THE TELECOMMUNICATIONS AND INFORMATION TECHNOLOGY FRAMEWORK IN INDIA

presented by Sunny Handa Jan-Hendrik Burger Blake, Cassels & Graydon LLP
Indias government has repeatedly expressed the view that the provision of telecommunications infrastructure is the key to rapid economic and social development in the country. The growth in the telecom and information technology (IT) industries have been due in large part to the liberalization policies of the government and the entrepreneurial spirit of the telecom service providers in India. Two issues are highlighted in this overview of the telecom industry. First, is the governments preoccupation with connectivity to provide an accessible network across India. Second, is the challenges the regulatory framework faces because of the convergence of both technologies and markets. Finally, this article also provides an overview of the legal framework governing IT and it tracks some of the recent changes that have been proposed in this field. With estimated earnings of ITrelated services topping US$ 36 billion in 2006, combined with the fact that 100,000 IT professionals are added to the Indian skilled workforce annually, there can be little doubt of the IT and business process outsourcing (BPO) industrys contribution to Indias booming economy. I. Background Over the past decade, the telecom and IT industries have been major contributors to Indias impressive economic performance. Indian firms have two-thirds of the global market in offshore IT services and nearly half of that in BPO. Strong demand has placed the country amongst the fastest growing IT markets in the AsiaPacific region the software and IT enabled services (ITES) industry has grown at a compound annual growth rate of 28 per cent in production and 50 per cent in exports during the past five years. The IT software and services industrys contribution to the national GDP increased from 1.2 per cent (1999-2000) to 4.8 per cent during 2005-06, and it is expected to reach 7 per cent in 2008. Currently, Indias more than 125 million user telephone network is one of the largest communications networks in the world. Though the scale of the network is impressive, the real story is about growth. The number of phones added to the network during 2005 translated into an average monthly addition of more than 3 million lines, peaking at in excess of 5 million additional lines during the month of December 2005 alone. Tele-density increased from 8.95 per cent in March 2005 to 11.32 per cent in December 2005. However, there is still plenty of room for growth recent studies have indicated that there is an immense rural potential for growth and expansion of the telecom network, where about 50 per cent of the countrys rich and well-off households reside. The rapid growth of the telecom network has resulted in the phenomenal expansion in interconnectivity and convergence technologies and markets is a reality that is requires realignment of the industry. At one level, telephone and broadcasting industries are entering each other's markets, while at another level, technology is blurring the difference between different conduit systems such as wire line and wireless. This convergence has necessitated a review of the existing policy with regard to Indias licensing framework. II. Recent Developments in IT The Indian Government implemented the Information Technology Act (the IT Act) in October 2000, drawing on the United Nations Commission on International Trade Laws (UNCITRAL) Model Law on Electronic Commerce and pioneering e-commerce enabling legislation such as the Utah Digital Signatures Act, 1995 and the Singapore Electronic Transactions Act,1998. The IT Act provides legal recognition of transactions carried out by alternatives to paper-based methods of communication and storage of communication. It has brought

about changes in other statutes in order to address issues of electronic crimes and evidence, and to enable further regulation as regards electronic fund transfers. The IT Act comprises three significant aspects: Legal recognition of electronic records and communications: the IT Act targets the traditional contractual law framework, evidentiary aspects, digital signatures as the method of authentication, and rules for determining time and place of dispatch and receipt of electronic records. Regulation of Certification Authorities (CAs): the IT Act regulates the appointment of a Controller of CAs, the granting of licenses to CAs, duties vis--vis subscribers of digital signatures certificates, and recognition of foreign CAs. Cyber contraventions: the IT Act identifies civil and criminal violations and penalties. The Act also establishes an Adjudicating Authority and the Cyber Regulatory Appellate Tribunal.

However, several criticisms have been levelled against the IT Act, including that it does not address domain names or trademarks, privacy or tax issues. In October 2006, certain amendments to the IT Act were approved. The amendments aim to strengthen the legislation pertaining to data protection and privacy in order to address concerns over new forms of computer misuse like video voyeurism, identity theft, e-commerce frauds like phishing, frauds on online auction sites, sending offensive emails and multimedia offences. Although these concerns have been raised within the country as well as by customers abroad, it should be noted that a majority of companies in India have aligned their internal processes and practices to international standards such as the 9001:2000 Quality Management Standard of the International Standards Organization (ISO), Capability Maturity Model Integration (CMMI) and Six Sigma, which has helped to establish India as a credible sourcing destination. Amendments have also been made to reflect the emerging view that IT laws should be technologically neutral, in line with the UNCITRAL Model Law on Electronic Signature. Such an approach would promote development of alternative technologies for authentication of electronic records and would not necessitate legislative changes each time a new and equally effective technology is evolved. In addition to promoting e-commerce in India, the IT Act sets out a framework for e-governance in India. Egovernance refers to the governments use of information and communications technology to exchange information and services with citizens, businesses, and other arms of government. The most important anticipated benefits of e-governance include improved efficiency, convenience and better accessibility of public services. Under Indias National e-Governance plan, the minister for IT unveiled 26 projects in June 2006, to be completed over the next five years. The majority of projects under the plan include common service centres, land records, commercial taxes, agriculture, police, education, pensions, income tax and banking. III. Policy Initiatives in IT Though industrial licensing continues for manufacturing electronic aerospace and defence equipment, it has virtually been abolished in the electronics and IT sector. There is also no reservation for public sector enterprises in the electronics and IT industry, with private investment welcome in every area. Furthermore, electronics and IT industry can be set up anywhere in the country, subject to clearance form the authorities responsible for control of environmental pollution and local zoning and land use regulations. In general, all electronics and IT products are freely importable, except some items related to defence. On the export side, electronics and IT products are freely exportable, with the exception of small negative list. One significant aspect to foreign trade policy includes encouraging Special Economic Zones (SEZs) to be set up in order to facilitate manufacturing and trading for export purposes. Sales from Domestic Tariff Areas to SEZs are treated as physical export, which entitles domestic suppliers to certain benefits and exemptions

IV. Recent Developments in Telecommunications The rapid growth of the telecom network can be attributed to the entrepreneurial spirit of the various telecom service providers and proactive and positive policy measures taken by the Indian government. In 2006, the extent of interconnectivity and the advances made regarding telecom tariffs became evident: from March 2006, the customers of state-owned firms Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) could call from one end of India to the other at the cost of INR 1.00 (C$ 0.03) per minute, any time of the day to any phone. Indias Department of Telecommunications (DoT) is responsible for: policy formulation, performance review, monitoring, international cooperation, and research and development; granting licences to operators providing basic and value added services in various cities and telecom circles, in accordance with the policy of the Government; allocating frequency and managing radio communications in coordination with international bodies; and enforcing wireless regulatory measures and monitoring the wireless transmission of all users in the country.

In addition, subsequent to the formation of BSNL in 2000, the DoT was assigned certain functions under the Government of India (Allocation of Business) Rules, 1961, including but not limited to: policy, licensing and coordination matters relating to telegraphs, telephones, wireless, data, facsimile and telematics services and other similar forms of communications; promotion of private investment in telecommunications; the Telecom Commission; direct the Telecom Regulatory Authority of India (TRAI); the Telecom Dispute Settlement and Appellate Tribunal; administration of laws with respect to the matters Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933, and the Telecom Regulatory Authority of India Act 1997; and BSNL (the countrys largest rural telecom network provider).

The TRAI was established under the Telecom Regulatory Authority of India Act, 1997, and was reconstituted under the TRAI (Amendment) Act, 2000. Its goals and objectives are focused toward providing a regulatory regime that facilitates the achievement of the objectives of the New Telecom Policy, 1999 (NTP99). One of the objectives of the NTP99 was to create a modern and efficient telecommunications infrastructure taking into account the convergence of IT, media, telecom and consumer electronics and thereby place India at the forefront of information technology. In order to achieve this objective, broadcasting and cable services have been included in the definition of telecommunication services under the TRAI Act. Thus, broadcasting and cable services have also come under the purview of TRAI. (a.) Moving towards Unified Licensing Recognizing the reality that one technology is able to offer various services covered under different service specific licenses, TRAI has started to move towards a unified licensing framework for all telecom services. The key objective of the regime is to encourage free growth of new applications and services leveraging on the technological developments in information and communication technology. Other important objectives include simplifying telecom licensing, efficient and flexible use of resources and encouraging operators into rural and remote areas. TRAI recommended the following in January 2006: a framework of Unified License: four categories of licences, with a Unified License at the highest hierarchal level and a Stand Alone Broadcasting and Cable TV License at the lowest; the framework would enable a licensee to provide any or all telecom services by acquiring a single license; mandatory migration to the Unified Licensing regime by all telecom operators after five years of its implementation;

under a Unified License, there shall be no restriction on the usage of the internet telephony or other IP enabled services. Niche operators, under a Class License (the second highest category of licenses in the framework), will also be allowed to offer internet telephony; and Stand Alone Broadcasting and Cable TV Licenses would continue to be issued.

(b.) Spectrum Related Issues For the growth of wireless services, spectrum is a vital and scarce resource and its inefficient management and allocation may not only hamper the growth but also quality of service. The Wireless Planning and Coordination Wing in the DoT, deals with the policy of spectrum management, wireless licensing, frequency assignments, international coordination for spectrum management and administration of the Indian Telegraph Act, 1885 for radio communication systems and the Indian Wireless Telegraphy Act, 1933. According to the 2005-06 report of Indias Ministry of Communications and Information Technology, the present level of spectrum allocated to mobile telecom operators is well below international averages. TRAI submitted its recommendations on spectrum related issues to DoT in May 2005, which were based on Government objectives for a target of 200 million mobile phones by December 2007. V. Foreign Direct Investment (FDI) Policy for IT The FDI ceiling in the telecom sector has been enhanced to 74 per cent in certain services (such as basic, cellular, unified access services, national /international long distance, VSAT, Public Mobile Radio Trunk Services, Global Mobile Personal Communications Services and other value added services). The total 74 per cent ceiling will include direct and indirect foreign holding in the licensee company. FDI up to 74 per cent subject to licensing the security requirements, is also allowed in the area of Internet Services with gateways, infrastructure providers (category II) and radio paging services. FDI of up to 100 per cent is permitted for e-commerce activities, Internet services without gateways, infrastructure providers (category I), electronic mail and voice mail services, subject to the condition that such companies divest 26 per cent of their equity in favour of the Indian public over five years, if these companies are listed outside India. Such companies would engage in business to business e-commerce and not in retail trading, implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well. Finally, 100 per cent FDI is permitted in the area of telecom equipment manufacturing and provision of IT enabled services. VI. Conclusion The number of users of telecommunications are indicative of the fact that India continues to be one of the fastest growing telecom markets in the world. Though the scale and growth of the telecom and IT industry in India are impressive, the country still faces major challenges to provide adequate connectivity to the majority of its population that totals over one billion people. The Indian governments policy of liberalization appears to have paid dividends. What will be of interest is how it chooses to deal with convergence and other challenges facing IT and telecommunications.