India: TMT Flash - September 2013

Last Updated: 25 September 2013

1. Proposed National Telecom Security Policy

NTSP released by the DoT focuses on tightening the security related to telecommunication over the landline, cellular and broadband. The Ministry of Home Affairs ("MHA") has expressed concerns stating that the policy should allow interception of communication network by law enforcement agencies. NTSP must ensure that there is specific provision allowing law enforcement agencies to intercept telephone calls, voice-mails, e-mails and other services like BlackBerry messenger on a real time basis and also specify proper code for setting up a secure communication network. According to the MHA, NTSP should also cover issues related to priority communications over all networks.

National Information Board is the authority which will finalize the proposed NTPS which will then receive concluding assent from Cabinet of Committee Security headed by the Prime Minster Manmohan Singh.

PSA view -Security over telecommunication network has always been a concern within the Government of India. Though, DoT intends to tighten the security by way of NTSP for private individuals, it is to be seen whether government will approve of the same. Use of Chinese equipments also raises concerns over security.NTSP will ensure that all future procurements take place from Indian and trusted foreign vendors. All telecom operators will be required to regularly audit their network for bugs and security searches.

2. India gets the status of "authorizing member nation" from CCRA

The recently given status of "authorizing member nation" by CCRA is a morale booster for India and can help India emerge as a low cost testing hub for IT and telecom products. This status can help India emerge as a low-cost hub for testing security-sensitive IT products used in telephone and other critical infrastructure networks. CCRA is the top international agency that defines common processes to certify IT products used in infrastructure networks in telecom, power, aviation and defence sectors. This status means that India can now issue clearances to companies to set up CCRA-accredited private test labs.

PSA view - The labs in India can offer testing services at a much reasonable cost when compared to other CCRA labs. As these labs employ manual intensive process, Indian labs will have distinct cost advantages.

3. Department of Telecommunication Issue License Agreement for Unified License

In August 2013, DoT released the final license agreement for unified licenses. The unified license agreement will allow telecom companies to offer any form of communication (telephone, Internet, broadband and others) through a single license. This license was introduced as part of the new telecom policy, which was launched in June 2012 and is valid for 20 years from the effective date of this license. There is an option to renew it for a further period of 10 years at a time. As per the final license agreement released by DoT, the licensees should ensure that the foreign equity in the company does not exceed 74% stake during the entire license period. FDI norms up to 49% will be allowed through automatic route and up to 74% through prior approval of the Foreign Investment Promotion Board (FIPB). However, the same may undergo a change with government relaxing the FDI norm to 100%, in the telecom sector from August 22, 2013 Further, no licensees or its promoters can directly or indirectly have stake in another licensee having access spectrum in the same service area. The exception to aforesaid is only of previous unified access service license regime which will end on the expiry of service license and licensees should comply with this condition within one year of migrating to unified license. Further, under the unified license agreement, licensees should not provide broadcasting or DTH service and should apply for a separate license to offer the same but IPTV is permitted.

PSA view - As per the unified licence agreement cross ownership is prohibited, so no licensees or its promoters can directly or indirectly have stake in another licensee having access spectrum in the same service area. This essentially means that cross ownership between telecoms is now prohibited, which might affect companies like Vodafone which owns 4.4% stake in Airtel and Reliance Communications. While we agree that cross-ownership should not be allowed, to prevent the creation of a monopoly in the market, but an opportunity must be given for companies to amalgamate under a single license. Further, DTH is a carriage service, not a content service, and is not very different from IPTV but IPTV is permitted under the agreement and DTH is not, on the contrary. The impact of revised FDI in the sector on unified license agreement is still awaited.

4. High Court stays INR 15 billion tax demand on Idea

The BHC has issued a stay order in favor of Idea on an INR 15 billion tax demand raised in the year 2010-11 by IT department relating to the transfer of some of its assets to its group company, Aditya Birla Telecom ("ABTL"). In the year 2009-10, Idea's Bihar operations were transferred into ABTL. While the demerger was done under an approved Scheme of Arrangement, the IT department said some of the transfers amounted to taxable perquisites and raised a tax demand during the financial year 2010-11. Though the tax demand is under appeal, the IT department said that Idea would need to still pay up and not wait till the appeal is resolved.

PSA view -If the judgment comes in favor of Idea, it will benefit the other telecom companies facing similar onerous demands from the IT department in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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