New Delhi: The Supreme Court struck down on Wednesday the regulation imposing mandatory compensation by telecom service providers to subscribers for call drops.

Setting aside the rule drawn up by the Telecom Regulatory Authority of India (Trai) which was earlier upheld by the Delhi high court, justice Rohington F. Nariman said, “The impugned regulation is arbitrary, ultra vires, unreasonable and not transparent."

The Trai, in its 16 October notification, had said that the telecom companies or telcos will have to credit 1 to a user for every call drop, up to a maximum three calls per day per customer.

Trai requires that not more than 2% of the calls in a network are automatically disconnected; however, telcos contended that even if they complied with the 2% rule, they would still be punished under the new rule. The telcos were also supposed to notify the customer within four hours of call drop with the amount credited.

The regulation was supposed to take effect on 1 January. The telcos challenged the Trai regulation in Delhi high court. But on 29 February, the court upheld the decision to impose a call drop penalty. Subsequently, telcos moved the apex court, which reserved its verdict on 3 May.

On Wednesday, the top court also criticised the Delhi high court’s finding that the regulation was framed to ensure quality of service to subscribers. The 99-page judgment said that the regulation appears to be meant only to penalise telcos.

The judgment highlighted various flaws in the ruling by the Delhi high court which upheld Trai’s regulation.

It further upheld the 2% exemption extended to service providers with regard to call drops and said the regulation would have penalized them despite it.

“A penalty that is imposed ‘without any reason’ either as to the number of call drops made being three, and only to the calling consumer, ‘far from balancing the interest of consumers and service providers’, is manifestly arbitrary, not being based on any factual data or reason," the court said.

During the hearing, telcos contended that there were various reasons for call drops beyond their control and that it was impossible to find the exact reason for each such call drop.

Representing the telcos, senior lawyer Kapil Sibal said that the regulation will adversely affect the Indian telecom companies that have already incurred huge costs to buy spectrum, leading to a rise in debt to banks.

“The Indian telecom industry is incurring heavy investment in terms of spectrum and is facing debt to meet its costs. The return on investment is less than 1%," Sibal said.

Trai, however, argued that the problem (call drops) was countrywide and not limited to a few cities. The regulator also said it issued the regulations after much deliberation and taking into account the suggestions of all stakeholders.

Twenty-one telecom operators, including Bharti Airtel Ltd, Aircel Ltd, Vodafone India Ltd, Idea Cellular Ltd and Reliance Communications Ltd, and the Cellular Operators Association of India were among those who approached the apex court seeking a stay on mandatory compensation for call drops.

The Cellular Operators Association of India (COAI), a lobby group for major telecom service providers in the country which use GSM technology, and Association of Unified Telecom Service Providers of India (AUSPI), whch represents telecom service providers that use the CDMA standard, in a joint statement welcomed the court verdict.

“While the telecom industry waits to receive and understand the final contours of the judgment, the telecom industry, which serves over one billion Indians through its networks through affordable mobile services, remains committed and completely aligned with the TRAI’s concern to ensure customers enjoy the best experience on our networks," the statement said.

Mumbai-based Vodafone India has claimed it has taken steps to resolve call drops. The company said on Tuesday that there has been around 40% improvement in the connectivity as per internal parameters and steps are being taken to relocate towers and unseal the sealed towers.

The telecom traffic trend in the third quarter ended 31 December 2015 for the two largest telecom operators in India—Airtel and Vodafone—stood at a value of 332,160 million minutes and 181,203 million minutes, respectively, as per the financial reports of the two companies. With such huge total voice minutes, the regulation would have hit the telcos hard by creating an enormous compensation liability.

R.S. Sharma, chairman, Trai, could not be reached for comments.

An analyst with a Mumbai-based brokerage firm said had the court upheld TRAI’s decision, it would have created lot of problems for the telcos. “Apart from creating a financial liability, they would have had to do a lot of other things to implement the regulations, one such being revamping call centres which would be flooded with customer calls for compensation related issues," the analyst who did not wish to be named as he is not authorised to speak on the matter.

Reacting to the verdict, the telecom minister Ravi Shankar Prasad said telecom operators must “heed properly" his call for improving service quality.

“When they can expand telecom services to the nook and corner of the country, why can’t they improve the quality?" Prasad told the Press Trust of India.

“As far as the judgement is concerned, Trai regulation is under scrutiny. Therefore, Trai needs to take a call. As far as government obligation is concerned, we shall continue to persuade telecom operators to provide good service," he added.

Holding transparency as key in subordinate legislation such as this, the apex court also asked Parliament to take up the issue of call drops and frame a legislation along the lines of the US Administrative Procedure Act, by which all subordinate legislation is subject to a transparent process after due consultation with stakeholders.

Close