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Policy & Regulation
Friday, July 20, 2018
Huawei says does not expect US sanctions Press

Huawei says does not expect US sanctions PressHuawei, also the world's third-largest smartphone maker, is a private company but has found itself battling perceptions of ties to the Chinese government, which it has repeatedly denied.

China's Huawei, the world's largest maker of telecommunication network equipment, does not see itself becoming the target of U.S. sanctions and will keep buying U.S. chips this year, one of its three rotating chairmen told a French newspaper. Huawei, also the world's third-largest smartphone maker, is a private company but has found itself battling perceptions of ties to the Chinese government, which it has repeatedly denied.

Several U.S. lawmakers last month claimed its research funding to American universities posed a "significant threat" to national security, the latest difficulty Huawei has faced operating in the United States. Another major Chinese telecommunications equipment maker, ZTE Corp, was hit last month by a $1.4 billion settlement deal after the U.S. government said the firm broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

Asked if he feared his company could also be hit by sanctions, Ken Hu, one of Huawei's rotating chairmen, told Le Journal du Dimanche:

"It would be hard to imagine. Ten years ago we put in place a system to control our exports, which has become very efficient. Our policy is to closely implement all laws and regulations introduced by Europe, the United Nations and the United States."
Asked if Huawei could do without U.S. components, Hu said the company's logistical chain was international. "We must be open and choose the best technologies, the best products. We will therefore keep buying American chips this year."

Earlier this year, U.S. lawmakers asked Alphabet Inc's Google to reconsider working with Huawei, which they described as a security threat. And a deal with U.S. telecom firm AT&T Inc T.N to sell its smartphones in the United States collapsed at the 11th hour due to security concerns. (Source: ETTelecom)

Govt mulls bailout package for sick telecom PSUs

Govt mulls bailout package for sick telecom PSUsThe prime minister’s office and the department of telecom have discussed a survival mechanism for telecom PSUs BSNL and MTNL whose revenue, market share and subscriber base continue to erode.
According to sources, under the plan 4G spectrum worth Rs 13,000 crore could be allotted to them shortly and the more vulnerable MTNL can hope to get about Rs 1,100 crore from the Centre for a fresh VRS package.
Official sources said the situation is more serious for MTNL as the listed entity is almost on the verge of breaking down, completely surviving on bank working capital loans for operations expenditure.

A few decisions are expected shortly and things could be expedited now onwards, sources said, adding that the prime minister’s office (PMO) has shown interest and concern over telecom PSUs, may be after the failure of Air India disinvestment. Competition from private telcos, especially Jio, is breathing down their necks. As per an estimate, BSNL and MTNL need about Rs 18,000 crore immediate fund infusion for their continued operations, which includes 4G spectrum if government issues fresh equity in them. Both the PSUs have sought 4G spectrum partly through equity routes which make the cost of spectrum for MTNL at Rs 6,500 crore for 10 Mhz in Delhi in 1800 band and 5Mhz in Mumbai in 2100 band.

BSNL needs 5 Mhz in 2,100 band for rest of India operations which too comes to about Rs 6,500 crore as 50 per cent of the cost of spectrum and the rest of the spectrum cost is expected to be covered through government equity. While BSNL meets its opex and capex through borrowings and service revenues, MTNL needs government support for meeting working capital needs. It also needs Rs 2,800 crore interest amount reimbursement on an old loan taken for spectrum and Rs 1,100 crore for financing a VRS for 5,000 employees.
MTNL has a bloating staff strength of 30,000, while BSNL has over 2 lakh employees. The financials of MTNL is so bad that it is carrying on with working capital loans on a government guarantee.

MTNL had told DoT that it is operating under three main constraints -- a high manpower numbering 25,000, a Rs 17,500-crore loan burden and lack of investment in the last seven years. To tackle the manpower problem, MTNL had suggested the government to fund its VRS programme as and when it takes place since the majority of this 25,000 staff is from the DoT. The PSU has worked out that for offering voluntary retirement to 5,000 employees, it will need at least Rs 1,100 crore,

The PSU is saddled with a debt of Rs 17,500 crore, out of which the interest component is Rs 1,450 crore. MTNL had earlier written to the DoT to allow it to carve out the land &and buildings and the debt so that the MTNL balance sheet becomes debt-free, without putting any burden on the exchequer.

Air India, MTNL and BSNL are among the top five loss making PSUs in the DPE list.

MTNL’s debt stands at a staggering Rs 17,000 crore and its annual interest burden is close to Rs 1,450 crore. Bruised by competition from private sector players, MTNL’s losses stood at Rs 2,893 crore in 2014-15, Rs 2,005 crore in 2015-16, and Rs 2,970 crore in 2016-17.

Telecom minister Manoj Sinha, in a written reply to the Lok Sabha in February had pointed out that both BSNL and MTNL have been incurring losses for a number of years, and therefore have been declared as incipient sick according to the Department of Public Enterprises (DPE) guidelines.

BSNL’s revenues in FY17 declined to Rs 31,533 crore against Rs 32,411 crore. The PSU was hoping to turn the corner by being profitable in 2018- 19, which is now shifted to 2019-20, if it starts 4G services and the competition eases. Its net loss marginally narrowed to Rs 4,793 crore against Rs 4,859 crore in the previous fiscal...

The accumulated loss of BSNL has now swelled to over Rs 36,000 crore ($6 billion), with the company making losses since 2009-10.
While MTNL has a negative market share with subscribers declining every quarter, BSNL’s market share in mobile market is 10 per cent. (Source: Financial Chronicle)

Telecom firm asked to compensate Customer for disconnecting service

Telecom firm asked to compensate Customer for disconnecting serviceReliance Communication has been directed to pay ₹15,000 as compensation and ₹10,000 towards legal costs
The Dakshina Kannada District Consumer Disputes Redressal Forum has directed Reliance Communication to pay a compensation of ₹15,000 to a consumer for disconnecting his cellphone service without prior intimation.
In the complaint to the Forum, Ramachandra B, a resident of Kuriaya from Puttur and owner of a small scale industrial unit, said that he purchased a CDMA cellphone of Reliance Communication by paying ₹1,800.

He could only operate the cellphone till January 9, 2016, after which the service was disconnected. When he contacted the telecom company’s office in Gorigudde in Mangaluru, Mr. Ramachandra was asked to submit a fresh set of mandatory documents.
Though he submitted documents, the telecom company failed to restore connection and Mr. Ramachandra filed a complaint with the forum seeking compensation.

The company said that Regulatory Term Cell Team of the Department of Telecommunication regularly does random verification of documents submitted by consumers for issuance of cellphone connection. The company said documents regarding Mr. Ramachandra was among the few picked up for verification in January 2016.

The team found mismatch of “Mandatory fields - No/Improper POS name/address/code details and customer signature mismatch in CAF and driving licence”. The company said it sent three messages to Mr. Ramachandra on his cellphone on January 7, 8 and 9 of 2016 intimating about the mismatch. As Mr. Ramachandra failed to respond, the connection was disconnected, it said.

In the judgement on May 26, forum president Vishweshwara Bhat D. and Lavanya M. Rai said that the telecom company has failed to submit proof that the disconnection of service was on the behest of Regulatory Term Cell Team. The company also failed to submit proof of sending three messages to Mr. Ramachandra.

The forum directed Reliance Communication to pay a compensation of ₹15,000 and a legal cost of ₹10,000 to Mr. Ramachandra, within 30 days. If the company failed to make the payment, it will be liable to pay ₹15,000 with interest of 7 % from the date of complaint till the date of payment, the forum noted. (Source: The Hindu)

CCI may suggest changes to Walmart-Flipkart deal

CCI may suggest changes to Walmart-Flipkart dealThe Competition Commission of India (CCI) might recommend structural changes to the proposed $16-billion Walmart-Flipkart deal to address possible competition concerns, according to officials. It might also take cues from a ruling in South Africa with respect to the Walmart-Massmart deal, which was announced in 2010.

Last month, Walmart Inc announced the acquisition of a 77 per cent stake in Flipkart for about $16 billion (₹1.05 lakh crore) in the largest-ever e-commerce deal. The retail giant has approached the CCI for approval, saying the deal does not raise any competition concerns.

However, various trade organisations have opposed the deal. While the CCI is yet to take a call on the Walmart-Flipkart deal, officials said the regulator might order certain structural changes in the proposed transaction to address possible competition concerns. Walmart declined to reply to queries on this.

Officials said the CCI might take a cue from the South African example and might even recommend the setting up of a long-term fund to modernise kiranas going forward besides supporting local manufacturing by SMEs. The fund could work under the aegis of the Department of Industrial Policy and Promotion along with Walmart representatives to build a robust kiranas development programme wherein the US retailer provides knowledge and resources, they added.

The Competition Commission of South Africa had approved the deal between Walmart and Massmart, but it was challenged later. Subsequently, that country’s Competition Tribunal gave its approval in 2011 for the merger subject to conditions proposed by the two companies.(Source: The Hindu BusinessLine)

TRAI won't regulate in-flight tariff over Indian airspace

TRAI won't regulate in-flight tariff over Indian airspaceRajan Mathews added that the business would be very marginal at best, since the scope of offering the service would be limited to Indian air space.
The Telecom Regulatory Authority of India (TRAI) will not regulate the tariff air passengers pay for making calls and browsing the Internet while flying in Indian airspace, a top official said. However, mobile phone operators, sector watchers and aviation experts said there was little business case for local carriers as it required dependence on intermediaries and the revenue would not be enough compared with the investments required as the travel time on domestic routes are usually short.

Multinational telcos are supposed to act as intermediaries between airlines and Indian telcos while offering in-flight connectivity (IFC) services, as per rules.

"Tariffs are under forbearance in entire telecom sector and it (in-flight connectivity) will not be an exception. We will not govern it, but will keep it under forbearance," Trai Chairman RS Sharma told ET. He didn't elaborate on what the pricing levels could be.
He added that the architecture for offering in-flight connectivity (IFC) services would be a business decision between Indian telcos and international telecom carriers with the latter acting as "intermediaries" between the aircraft company and a local telco.

"Telecom operators managing a local earth station will have to get arrangements with international service providers and not with airplane companies directly so that flights while entering into Indian aerospace will start getting signals," the top official said.
Earlier this month, a high-level inter-ministerial Telecom Commission, headed by Telecom Secretary Aruna Sundararajan, approved the move to allow air travellers to access Internet over smartphones and make calls once the aircraft achieves a height of 3,000 metres.
The IFC initiative would broadly allow aircraft companies such as Airbus and Boeing to forge alliances with multinational telecom carriers to deploy equipment and enable them to enter into pacts with local broadband service providers.

Based on a custom tariff plan, the process would permit air passengers to connect onto an 'on air network' or inflight Wi-Fi service and receive one-time password (OTP) to activate 'secured' data services."There will be a Wi-Fi protocol which is being currently used in the sector and there will also be a traceability of user accessing the Internet services," Sharma said.

VSAT (Very Small Aperture Terminal) CUG (Closed User Group) license holders that include Reliance Jio Infocomm, Bharti Airtel, Tata Services and Hughes Communications can operate IFC with satellite links, and alternatively, those with Unified License (UL) with National Long Distance (NLD) service authorisations can also offer similar services.

Indian telecom firms, however, were not enthused. "It's the owners of the aircraft that make the most money because pricing power resides with them, and they will market the service and make profit on it, so, it's not much of a lucrative area for Indian carriers," said Rajan Mathews, director general of Cellular Operators Association of India (COAI), which represents all service providers including Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio.

He added that the business would be very marginal at best, since the scope of offering the service would be limited to Indian air space.
The aggressive data tariffs, with voice effectively free, adopted by Indian carriers in the local market would also be a deciding factor in offering tariffs for voice and data on board airlines, Mathews added.

None of the four telcos responded to ET's queries. DoT is working with aviation authorities to formalise the process for seeking IFC license. Officials said consumers would be able to get voice and data services during flights within three to four months.
"The revenue that telcos may get from IFC services may not be significant in the initial stages. So, I'm not sure whether it's the best investment case for a telecom company," said Kapil Kaul, chief executive officer of Indian Subcontinent & Middle East regions at aviation consultancy CAPA India.

Kaul estimated a per-minute call to range from Rs 125 to Rs 150 for domestic flights since airlines will have to invest millions of dollars to provide the services, depending on commercial factors. For example, the one-time investments for setting up the system for domestic narrow-body fleet will be close to $200 million, he said.

He added that offering the service for the average domestic flight within India, which is about 1.5 hours, would also not make business sense."Airlines may not want to create an additional capex line given that costs of fuel are going up and airline capacities increasing," he said. (Source: ETtelecom)

Department of Telecom seeks reply from Airtel on Apple Watch eSIM service by May 24

Department of Telecom seeks reply from Airtel on Apple Watch eSIM service by May 24The Department of Telecom also mentioned that the security clearance tests for the service are due on May 23 and May 30, 2018.
The DoT has sought reply within a week from Airtel on a complaint by rival Reliance Jio alleging that the operator flouted norms on activation of eSIM in Apple Watch 3, an official source said.
The Department of Telecom also mentioned that the security clearance tests for the service are due on May 23 and May 30, 2018. The DoT on May 27 has sought multiple clarification within a week from Airtel about eSIM service facilitation by the company on Apple Watch 3.

Both, Reliance Jio and Bharti Airtel are selling Apple Watch Series 3 since May 11 through their sales channels.
"Jio has filed complaint alleging that Airtel has not set-up the eSIM provisioning node within India in "gross violation to the licence terms. Airtel had informed DoT about the service but in its letter services storing user information was not indicated. The department has asked Airtel whether e-sim provisioning network of node of Airtel is storing eSIM profiles and user information outside India," the source told PTI.

Apple Watch 3 and iPhone of a subscriber share the same number and subscribers can use both iPhone and Apple Watch with eSIM to make or receive calls independent of the call status of the other devices. The eSIM is paired with the SIM in iPhone wirelessly through a dedicated network node. The node used for eSIM profile allocation contains network and user information such as operator identifier, SIM details, PIN, remote file management for managing SIM files remotely etc.

"The DoT has received information that Airtel intends to launch Apple Watch 3 service. The tests for security clearance of the service is scheduled for May 23 and May 30, 2018. This was informed to Airtel on May 11," the source said. When contacted Airtel spokesperson said that the company has already written to the DoT on May 15, 2018 and clarified that it is in compliance with the licence conditions and why "Reliance's complaint is fallacious and needs to be rejected".

"It appears that this particular communication from the DoT (which is dated May 17, 2018) has not taken into account our communication. We would like to reiterate that this is yet another frivolous complaint by Reliance and we will respond to it at the appropriate forums," the spokesperson said.

Airtel in its letter dated May 15 to DoT said that all information relating to customers, network nodes etc, along with provision for lawful interception, are hosted in a fully secure manner by the company in India. It stated that no network node or information or data, as alleged by Reliance Jio, has been hosted outside of India.

Airtel's letter said that network node referred by Reliance Jio appears to be an inventory server, called SMDP server of eSIM, which is not the network node of the company.

The letter said that network related information on SIM or eSIM to enable mobile devices connect with network is loaded by SIM makers outside India. Airtel said that Reliance Jio itself is using SMDP servers installed outside India, which it has not diclosed to the DoT. A company official on condition of anonymity said that charges levelled by the rival are baseless and the SMDP server used by Jio is located inside India. (Source: The New India Express)

Tax dept to seek Flipkart’s share purchase pact

Tax dept to seek Flipkart’s share purchase pactThe tax department will seek share purchase agreement from Flipkart on the mega USD 16 billion buyout by US retail giant Walmart to assess the tax liability and also to find out whether the General Anti Avoidance Rules (GAAR) provisions can be invoked, an official said.

The department currently is going through the Section 9(1) of the Income Tax law, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart.

Singapore-registered Flipkart Pvt Ltd holds majority stake in Flipkart India. As per the definitive agreement between the companies last week, Walmart will acquire about 77 per cent stake in the Singapore entity for USD 16 billion. The agreement will effectively result in transfer of ultimate ownership in Flipkart India to Walmart.

To ascertain the exact tax liability, the revenue department will write to Flipkart seeking the share purchase agreement that the company had entered into with Walmart. “The department will seek the share purchase agreement once the formalities for the sale are completed. The agreement will help in tracking the flow of funds and the ultimate beneficiary,” the official told PTI.

As regards applicability of GAAR, the official said it would apply in cases where the investments were made to avoid taxes. In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the purpose of investment and the emanating gains.

On whether the benefits of bilateral tax treaties will be available in this deal, the official said the department will go through the details of different double taxation avoidance agreements (DTAAs) to ascertain whether taxes could be levied at concessional rate and investment made prior to a particular date can be grandfathered.

“There is likely to be capital gains withholding tax implications when the shares of Flipkart Singapore are sold by Softbank or other foreign investors. The tax rate will depend upon the facts of the case,” V Lakshmikumaran, Managing Partner of law firm Lakshmikumaran & Sridharan said.

The tax department had last week written to Bentonville-Arkansas based Walmart saying that the US company can seek guidance about the tax liability under Section 195 (2) of the I-T Act. Under Section 195 of the Act, anyone making payment to non-residents is required to deduct tax (commonly known as withholding tax).

As per Section 9 (1) of I-T Act dealing with indirect transfer provisions, the value of shares of a foreign company is deemed to be substantially derived from India, if the value of the Indian assets is greater than 50 per cent of its worldwide assets -- a criteria that is apparently met in Flipkart’s case. “In the Walmart-Flipkart deal, Section 9 (1) will apply as the assets of Flipkart Singapore are substantially based in India and hence the sellers would be liable to pay capital gains tax,” Titus & Co Managing Partner Diljeet Titus opined.

As regards the capital gains tax made by Indian founders Sachin Bansal and Binny Bansal, the official said they would have to pay 20 per cent tax with indexation benefit, which is applicable on sale of unlisted shares by Indian residents. (Source: The Hindu Businessline)

Telecom ministry to decide on Idea's 100% FDI proposal: Prabhu

Telecom ministry to decide on Idea's 100% FDI proposal: Prabhu"The matter is completely in the domain of the line ministry. We have already clarified. No need of our approval," Prabhu told PTI in an interview.

The telecom ministry is the competent authority to take the final call on Idea Cellular Ltd's proposal for infusing 100 per cent foreign direct investment (FDI) in the company, Commerce and Industry Minister Suresh Prabhu has said. The Department of Telecom (DoT) has put some condition while seeking views of the Department of Industrial Policy and Promotion (DIPP) on the proposal. "The matter is completely in the domain of the line ministry. We have already clarified. No need of our approval," Prabhu told PTI In an interview.

It was communicated to DoT that they are the competent authority to deal with the proposal, he said. "We have sent back (the proposal) immediately. We have stated that it is for you to decide," he said, adding that tax liabilities do not constitute additional condition.

Idea's proposal assumes significance against the backdrop of pending merger with Vodafone India to form the country's largest telecom operator.

The FDI policy allows an overseas firm to buy up to 49 per cent stake in an Indian telecom company under automatic approval route. But the government approval is required for stake above 49 per cent. Idea and Vodafone announced last year that they would combine their operations to create the country's largest telecom operator worth over USD 23 billion, with a 35 per cent market share.

Foreign shareholding in Idea as on March 31, 2018, stood at around 34 per cent, including 7.49 per cent in promoter group and the rest as public shareholders. British telecom multinational Vodafone Group plc is a majority shareholder in Vodafone India.

Foreign shareholding in the combined Idea-Vodafone entity, thus, would breach the automatic approval limit of 49 per cent. According to the Idea-Vodafone merger announcement, Vodafone would own 45.1 per cent of the combined company after transferring a 4.9 per cent stake to Aditya Birla Group for Rs 3,900 crore in cash, concurrent with completion of the merger. As the DoT had added a condition in the proposal, the matter was sent to the DIPP.

After the abolition of foreign investment promotion board (FIPB), respective departments and ministries of 11 sectors, including telecom and print media, are the competent authorities for approval of FDI proposals unless they want to add some condition or reject the proposal. In such circumstances, they have to seek the views to the DIPP.

The merged Idea-Vodafone entity will have highest subscriber base of 41 crore accounting for over 35 per cent market share and second largest spectrum holding of 1,850 megahertz in the country. The debt of resultant entity is expected to be around 1.1 lakh crore as per debt situation of Idea and Vodafone India at the end of September 2017. (Source: ETtelecom)

Consulting international agencies, experts on spectrum auction: TRAI chief

Consulting international agencies, experts on spectrum auction: TRAI chiefAsked about the status of recommendation on spectrum auction, Sharma said that a review meeting on the same was held in the TRAI last week.

Telecom regulator TRAI is in the midst of consulting various international agencies and experts, and hopes to finalise its recommendation on spectrum auction "soon", Chairman R S Sharma has said. Asked about the status of recommendation on spectrum auction, Sharma said that a review meeting on the same was held in the Telecom Regulatory Authority of India(TRAI) last week.

"There is a lot of work being done. We are consulting international agencies, consultants we well as experts and we will come out with our recommendations soon," Sharma told PTI. But he declined to give a specific timeframe for the finalisation of recommendations on the issue.

The government is planning to hold the largest-ever spectrum auction of 3,000 MHz radiowaves in the upcoming sale. It has sought recommendations from TRAI on the applicable reserve price and related issues for auction of spectrum in the frequency bands 700 MHz, 800 MHz, 900 MHz, 1,800 MHz and 2,100 MHz, 2,300 MHz, 2,500 MHz, 3,300-3,400 MHz and 3,400-3,600 MHz.

TRAI is also expected to give its opinion on timing of the proposed spectrum auction. In the previous auction held in 2016, the government had put a total of 2,354.55 MHz of mobile airwaves for sale in the bands of 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz and 2,300 MHz, cumulatively valued at around Rs 5.63 lakh crore at base price.

However, nearly 60 per cent of the radio waves, including premium 4G bands, remained unsold in that auction. In the five-day auction in 2016, seven telecom companies made commitment of Rs 65,789 crore for buying 964.80 MHz of spectrum across multiple frequency bands.

The apex industry association COAI is of the view that operators are not ready for the next round of spectrum auction at this point, given the deep financial stress and ongoing consolidation in the sector. The telecom industry has been reeling under Rs 7.5 lakh crore cumulative debt and hyper-competition has only made matters worse for the established operators.

Engaged in a brutal and prolonged tariff war with newcomer Reliance Jio, the older players have seen erosion in their revenues, and are incurring losses. (Source: ETtelecom)

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