1. INTRODUCTION

A start-up is an enterprise that finds its genesis in problem-oriented solutions driven by new tech catering to socioeconomic development and transformation. India is a significant part of the evolution of the start-up culture all around the globe and has the second-largest start-up ecosystem in the world. In the last quarter of 2022, we observed 23 start-ups joining the likes of the coveted billion-dollar unicorn club in India. The start-up ecosystem sustains itself due to the low cost of doing business in the country and its easy accessibility to local audiences through applications like WhatsApp and Facebook. The release of the draft telecommunication Bill, which aims to converge and regulate the telecommunication layer on all three levels (service, network and infrastructure), will concoct regulatory confusion and dual compliances for services in the form of a parallel legal regime, resulting in impediments in innovation and ease of doing business. Throughout the Bill, the theme of broad approach and attempts to create a straightjacket formula is pervasive. Due to this, the Bill is antithetical to the internet's open and heterogenic character, negatively impacting the internet's core principle of permissionless innovation and value chain.

2. BROAD LANGUAGE

S.2(21) defines "telecommunication services," which is significantly broad and envelopes all OTT (over-the-top) communication services, digital platforms and data communication. The broad swathe of entities being brought under the preview of this legislation undermines the semantic, structural and operational differences and poses a risk of over or under-regulation. This overly broad definition does not augur well for OTTs and directly mandates them into the licensing regime of spectrum allocation. It also compromises the principle of legal certainty and does not cater to the need for differential regulation. Service providers who provide a myriad of functionalities will have to face hindrances in their setup, and the state would have to deal with it on a case-to-case basis, resulting in ad hoc outcomes. This will increase costs for both the service provider and the state, and hence a high degree of nuance is required for legal clarity and effective regulation.

3. LICENSING

S.2(21), when read with S.3, which grants the exclusive government privilege of providing telecom services, extends the obligatory licensing regime overall telecom services, whether carriage, content or access services. The definitions are all-inclusive of modern technologies and data-driven ecosystems instead of being distinct and restrictive. This fails to acknowledge the difference between the dynamic nature of online interactions and the static nature of telecom services due to the significant differences at the technical and architectural level between TSPs (telecom service providers) and OTTs, which provide communication services. Following the Bill's mandate, these service providers would have to prescribe to the Bill's licensing, registration and authorization frameworks. This regulatory oversight and compliance burden on start-ups undercuts India's economic imperative of ease of doing business and is inconsistent with the principles of "universal access" and "information for all" provided under the Government of India's flagship program Digital India.

In order to provide their telecommunication services, the TSPs and other service providers have to obtain a license from the government. S.3 read with S.4(1) and S.5(3), necessitates acquiring a license by providing entry fees, license fees, registration fees and other charges. The telecom sector is a capital-intensive industry, and as spectrum is a scarce resource, it is inexhaustible in terms of its usage but is exhaustible in quantity and necessitates judicial allocation. Spectrum also aptly applies itself to the public trust doctrine, which has been reiterated by the apex court in the landmark judgment, Center for Public Interest Litigation v. Union of India & Ors. and can be subject to degradation if not used efficiently. Bringing OTT services that do not require exclusive allocation of a scarce public resource like spectrum, imposing strict licensing requirements on them would hinder innovation, consumer choice and user accessibility. Due to the obligatory necessity of acquiring spectrum, the number of players competing for the limited resource will substantially increase, resulting in over-exhaustion. Given its limited availability, the government must ensure its equity-based distribution. Small players or start-ups losing out on their businesses just because of non-attainment of the spectrum due to lack of funds and spectrum unavailability does not bode well with the present business-friendly mandate of the government.

4. SPECTRUM MANAGEMENT

When S.5(2) is read with S.3, the government retains the privilege for spectrum allocation and management. Under S.5(2), spectrum management may take place majorly through an auction or administrative process.

4.1. S.5(2)(a) : Spectrum allocation by auction

Due to the "scarce" nature of the spectrum, the government has given prominence to allocation through auction 5(2)(a). The spectrum allocation through auction increases competitiveness as the frequency band availability is limited, and players are bidding for the same resource. Oligopoly in market share can be exercised by auctions as only a few major TSPs will acquire spectrum in high-frequency bands. This will exacerbate competition in terms of financial prowess instead of healthy market competition, which is powered by higher quality, cost-effective services, greater variety and an uptick in innovation. Revenue generation through auctions could be very lucrative for the government, but including start-ups and OTT platforms in this race is not a good proposition. Start-ups need more funds and net worth compared to other established TPSPs to effectively participate in these auctions, which they might lack, consequently leaving them out of market competition. The lack of market competition may take us back to the turn of the millennium when the industry was dominated only by a few players establishing oligopoly. We can very well gauge the phenomenon through the recent 5G auction spectrum was only allocated to only four companies where Reliance Jio was the most significant bidder (Rs 88,078), and the Adani group was the new entrant. Nevertheless, the same opportunity cannot be exploited by the telecom service-providing new start-ups and low-revenue generating companies because of high entry barriers and substantially long gestation periods for ROI.

4.2 S.5(2)(b) : Spectrum allocation by administrative process

It is also pertinent to mention that in the seven auctions held since 2010, the government has successfully sold 100 percent of the auction only once. Relying solely on auctions since 2010 has led to unsold spectrum, lost revenue, and deferring of the rural digital ecosystem. Hence, the retention of exclusive privilege by the government where spectrum management by administrative allocation results into democratization of access, ensuring that the rural and urban parts of the country have equal opportunity and availability is appreciated. However, the lack of clarity regarding the process of administrative allocation leaves scope for ambiguity and discretionary use of powers. Administrative intervention in licensing in the past has led to cases like the 2G scam, whereby various ministers were found to have breached respective laws and overreached their scope of intervention. This case exemplifies that broad and ambiguous powers are open to exploitation.

5. VERIFICATION

S.4(7) of the Bill requires licensees to "unequivocally identify" any person to whom they provide services through a prescribed "verifiable mode of identification." This will significantly increase the cost of business for all the players in the ICT ecosystem, as a similar trend has been observed in the financial sector. KYC costs in the financial sector range from INR 30 to 300 per customer/user. Only big players in the industry who can internalise the cost can cater to this obligation, as it will act as a barrier to market entry for smaller entities. It is notable that the imposition of KYC norms in the financial sector has also impacted access to financial services. Hence, the digital divide would only be enhanced as accessibility to the internet by marginalised sections, youth, women, etc would be significantly impacted. Due to an unlimited number of services provided by the entities under the broad definition of "telecommunication services," the process of satisfying the proportionality standard of verification norms according to the nature of the service will be a non-exhaustive one and will remain unsatisfied in cases where an entity or app provides multiple functionalities. It will further only lead to uncertainty and inadequate scrutiny of the veracity of information supplemented by the denial of services. This laborious process would act as an economic disincentive for smaller entities and start-ups and would deny them a level playing field, as it has been observed that the compliance burden of regulations is higher on small businesses in cases where regulations impose identical requirements on entities regardless of the firm size.

6. RESTRUCTURING, DEFAULTS IN PAYMENT AND INSOLVENCY

This chapter addresses the events of payment defaults and insolvency proceedings. According to S.19, for mergers, demergers and acquisitions, any entity is merely required to notify the concerned authority for such licensing in compliance with the Companies Act 2013. This more nuanced and simplified framework is a welcome move as it will eradicate excessive licensing prerequisites. S.20(3) specifies the priority accorded to license fees and compliance charges applicable during Corporate Insolvency Resolution Process (CIRP). This raises the question of payment priority, whether it includes past dues, which has to be ascertained for the resolution. The provision of S.20(3) of the draft bill contradicts S.178 of the IBC, which asserts the priority payment of "expenses incurred by the bankruptcy trustee" followed by workmen dues, wage dues and then dues to the central or state government. Thus, the government must resolve this provisional deficiency for smooth business litigation. S.20(3) of the Bill also stipulates the reversion of spectrum to the control of the central government in cases where the entity fails to comply with the conditions stated in S.20(2). It is widely agreed that a spectrum license is a "right to use" in exchange for a fee, not ownership. For the proper utilization of the resource, the government must ensure judicial reallotment of the spectrum.

7. PENALTIES

S.7 mentions the consequences to be followed in case of a breach of terms and conditions. Due to extended licensing and authorization requisites for OTTs and other wide-ranging digital services, these platforms will face disproportionate penalization under S.48 and subjection to hefty fines mentioned in schedule 3 and schedule 4 in the event of non-compliance. This will hurt the small players and throttle their innovative motivations that propel their business. There must be a need to maintain deterrence for violators and offenders, but that should not inadvertently be done at the cost of innovation.

8. CONCLUSION

The lack of differential regulation which makes OTTs subject to the governmental licensing regime at par with other TSPs will act as a disincentive for start-ups in their infancy as they will be unable to meet high compliance costs and would be forced to compete with telecoms that have deep pockets, disincentivizing them to further invest in the sector. It will create barriers to the entry and exit of services and affect consumers' accessibility to products and services in the ICT economy. A foreign company or organization can operate in the Indian telecom sector only by forming or acquiring an Indian company with 100% foreign shareholding through FDI. Presently, as players have to separately pay for licensing charges and auction bidding, increasing the compliance cost, TSPs and start-ups will garner lower foreign investment, as foreign entities will be wary of compliance and cost-related burdens. This will put the start-ups at a competitive disadvantage, and increased regulatory complexities will impair India's image as a start-up hub and hinder the ability of domestic players to compete at par with global standards. If enacted in its current language and format, the Bill will lose the opportune moment to align with globally manifested digital and innovative practices. Equal opportunities can be created for fair participation through specific rating systems based on factors like turnovers and weighing parameters like innovation, reach, social cause, cost-effectiveness, etc. The government must pay attention to the mandate and law being in consonance with ease of doing business and propel its business-centric motivations by engaging in further consultation.

Aishwarya S Nair and Mansi Kapoor are 2nd year B.A.LL.B. (Hons.) students at Rajiv Gandhi National University of Law, Punjab.