Introduction and Implementation of Mobile Number Portability - International Law Office

Background
Genesis of MNP in India
MNP Guidelines
Comment

Background

Number portability can be divided into three categories: operator portability, location portability and service portability. Operator portability allows a subscriber to retain an existing telephone number within the same service area when changing from one service provider or operator to another. This type of portability is for the same service (ie, fixed to fixed or mobile to mobile). Operator portability can be divided into three further categories:

• fixed number portability - the portability of fixed geographic numbers;
• mobile number portability (MNP) - the portability of mobile telephone numbers; and
• intelligent number portability - the portability of non-geographic intelligent network numbers.

Genesis of MNP in India

The concept of MNP was discussed in a consultation paper issued on July 22 2005 by the Telecom Regulatory Authority of India (TRAI). The consultation paper highlighted the need for MNP in India to yield benefits for mobile phone subscribers and increase the level of competition between service providers. Open house discussions were held to learn stakeholders’ opinions on the issue and on March 8 2006 TRAI issued recommendations for broad guidelines on the implementation of MNP. Subsequently, on August 1 2008 the Department of Telecommunications (DOT), the Ministry of Communications and Information Technology and the government issued the Guidelines for Mobile Number Portability Service Licence.

MNP Guidelines

MNP zones
India is divided into 22 service areas for mobile services. Service areas for the purpose of MNP operation will be coextensive with named service areas designated for existing unified access services licences and cellular mobile telephone services licences. For the purpose of granting MNP licences in India, the country will be divided into two MNP zones (Zone 1 and Zone 2), consisting of 11 licensed service areas, with two metropolitan service areas in each zone.

Licence grant process
Licences for the provision of MNP services will be granted through a bidding process. The MNP guidelines restrict the number of players in each MNP zone to one. One company can bid for both zones. However, only one MNP licence will be issued to any eligible and successful company in either of the MNP zones, according to the priority indicated by the company at the time of bidding. In order to be awarded an MNP licence in either zone, applicants must first undergo pre-qualification screening and meet certain eligibility criteria, including:

• technical and financial strengths;
• experience; and
• track record.

The pre-qualified applicants will then be subjected to a techno-economic evaluation of their bids for final selection.

Eligibility requirements
General eligibility requirements
A bidder company must be registered under the Companies Act 1956. If the bidder is in the process of registering under the act, it must disclose its intention to register a company in India at the time of submitting the bid and provide proof of having submitted an application to the registrar of companies. The company must be registered under the act before the MNP licence is granted or within three months of the bid submissions closing date. The bidder must submit an earnest money bank guarantee of Rs10 million with the bid. In addition, the successful bidder must furnish a performance bank guarantee of Rs10 million and a financial bank guarantee of Rs20 million before the MNP licence is granted.

Financial eligibility requirements
The applicant company must have a minimum paid-up capital of Rs100 million on the date of application.

The applicant company and its equity holders must have a combined net worth of at least Rs1 billion. However, only the net worth of those equity shareholders that hold 26% or more of the equity in the applicant company in proportion to their direct equity will be counted towards this figure. Any indirect equity held in the applicant company will not be counted. ‘Net worth’ means the sum total of paid-up equity capital and free reserves.

The MNP licensee must maintain the minimum net worth and paid-up equity capital throughout the duration of the MNP licence.

Experience and foreign equity
The MNP guidelines prescribe that as of the date of bidding, the applicant must have implemented and be successfully operating MNP solutions for a subscriber base of no less than 25 million in one or more countries for a continuous period of at least two years. To satisfy the experience criterion, either the applicant company or its equity shareholders of 26% or more direct equity in the company must have the requisite experience. This allows foreign players into the MNP sector in India, since no Indian company would have the requisite experience. Since MNP is a new service in India, the applicant company will be either a foreign company with experience or an Indian company with at least 26% equity participation from an experienced foreign company. The MNP guidelines also provide for a lock-in period, where in case of a successfully awarded MNP licence, the equity holder whose experience has been taken into account for fulfilling the eligibility conditions may not dilute its equity shareholding in the MNP licensee below 26% for at least three years after the MNP services commence operation in India.

Foreign direct investment will also be subject to guidelines and regulations. However, the foreign partner's equity in the company must be no less than 26%.

Roll-out obligations and setting up
Initially, MNP will be implemented in all metropolitan and category A service areas within six months of the MNP licence being awarded. Over time, MNP operation will be phased in and expanded in other zones. The total MNP implementation in each zone will be completed within one year of the award of the MNP licence. If it fails to meet these roll-out obligations, the MNP licensee will be charged for liquidated damages.

The MNP licensee must operate the MNP system on a ‘build-operate-own' basis. It must take into account traffic studies and services required to establish its MNP clearing house, its number portability database and its database query response system. The licensee company must arrange for all the necessary equipment and solutions (ie, tools and testers) to operate an efficient system.

Direct solution (ie, the all-call query method) will be implemented.

In a multi-operator scenario where N operators are involved in the complete call set-up, if 1 is the originating operator and N is the terminating operator, (N-1)^th operator will be responsible for routing the call to the ported numbers.

The MNP system must be flexible, scalable and configurable to meet future requirements. The clearing house will be designed to ensure that the total time taken to port does not exceed two working days initially, with the option to upgrade to faster levels.

Cross-holdings restrictions
The MNP guidelines prohibit two categories of cross-holding. First, no MNP licensee company may have any direct or indirect equity in any telecommunications service provider licensee company. Similarly, no telecommunications service provider licensee company may have any direct or indirect equity in any MNP licensee company. Such a prohibition will ensure neutrality, fair competition and smooth functioning between MNP licensees. The second category of prohibited cross-holding is a cross-holding between MNP licensees. The MNP guidelines prohibit an MNP licensee and its shareholders from holding any direct or indirect substantial equity share in more than one MNP licensee company. 'Substantial equity share holding' herein means an equity of 10% or more.

Duration
The duration of an MNP licence is 10 years, which is extendable for a further 10 years by the DOT on request. However, the licensee must provide exclusive MNP services in the respective zone for a period of five years from the date of the award of the MNP licence. This exclusivity is subject to review by the DOT in case of stronger public interest and national security considerations. Although the duration of an MNP licence is 10 years, the exclusivity period is only five years, which means that after five years the DOT may introduce additional players into each MNP zone.

Entry and licence fees
A one-off, non-refundable entry fee of Rs10 million must be paid for the grant of an MNP licence. In addition, the licensee must pay an annual MNP licence fee, which is calculated at 1% of the licensee company’s adjusted gross revenue. For the first two years there will be a suspension of MNP licence fee payments effective from the date of the MNP licence. This MNP licence fee can be modified by the DOT at any time throughout the duration of the MNP licence.

Transfer restrictions
The direct or indirect transfer and assignment of an MNP licence to a third party is not permitted without the DOT's prior written consent. An MNP licensee cannot enter into an agreement for a sub-licence or partnership relating to any aspect of the MNP licence with any third party, either in whole or in part.

DOT’s reserved rights
In the interests of national security or in case of an emergency, the DOT reserves the right to take over a licensee's service, equipment and networks, or to revoke, terminate or suspend the MNP licence, either in part or in the whole of the MNP zone.

The DOT also reserves the right to modify at any time the MNP guidelines and the terms and conditions of the MNP licence in the interests of public or state security, or to ensure the efficient conduct of telegraphs. The MNP guidelines dictate that the DOT’s decision is final and binding.

Comment

The implementation of MNP in India will increase competition levels and improve the quality of services in the telecommunications industry. The system will give mobile users the flexibility to change operators. The MNP guidelines provide for fair play in the provision of MNP services, which will ensure neutrality in the MNP sector. Ultimately, MNP implementation will be beneficial to both consumers and the telecommunications industry.

For further information on this topic please contact Shardul S Shroff, Kanchan Sinha or Megha Bhargava at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500) or by fax (+91 11 2692 4900) or by email (shardul.shroff@amarchand.com or kanchan.sinha@amarchand.com or megha.bhargava@amarchand.com).