India: Introduction Of New VNO Category B License Covering Districts Of States - Is It A Step To Achieve Higher Rural Tele-Density


One of the strategies envisaged under National Telecom Policy – 2012 (NTP-2012) is to facilitate resale through virtual network operators (VNOs) at the service level. In this regard the VNO license for access service sets out the service area as a particular telecom circle/metro area. The Department of Telecommunication (DoT) as an interim measure on 5 July 2016 issued guidelines (Interim DoT Guidelines) for grant of UL (VNO) for access service authorization for category B license with districts of a State as a service area, and included entrepreneurs like Direct Inward Dialing (DID) franchisees. In this backdrop DoT by its letter on 11 July 2016 also requested TRAI to provide recommendations for access service authorization for category B license so that elaborate guidelines can be issued. It was also clarified by DoT that there shall be no category of DID franchisee license in future.

To provide a background of DID franchisee, it may be important to state that the concept of DID was introduced first in 1994 by DoT to provide Electronic Private Automatic Branch Exchange (EPABX) by private entities as franchisees of DoT. It permitted provisioning of voice telephony to the subscribers through wireline network only.  Later, DoT's operations were transferred to BSNL. DID operators continued to provide EPABX facilities as franchisees of BSNL. After introduction of private Telecom Service Providers (TSPs), DID franchisee were permitted to enter into franchisee agreements for re-sale of services under UL/UASL/Basic service licenses. Since then DID franchisees have become partners in the telecom growth in the country. Telecom services have been extended by them to various unconnected parts/cluster of the country.

The objective of the reference by DoT to TRAI appears to be to streamline DID franchisee regime and provide them a better and broader business umbrella through proper licensing. TRAI after examination of the reference made by DoT identified certain issues for which it released a consultation paper in March 2017 for grant of UL (VNO) category‑B license with district of a State as service area.

Few Critical Issues Being Examined by TRAI

  • Scope and area of the services to be offered by UL (VNO) category-B licensees: If DID franchisees are allowed to provide wireless services under their brand (s) under UL (VNO) - category B license, an issue may arise as to how these licensees will be able to confine their services within the territory of license area of a district only. The TSPs will have to restrict the users of the district based operator to its license area and charge them roaming once a user of UL (VNO) category B license roams out of its licensed geographic area. Such an arrangement may not be workable as it is likely to create technical issues with TSPs and will be inconvenient for a customer. There can also be instances when a UL (VNO) category B licensee operating in two districts of the same LSA enters into arrangements with two TSPs for providing mobile services. This will lead to more complexities. To overcome these challenges TRAI is considering whether to create a new category as UL (VNO) category B licensee under access service authorization with the scope of service limited to provision of a combination of wireline voice and internet (broadband) service only with exclusion of wireless services.
  • Duration of the License: At present UL (VNO) license is granted for 10 years. The Interim DoT Guidelines envisage validity of UL (VNO) for category B as one year. TRAI is considering whether the license period for UL (VNO) category B licensee should be kept as 10 years, which will be at par with UL (VNO) license.
  • Financial Obligations: The Interim DoT Guidelines state that entry fee of INR 16,500 for one year shall be charged from the DID franchisees for migration to UL (VNO) category B license and they will be obliged to submit a financial bank guarantee of INR 1,00,000. TRAI, however is of the view that as these licensees will be providing access services, their eligibility should be consistent with the UL (VNO) policy. Since District/SSA based access service license is not available presently, determination of net-worth, equity, entry fee etc. will have to be looked afresh. TRAI has requested comments from the stakeholders to determine the net-worth, equity, entry fee etc. for UL (VNO) category B license in case they will be allowed to provide wireline and internet service only and in case they are also allowed to provide mobile access service.
  • Compliances and penalty structure for UL (VNO) category B Licensee: Existing DID franchisees are small and medium level entrepreneurs (SME) who are guided by the operational framework of TSP. As of now, they are re-sellers acting on behalf of a TSP and have to follow minimum set of rules and obey mutually agreed financial obligations. As such, either no regulatory compliance or very limited compliances are cast upon them. The volume of business and revenue earned by them are miniscule in comparison to the TSPs. However, going forward these franchisees under the proposed regime will enrol customers in their name and provide services to end customers, therefore these licensees may also be required to comply with CAF and related penalty norms, QoS parameters and redress norms. Thus, the imposition of these compliances are also under consideration.
  • Provision of telecom resources from multiple TSPs:  Presently, TSPs are extending their connectivity to DID franchisees up to their EPABX location. These connections are extended preferably on OFC and sometimes on copper pair as well. Many a times the network of one TSP is not available in complete geographical areas of a district/city or area of operation of the franchisee. DID franchisees have brought out on many occasions that it becomes necessary for them to have agreement with more than one TSP in its area/geography of operation. In view of which TRAI is considering whether to permit UL (VNO) category-B licensees to enter in an arrangement with more than one TSP.

Khaitan Comment

VNO may assist the government in achieving its aim under the NTP-2012 and related Smart City and NOFN projects. The Introduction of UL (VNO) category B License is a welcome step. However, as the proposed service area is smaller and the target category B licensee will be SME's, it is the final guidelines and terms of the license agreement that will determine the ultimate success of UL (VNO) category B license.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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