Call drops can be simply explained as the service provider’s ineptitude in maintaining a call between users and
providing continued service once a call has been correctly established. Inadequate infrastructure, overloaded
networks and fast paced expansion with poor investment by Telecom Service Providers (“TSPs”) to match
the expansion are some of the reasons behind this occurrence. With the Indian Prime Minister stepping in last
year and demanding that a solution be found, the Delhi High Court has expressed agreement with the Telecom
Regulatory Authority of India (“TRAI”) for allowing compensation for call drops.

A. THE REGULATIONS

In our previous news update on the issue we had covered that TRAI had issued Telecom Consumers Protection
(Ninth Amendment) Regulations (“Regulations”) dated October 16, 2015, whereby it prescribed an imposition
of a financial disincentive on TSPs for failure to meet quality of service benchmarks. Vide these Regulations,
telecom operators were ordered to pay a compensation of Rs.1 to their subscribers for each call drop subject
to a maximum of three dropped calls per day with effect from January 1, 2016. By way of implementation, the
TSPs were to send a message to the subscriber within four hours of a dropped call with details of the amount
credit to their account.

B. THE UPROAR THAT FOLLOWED

The TSPs and the Cellular Operators Association of India (“Petitioners”) approached the Hon’ble High Court
of Delhi with a Writ Petition challenging the validity of the Regulations claiming that the same were arbitrary
and without any basis. The Petitioners took the stand, inter alia, that the Telecom Regulatory Authority of India
Act, 1997 (“the Act”) does not empower TRAI to impose compensation and that the same was an extraction
of a tax/cess/penalty without any legislative sanction and therefore violates Article 265 of the Constitution of
India. The Petitioners further contended that the preamble to the Act further requires TRAI to protect the interest
of the TSPs and since the penalty was being levied without ascertaining the reasons for call drops or whether
the same was due to the fault of the service provider, the penalty was unreasonable. It was argued that the
compensation granted had no nexus with the prevention of call drops.

C. TRAI’S STAND

TRAI contended that it was well within its statutory power to regulate the issue of call drops by way of the
impugned regulations and that it was statutorily responsible to

protect the interests of the consumers of the telecom sector and the financial disincentive was only a notional compensation/relief. It stated that the entire
objective of the impugned regulations, which had been framed after considerable deliberation and after seeking
comments from various stakeholders, was to provide relief to the consumers by suitably compensating them
by imposing a financial liability on the TSPs for poor quality of service.

D. DELHI HIGH COURT’S CONCLUSION

The Delhi High Court succinctly summarized the dispute into two main issues:

(i) Whether the impugned regulations are beyond the scope of the regulation making power conferred
on TRAI and thus ultra vires the Act.

(ii) Whether the mandate under the impugned regulations that the service provider shall compensate the
consumer for three call drops per day is manifestly arbitrary and is liable to be quashed.

Relying on the observations of the Hon’ble Supreme Court in PTC India Ltd. v. CERC (2010) 4 SCC 603, the
High Court concluded that the power to regulate and the power to make regulations by the regulator under a
statute co-exist and that the regulation making power is in no way limited by the administrative powers. The
High Court also recorded there is a presumption in favour of the constitutional validity of a subordinate
legislation and that it found “absolutely no case made out by the Petitioners to rebut the presumption that the
impugned regulations are intra vires”.

Accordingly, vide its order dated February 29, 2016, the Hon’ble High Court upheld the validity of the impugned
regulations and recorded that the since the same had not been stayed by the Court during the pendency of the
proceedings, the Petitioners were bound to comply with the same w.e.f. January 1, 2016, and TRAI was at
liberty to take appropriate steps towards its compliance.

E. THE TSP’S APPEAL BEFORE THE SUPREME COURT AND WAY FORWARD

The Petitioners appealed to the Hon’ble Supreme Court in March and sought a stay on the call drop
Regulations. They further urged the Supreme Court to prevent TRAI from implementing the Regulations till the
conclusion of the proceedings before the Apex Court. Although the Supreme Court issued notice to TRAI and
directed it to respond to the Special Leave Petition filed by the Petitioners, it declined to grant interim stay on
the Regulations.
Subsequently, the Supreme Court asked TRAI to reconsider the penalty imposed on telecom companies for
call drops after an observation from a senior counsel that a technical paper circulated by TRAI subsequent to
the Regulations endorsed the TSPs’ arguments that various other indeterminable factors were also responsible
for call drops.
The matter is now listed for further arguments and it remains to be seen whether the Hon’ble Supreme Court
will take the same stand as the Hon’ble High Court. The decision will be a significant one for TSPs as is
estimated that the Regulations may result in TSPs paying out an approximate Rs.150 crores every day as
compensation towards call drops.