOther Service Providers Very Small Aperture Terminal (VSAT) ServiceInternet and Broadband Services

Indian Market Total Number of telephones 281.62 million at the end of January

2008. Current addition: 8 million lines per

month, perhaps the highest in the world Target 2010: 500 million connectionsBroadband Subscribers March 31, 2005: 0.18 million December, 2007: 3.02 million

Public vs. Private

The 4 C’s of Telecom & Media regulation In India

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.

Telecom : Major DealsSistema JSFC acquired 74% equity in Shyam Telelink Limited

Hutchison and Vodafone Merger

Spice, Idea and Aircel to merge.

Media : Major Deals UTV acquires majority stake in IT Nation.

TV 18 acquires a 40 percent stake in Infomedia India.

Cybermedia buys UBMs stake in publishing JV UBM-Cybermedia LLP.

9.9 Mediaworx to acquire Jasubhai Digitel.

Reliance Entertainment acquires Animation Studio Anirights.

HT Media buys social networking site DesiMartini.

Regulatory Challenges

New Entrants vs. Existing PlayersSecurity Incumbent BSNLSpectrum AllocationTechnology, Convergence Pro-active and Supportive RegulatorNeed for New Legislation- Existing Legislations Inadequate to manage technology Growth Licensing Issues Access and Inclusion

New Entrants Vs. Existing PlayersBSNL

Existing Incumbent Loss of 8% market share p.a. Still the Largest

To promote tele-densityPromote competitionBenefits of Technology Must Reach the Last Man in the Last VillageTeledensity covers only 1/4th of the Population, hence 3/4th of the Market untapped New entrants would deviate from that model and provide competitionExisting players left to themselves would skim the market from top to bottom

would be a time consuming process.

Inclusion

Top Spend

Mid Spend

Low Spend

Average Spending by a consumer on Telephone Per month

Security IssuesTelecommunications & Media sector

- Traditionally considered to be Sensitive SectorsSecuring Sensitive Data communicationsBlackberry Case Hosting vs. RoutingIndia prefers Hosting

Spectrum IssuesAllocation of Spectrum- Conflict between New Players and Existing Incumbents

- Government has started allocating spectrum to new players

- Spectrum Allocated to Defense, Railways, ONGC, BSNL and other Government Departments; acquisitions- Major Players acquiring smaller networks for Spectrum (but 3 year lock-in for new entrants to discourage arbitrage impedes consolidation)3 G Spectrum- Bone of contention between GSM & CDMA operators

Pro-active and Supportive Regulator

Regulators Change with time

Telecom & Media Policy Making -Constant Learning Curve

Need to keep pace – Dynamic Environment

Need to learn from Mistakes in the Past

Potential Areas of ConcernTRAI – well regarded / established sectoral regulator currently also adjudicating on certain competition

issues Conflict in the future may occur with the Competition Regulator ( which is not established yet) Powers of Telecom Regulator not clearly definedJudicial review and activismLack of culture of nurturing institutional memory

Licensing IssuesNeed for Convergent Licensing requirements for Telecom & Media Sector

- At present under the UASL Telecom Operators can provide both voice & data services; But Cable Networks can only provide data

- ISP’s permitted to Provide Internet Telephony but only to a limited extentVast Differences in the Licensing Fee, Procedures, Offices

ConvergenceMay be classified into two categories

1) Convergence of Policy/Regulation

- Dynamic process; already taking place

2) Convergence of Services- Will take some time

some Convergence already achieved

Technology Drives Market& Market Drives Technology

TECHNOLOGY

MARKETTECHNOLOGY

MARKET

Regulatory trends in service Convergence

Spectrum licensing:The government of India has moved from a technology and service specific Licensing regime to a Technology neutral regime in their unified access service license.

Service regulation: QoS regulations and content regulations need to be followed.

On the broadcasting side, public service or public access television and radio are types of universal service obligations.

Authorizations and licensing:In a converged setting, there are overlaps and,: broadcasters (e.g. cable companies) are offering telecom services (Internet, voice), while telecom services are offering broadcasting services (IPTV). Further, cellular operators are providing mobile television services.

A case in point for approach is the development of IPTV in India.

Convergence of Licensing Regime

Voice Data

UASL LICENSE

Access

Convergence of Policy & Regulation

TRAI is the Policy recommending Authority to both DOT & I&B MinistryAdjudicates disputes pertaining to both Telecommunications & Media & Broadcasting

TRAI

Department of Telecom

Ministry of Information &Broadcasting

IPTV ServicesDriving Force:

The fast development in telecommunication technologiesEnormous capabilities of Internet protocol (IP) platform Increasing digitalization in broadcasting sector

“Technology drives the Market and Market drives Technology”

Regulatory Challenges in IPTV Services

Unclear Policy FrameworkNature of Service not clearExisting legislation not sufficientClarity on down linking guidelinesContent regulationFDI Cap- Non Level Playing field

TRAI Recommendations To solve the regulatory issues concerning IPTV

Services TRAI has recommended the following to DOT & I&B Ministry

1) Telecom Operators to provide IPTV services under UASL License

2) Telecom licensees while providing TV channels

through IPTV shall transmit only such channels in exactly same form (unaltered) for which broadcasters have received up-linking/down-linking permission from Government of India (Ministry of Information and Broadcasting)

TRAI Recommendations (Contd.)

3)The up linking/down linking guidelines should be amended to enable the broadcasters to provide signals to all distributors of TV channels

4)Telecom service providers providing IPTV service not to produce any news content and to show only those news channels which have permission from I & B Ministry

Convergence But Not Yet Any Convergence Law

Digital Revolution with more efficient compression technologies and driven by powerful competitive forces that are now reshaping the communication landscapetelecommunication network - nexus for convergence of TV with the internet and the next generation of digital video service.Indian media and entertainment industry to grow at 18% CAGR to reach Rs. 1 trillion by 2011Television segment will grow by 22 per cent from Rs 191 billion to Rs 519 billion by 20112007

Internet subscribers – 18 million Broadband subscribers – 9 million

Online Penetration rate to be 7% by 2011Need for statute to keep pace with technology

Contd. Enhancements like mobile TV reception/HDTV/IP based TV and introduction of new convergent multimedia services and new applications such as 3GConvergence ‘opens up possibility of greater competition that will benefit consumers with aggressive pricing,increased availability and competitive service packages.’

Opportunities in Telecom Sector

Telecom Infrastructure ServicesFavourable Investment ClimateTotal No. of Subscribers – Increase

Yield per Subscriber from traditional streams may decrease due to higher competition, new entrants

Still higher Tariff Margins then any where in the worldPossibility:

3G Services – 2009 4G Services – 2011

Value Added Services – 15% of yield Caller Tunes, Ring Back Service Less Skimming All small and medium players – growth opportunity for

international player

Media Sector- Opportunity 60,000 Cable operators and 6,000 MSO’s providing cable services with analog technology; Digitalization Cable Operators disorganized small time playersMarket Consolidation Capacity enhancement of existing infrastructure Opportunity to provide Cable television to 80 million homes. Therefore Vide untapped consumer base to cater.

THE COMMUNICATION CONVERGENCE BILL, 2001Aims to facilitate, promote and develop carriage and content of communications establishment of The Communications

Commission of IndiaMandatory license and permission from the Central GovernmentCommunications Commission of India - super-regulator telecommunications, broadcasting, data

communication, multi-media and other related technologies and services.

Bill failure – Blessing in Disguise

Entry Strategies for Foreign Investors

As a Foreign Company through: Liaison office/Representative office Project Office Branch Office foreign company through:

As an Indian company through: a Joint Venture – It may be noted that 90% of

the JV’s in sectors without sectoral caps fail. Wholly Owned Subsidiary

Joint Ventures As An Entry Strategy

JV’S regulated by Policies and Laws governing FDITwo Tier Approval Mechanism for JV’S:

- Automatic Approval Route- FIPB Approval Route

If the Foreign Partner has entered into JV in the same field before then NOC of the previous JV partner and approval of the Government also required

India-entry‘Same Field’ may be defined as the 4 digit National Industrial Classification (NIC) Code

Illustration: If the foreign investor has collaboration

for the manufacture of tarpaulin Code 268.3, he can invest in the manufacture of rubberized cloth Code 268.2 as there is no restriction to enter into JV’s in allied fields. The restriction shall apply to any item whose code NIC code is 268.2.

THANK YOU