TELECOMMUNICATIONS INDUSTRY ASSOCIATION

U.S.-India ICT Working Group

U.S. Telecommunications Policy Agenda

December 13, 2011

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Table of Contents

U.S. Telecommunications Subcommittee Policy Agenda…………………………………….2 Annex A: National Telecom Policy….………..……………………………………………….17 Annex B: National Policy on Information Technology...…………………………………….25 Annex C: National Electronics Policy………………………………………………….......…32

Appendix A: Creating a Fair and Predictable Tax and Customs Environment…..38 Annex D: Comments on DoT’s Telecommunications Network Security Regulations……..41

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U.S.-India ICT Working Group U.S. Telecommunications Subcommittee

Policy Agenda December 13, 2011

Introduction The Telecommunications Industry Association (TIA) has chaired the U.S. Telecommunications Subcommittee since the U.S.-India ICT Working Group was established in 2005. Since that time India’s Telecommunications sector has experienced remarkable growth, with hundreds of millions of Indians now able to connect to voice and data networks. ICTs have contributed significantly to India’s remarkable economic growth with new technologies enabling the creation of new businesses that create employment opportunities for Indian workers. Despite the global economic slowdown, India continues to be one of the world’s fastest growing Telecommunications markets. Since 2006, India’s total wireline and wireless telephone subscribers have increased from approximately 164 million to over 899 million, representing almost 449% growth in five years. In March 2011, India added 7.2 million new mobile phone subscribers. Broadband (> 256 kbps) has grown from 10 million subscribers in August 2010 to over 12.7 million subscribers as of August 2011, yet numbers of connections remain low relative to the population. Government initiatives to liberalize the market have played a significant role in India’s extraordinary growth. India’s 1994 and 1999 Telecommunications policies and the 2007 decision to raise foreign direct investment limits in the sector (to 74%) have increasingly opened the telecommunications market to competition and created the environment for investment and growth in the sector. This resulted in global telecom operators acquiring licenses and becoming part of the Indian telecommunications market. In addition to connecting hundreds of Indian consumers to voice and data networks, the liberalizing policies have created the backbone for India’s rapidly growing BPO and software development industries. We commend the Indian government’s efforts to undertake a comprehensive policy review of the electronics, information technology and telecommunications sectors. We look forward to continuing to work with the Government of India to formulate and achieve its broader goals. However, we are increasingly alarmed that India is seriously contemplating policy approaches that would reverse the pro-growth and competition policy trajectory that has benefitted India in favor of policies that would seek to make India’s ICT market less competitive and establish barriers to investment. Such an approach is not economically sound and will undermine India’s objective of developing a robust and globally competitive ICT industry. The Telecommunications Industry Association wants to recognize the significant improvements that are reflected in the May 31, 2011 telecommunications security guidelines embodied in the amendments to the licenses of telecommunications service providers in India. These new regulations create a more flexible approach that is more consistent with global practice and the realities of the market. While there is significant improvement, there are some elements of the new regulations that require clarification or could prove impractical in implementation.

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We want to also raise concerns over recent Indian proposals to increase international governmental oversight of Internet policy. India’s recent proposal to create a UN Committee for Internet-Related Policies (CIRP) that would have an oversight role over global Internet policy, including negotiating treaties related to Internet policies, is problematic. The Internet has flourished as a medium for communications as a result of private sector and multi-stakeholder approaches to policy and because governments have taken a light-handed regulatory approach. We are concerned that there is a credible risk that United Nations oversight of the Internet will harm innovation, investment, and users by creating bureaucratic, government-controlled decision-making mechanisms. This would negatively impact the Internet’s benefit for continued economic and social development. We urge India to reconsider its proposal to the United Nations. The following is a list of policy issues and recommendations and suggestions developed in conjunction with our member companies. We look forward to continuing to engage with the Government of Indian in a collaborative manner to help resolve them. (1) Draft National Policies on Electronics, Information Technology and Telecommunications (Please See Annexes A, B, &C for full comments submitted in response to the public consultation on the draft national policies) We applaud the Indian Government’s attempt to take stock of the current state of the information and communication technology and electronic (ICTE) industry and the application of ICTEs in the broader Indian economy, and to examine holistically how to encourage investment and growth in this important economic sector. We believe that India must continue to carefully evaluate potential policies for both their short-term and long-term consequences to ensure that the country continues to benefit from the global nature of innovation and trade in the ICTE space that has enabled rapid growth and cost-saving economies of scale in this dynamic sector. Despite the lack of detail in some places, we note that some of the proposed provisions in the triad of policies are problematic as written. Specifically, those policy recommendations pushing for mandatory national standards, incentives based on inclusion of local content in ICT procurement, incentives for exports of ICT, allocation of spectrum for indigenous equipment, and the leverage of domestic market demand to increase local manufacturing will likely be counterproductive to the Indian economy and/or run afoul of India’s international obligations. Innovation and Manufacturing: We are concerned that MCIT is considering policies that will not enable it to achieve some of its legitimate objectives. Innovation is increasingly collaborative and cross-border, and the ICT industry is based on a complex, global supply chain. Attempts to develop an entire domestic ICT infrastructure for security and economic reasons by using protectionist trade measures will not be successful.1 Indeed, closing off parts of its market to foreign ICT products through preferred market access provisions or other market distorting mechanisms, will reduce, not increase, both India’s competitiveness in the technology sector and the security of its own ICT digital products and networks.

1 For a discussion on different approaches to innovation, please see: The Good, The Bad, and the Ugly (and the Self-Destructive) of Innovation Policy: A Policymakers Guide to Crafting Effective Innovation Policy by Stephen J. Ezell and Robert D. Atkinson, The Information Technology and Innovation Foundation, October 2010.

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Rather than limit competition in the Indian market through preference programs and quotas, we recommend that India look at ways to promote a healthier ecosystem for investment, competition and innovation across all sectors of the economy. Improvement in governance, simplification of the tax structure, and investment in infrastructure such as roads, ports and power generation will put India in a better competitive position to attract investment and create an innovative economy. Deployment and integration of ICTs across India’s economic sectors will provide great benefits by increasing productivity and competitiveness in a manner that more deeply penetrates India’s economy.2 Trade and competition restricting policies will only serve to isolate India’s market from the world and limit the ability of India’s entrepreneurs to innovate. Fostering a healthy ecosystem for innovation will, over time, create an environment where local manufacturing and value addition can flourish, whereas mandating percentages of local manufacture and value addition may undermine the wider industry. Requiring local value addition may prove to be a challenge even at a conceptual level because network upgrades are completed in disparate pieces over staggered periods of time. In addition, monitoring compliance with such requirements would potentially require an extensive audit and certification process of not just the final assembly, but also of the entire supply chain. This could have the unintended consequence of delaying and increasing the cost of equipment supply and procurements, making it harder for India to achieve its objective of being a global ICT hub. As innovation is about more than ICT, effective innovation policy focuses on more than just science policy or on promoting ICT product development. Effective innovation policy seeks to ensure the diffusion of innovation to all sectors and organizations. As governments explore options, we recommend relying on proven policies that many other governments have found raise the productivity of the domestic sectors of their economies. These policies promote innovation in a way that enables their economies to benefit from foreign technologies, products, services and investment while also helping their domestic companies to participate in global markets. We believe it would be helpful for the U.S. and India to engage in substantive discussions in 2012 about the best approaches to achieving innovation in our economies. Specifically, we recommend the following: • The Government of India accept the U.S. Government’s proposal to engage in a government-

to-government discussion on how to approach the issue of manufacturing. This dialogue could also include an opportunity for industry and other outside stakeholders to provide specific recommendations for the two governments.

• The Government of India and the United States explore discussions in 2012 about global best practices in innovation policy. These discussions should include both government and industry participants.

Foreign Direct Investment: In order to further maximize the investment potential in the telecommunications sector, the Subcommittee recommends India eliminate the FDI limit and 2 Ibid.

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permit 100% foreign direct investment in telecommunications services. This will provide a significant increase in foreign investment inflow to expand infrastructure deployment. In order for Indians to continue to reap the benefits of ICT’s in the future, it is important that regulatory changes be made through a clear and systematic consultative process with all stakeholders, which is consistent with India’s democratic tradition and international best practices. We encourage further liberalization of the market to speed the development and adoption of new technologies, introduce new competition and promote multilateral R&D collaboration. Competitive pressures and declining ARPU’s are increasing the need for access to capital in India’s telecommunications sector. Furthermore, higher interest rates have made it more expensive for operators to borrow capital. We believe that India should examine policies and regulations affecting the financial markets in a manner that could increase the flow of capital for important infrastructure such as telecommunications in a manner that maintains competition and open markets. Such a review could also result in helping increase the flow of FDI into the sector. Unified License Regime: With respect to the proposed Unified License regime, we request that the migration path for existing licensees does not create any undue burdens or discriminatory conditions on existing license holders or discourage the growth of broadband services in India. We urge TRAI to undertake a public consultation to determine the finer details of the Unified Licensing Agreement, including fee structure, before finalizing the new license framework as well as the terms of migration to the new regime by existing licensees. It will be important to take into consideration the licenses held by existing license holders and how they will be treated if they do not currently hold all of the licenses being considered for consolidation under the Unified License regime or wish to continue only with their currently line of service provisioning. We are encouraged with the proposed strategy under the NTP which allows sharing of networks and de-links the licensing of networks from the delivery of service to the end users to facilitate faster roll out. We would also recommend that suitable measures be undertaken to allow sharing of both active and passive infrastructure among different telecommunications service providers. With respect to establishing Quality of Service (QOS) benchmarks, we note that there needs to be differential treatment for those services provided to enterprises and mass market consumers. QOS for enterprises are dictated through strict Service Level Agreements negotiated between the service provider and the enterprise. As those terms can vary from one agreement to the next, government mandated requirements would be impractical. We believe that there should be periodic review of existing laws and regulations to determine their effective impact. This will enable the regulatory framework to keep pace with rapidly evolving technological developments, market realities, competition, and global best practices. However, a successful review is dependent on consultation with all stakeholders in the telecom sector. TIA and our members stand committed to participate in any such consultation. We support the proposed review of the TRAI Act with respect to its powers, accountability, and funding. In addition the TRAI Act should be reviewed with respect to the role TRAI in spectrum management, allocation, pricing, and licensing. The Indian Telegraph Act should also be reviewed to facilitate convergence of networks.

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(2) Telecommunications Network Security. (Please see Annex D for full discussion of the issue) We and our members are grateful for the significant improvements that are reflected in the latest telecommunications security regulations embodied in the May 31 amendment to the telecommunications service provider licenses. We believe the intent of these revised regulations is to create a more flexible approach that is more consistent with global practice and the realities of the market. The removal of the mandatory technology transfer requirements, the mandatory 3rd party escrow requirements, and the mandatory contractual terms represented a much-needed step forward in improving the regulatory approach to improving the security of India’s telecommunications networks in line with global best practices and standards.

While the revised license amendment represents important improvement, certain elements of the revised regulations are concerning due to their deviation from global practice whilst others require clarification to understand how they will be implemented to ensure that these do not become stumbling blocks or have unintended consequences. Of primary concern is the expected implementation of mandatory in-country security assurance testing beginning April 1, 2013. While we understand that the Indian government may feel products tested locally may provide greater security assurance, there is no evidence that the geography of development or testing of a product corresponds with the level of security assurance provided by the product. Furthermore this requirement is broadly impractical and inconsistent with the mutual recognition provision of the Common Criteria Agreement (CCRA). India’s Department of Information Technology Department for Standards, Technology, and Quality Certification acknowledges the mutual recognition provisions of the CCRA in its Common Criteria Portal for India.3 There are longstanding internationally accredited/recognized laboratories conducting testing in this area and the location where the test is performed, in accordance with global best practice, should and does have no bearing on the accuracy of the test in question as long as the laboratory has achieved the appropriate certification.

We recommend that private sector entities, such as TSPs, should have the ability to determine which of their vendors’ products require formal testing and certification and how to most effectively procure certified products. We recommend India allow the TSPs this flexibility under the revised license amendments. While in some cases, it may be desirable for a vendor to test their product in laboratory located in India, it may be impractical in some cases where the same product is already being tested and a security certificate is obtained from an internationally accredited laboratory. Providing flexibility in terms of where products are tested is critical for maintaining a trusted global market for ICT products. We continue to believe that it is important that the Government of India work closely with all stakeholders, including global telecommunications service providers and equipment vendors to

3 http://www.commoncriteria-india.gov.in/Pages/CCSOverview.aspx

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ensure that implementation of the telecommunications security provisions do not undermine the ability of service providers to deploy the best and most appropriate security tools and practices, nor create obligations outside of global norms that inhibit commerce and the expansion of India’s telecommunications networks. To this end we continue to support the creation of a Telecommunications Security Council of India to allow government and industry to exchange information, develop best practices, and effectively manage emerging security risks.

(3) Advanced Wireless Telecom Services and Spectrum We were very encouraged by India’s decision to move forward with its spectrum auctions in April 2010, and industry looks forward ensuring that Indian consumers benefit from this important event. Future Spectrum. The Subcommittee congratulates India on holding its long anticipated auction for 3G and Wireless Broadband radio spectrum in 2010. We look forward to the auction of the additional block of 2.5 GHz spectrum that is still pending from the BWA auction. Looking to the future, the Subcommittee continues to strongly encourage the DoT and the TRAI to focus on spectrum allocations in harmonized spectrum bands. There are current standardization activities for future generations of technologies, and there should be consideration of those technologies going forward. India today utilizes 800 MHz, 900 MHz, 1800 MHz and 2100 MHz (which has been auctioned in the 3G auction) for mobile devices. We commend the National Frequency Allocation plan for allocating frequencies in the 700MHz band for broadband services. While affordable devices and services are key to reducing the digital divide, the allocation of sufficient radio spectrum by India will ensure the realization of affordable consumer access to broadband in India. Existing wireless carriers, as well as potentially new entrants, should be able to deploy mobile broadband technologies in a cost effective manner by using technologies that enable economies of scale, combined with the availability of large-enough blocks of spectrum in bands to maximize the use of the widest variety of terminals. India should allocate spectrum in internationally harmonized bands to enable it to take advantage of economies of scale. We strongly discourage India setting aside scarce spectrum for the purpose of promoting domestic technologies as identified in the 2011 National Frequency Allocation plan and contemplated in the Draft National Telecommunications Policy. (See our comments on the Draft National Telecommunications policy in Annex A). We urge India and its companies to participate in global standards efforts aimed at developing the next generation of wireless technologies. (4) Licensing and Regulatory Efficiency Global companies operating overseas are strongly committed to the rule of law and respecting host country laws and regulations. Companies prefer investment opportunities where the rules of the game are clear and easily understood. India will be successful in attracting greater foreign investment as it continues efforts to establish a clearly defined structure of laws and regulations.

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Simplification of Existing Licensing Regime. The Indian telecom sector has come a long way in terms of growth in subscribers, teledensity, service offerings, and technology. The regulatory and licensing regime, however, has not kept pace with the technological developments taking place world over. This is understandable as, unlike technology, changes in fundamental frameworks need consultation and detailed analysis before a change is accepted and incorporated in the licensing regime. We welcome the policy direction which recognizes the Enterprise Services and Data sector and which will bring the next wave of telecom growth to India. The data services primarily are offered either under the access services license or under ILD/NLD licenses. While the access license has undergone multiple reviews, the ILD/NLD licenses (primarily voice-based) have not been reviewed in over ten years. The long distance license were conceived in 2000-2001, predominantly to cater to the voice market, but are being now used by service providers whose business is entirely data or/IP based. We urge that the NLD/ILD license be modified to appropriately reflect changing customer needs, market realities and technology/policy considerations for the next generation of IP-based enterprise data services. There is an immediate and urgent need to have a comprehensive review of the long distance licenses to enable growth of enterprise/data services. This much needed review should be conducted through a consultative process with stakeholders and keeping in mind the prevailing international best practices. It is critical that guidelines (such as for lawful intercept and monitoring, remote access, and encryption) be tailored for the different types of services that are being offered under a given license. For example, requirements for enterprise services might be different than those for mass-market consumer communications. In order for India to grow its enterprise service sector, it is vital that India increase its bandwidth capacity. There is an urgent need for review of the significantly higher bandwidth prices in India as compared to other international markets. It is important that India implement policies that reduce the cost of bandwidth to maintain a competitive market for enterprise services. We recommend that the national telecom policy recognize that affordable access to bandwidth is a key infrastructure component and that telecommunications service providers be incentivized to build out more capacity. This will lower costs for both service providers and end users/consumers. The present day licensing and regulatory framework should recognize the need for technology and service neutrality. With technology comes the issue of spectrum which is significant to any wireless network. The present classification of service specific bands should be moved to a regime wherein any service can be provided under any of the bands so long as this is technically feasible. Operators should be permitted to determine the technology to be deployed for the services they plan to offer. The licensing and regulatory framework that supports the services which new technologies are capable to offer needs to be created. Telecom operators are trying to become global operators by expanding their operations across countries and continents. While it is imperative for a country to maintain its sovereignty by

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applying all security measures, it should promote and support global telecom operators expanding their operations into its territory. India should expand regulatory policies to encourage and support global telecom networks within India. In addition, India should refrain from retroactive rule making (applying new rules to past arrangements) which creates market uncertainty and complicates existing contractual arrangements. ILD and NLD Licensing. The Subcommittee notes that as of 2011, AT&T, BT, Cable and Wireless, Verizon, France Telecom, Pacific Internet, and Telstra have received licenses to provide international (ILD), national long distance (NLD), and Internet (ISP) services in India. We note, however, that the licenses have not been modified to appropriately reflect policy considerations for the next generation of services (e.g. enterprise data services) and service providers, and that certain aspects of India’s ILD and NLD licensing processes and procedures continue to impose barriers that impede carriers’ ability to fully operationalize these licenses. As presently written, many of the regulations cover policy concerns solely appropriate for mass market consumer voice telephony and have not been updated to reflect enterprise data and IP services, or the considerations of business enterprise customers. We note that the Draft National Telecommunications Policy would require a review of the current licensing structure (and that DoT has undertaken some work already in this area), and we encourage DoT to continue to engage stakeholders as this effort proceeds. The scope of resale authority by licensed facilities-based operators is still unclear – as are the processes, timelines and criteria for processing of clearance and approvals under both the ILD and NLD licensing regimes. This lack of clarity stands to undermine the competitive reforms made thus far by both TRAI and DoT. Some of these issues have already been taken up by the Association of Competitive Telecom Operators (ACTO), and we commend DoT and TRAI for forming a senior level committee to examine these issues. We understand the senior level committee rejected ACTO’s specific requests with respect to resale authority but do not fully understand the specific concerns of DoT in this respect. We request that DoT reconsider ACTO’s request and, at minimum, provide an opportunity to review the specific ACTO proposals and provide feedback as two why its proposals were rejected. Through this exercise it may be possible to find a way forward that satisfies each side’s interests in this matter. In addition, we would like to note that we support the National Telecommunications Policy proposal to facilitate resale at the service level – both wholesale and retail for voice. As a next step we look forward to engaging with the Government on devising guidelines to achieve the twin objectives of affordability and competition in the sector. Licensing and regulatory reforms are urgently required in the current Carrier Licenses to address the needs of data services. We request that DoT refer this issue to the Telecommunications Regulatory Authority of India (TRAI) to initiate a consultation paper to review ILD and NLD licenses, since it relates to license reforms (Section 11 (a) (ii) of the TRAI Act 1997). ACTO has already submitted a request to TRAI with suggested clause-by-clause changes to the existing ILD licensing language on August 27, 2010.

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Lawful Intercept and Monitoring. In the critical area of legal intercept and monitoring for non-voice, VPN/MPLS related Internet Protocol (IP) services, telecommunications carriers are keen to comply with Indian regulations concerning legal intercepts. However, in order to install IP/data related state-of-the-art legal intercept equipment, telecommunications carriers require clarity with respect to the technical specifications of the lawful Interception and monitoring equipment and compliance requirements as it pertains to data services. The present licenses were written for voice centric services and do not provide requirements pertaining to data services. Despite the DoT’s recognition of the importance of telecommunications carriers’ IP and VPN services to India’s BPO sector, regulations for legal intercept compliance have not kept pace. We urge the Department of Telecommunications to update its legal intercept and monitoring specifications for telecommunications carriers holding ILD and NLD licenses providing VPN/MPLS-related IP services as current regulations continue to be applicable to traditional voice traffic. We note that DoT’s Telecom Engineering Committee has been engaging with stakeholders to update these regulations and encourage further dialogue to ensure the requirements meet both the government and the industry’s needs. The industry needs specific, readily available, and technically sufficient specifications which are easy to comply with and to upgrade. We believe that it is imperative that India not mandate unique lawful intercept and monitoring standards, but rather draw upon existing and relevant global standards. India should promote the establishment of a voluntary, industry-led, and consensus based approach to security standards development which will allow all companies – domestic or global – to participate in the standards development process. This will ensure an appropriate balance between all stakeholders (standards developers, standards implementers, government and consumers). This will avoid adoption of unique requirements that create obstacles to economies of scale and make it more complicated for telecommunications service providers to operate. Currently there is considerable lack of clarity on the guidelines and specific technical details for lawful intercept and monitoring systems that need to be deployed by telecommunications service providers. The general terms of compliance with the ILD license have become redundant, as have some of the TEC-GRs. The industry needs specific, readily available, technically sufficient specifications which are easy to comply with and upgrade. For lawful intercept and monitoring, it is essential that the government create a Centralized Monitoring System (CMS). The existing security infrastructure of the government of India should be upgraded to enable it to keep pace with the latest technology and innovations. The Subcommittee understands that the Government of India as already initiated the implementation of the CMS. In this regard, C-DoT has been identified as the agency to study the networks of all the operators and implement the CMS. We request that the Government of India continue to formally engage industry on the planning and implementation of the CMS. Remote Access. Global enterprise service providers continue to be concerned over the Indian government’s shifting position on remote access of networks. This has the potential to adversely affect all global service providers offering international connectivity in India. Global service providers serving multi-national corporations (MNCs) and Indian multi-site office locations require the ability to conduct remote access (RA) management of networks in India from

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centralized Global Network Operations Centers (GNOCs) outside India (e.g., in the U.S.). It is important to note that the RA policy was announced following Cabinet Approval to raise the foreign direct investment caps in the telecommunications sector to 74% (Press Note 5 of 2005 as amended by Press Note 3 of 2007). The issue was raised in 2006, and 18 months later resolved with a new set of restrictions on RA after a senior Indian government delegation visited NOC sites of global service providers in the U.S. and Europe. Based on their report, in April 2007 new FDI guidelines (Press Note 3 of 2007) replaced the earlier Press Note 5 of 2005 that relating to raising the FDI limit to74% in the telecommunications sector. In April 2009, DoT reversed the interpretation in two areas - disallowing 24-hours/7 days-a-week access and customer provisioning for global accounts using RA. This impacted various RA approvals for ISPs and also new RA approvals under the ILD / NLD licenses. In order to obtain regulatory clarity and operational stability, service providers requested from DoT remote access approval for National Long Distance, International Long Distance and Internet Service Provider license holders to be able to provision network services for Indian companies and global MNCs operating in India. Industry made presentations and held discussions with DoT to explain the global nature of services that global operators provide and how Remote Access is vital for the effective functioning of their networks. Through this engagement, the Carrier Services Cell (NLD and ILD licenses) has steadfastly followed the existing policy and given ready clearances for RA approvals, including 24x7 usage and RA applications for customer / network provisioning, including a clarification permitting use of RA on 24x7 basis applicable for ILD, NLD and ISP licenses. However, the Data Services Cell (DS) – which looks after the ISP licenses – has refused to give approval on the customer / network provisioning aspect of RA so far, in spite of the fact that the security and FDI conditions relating to RA are exactly the same in all three licenses – NLD, ILD and ISP – and have been incorporated word by word from the FDI guidelines, Press Note 3 of 2007. So in essence, not only is a clarification regarding RA applications for customer/network provisioning pending, there is also a differential treatment of the same issue by two different licensing authorities (ISP vs. NLD and ILD) within the same DoT office. As per the existing policy and in absence of any explicit prohibition, the current NLD, ILD and ISP licenses have to be treated equally where activities related to RA are concerned. Any distinction made on an arbitrary basis between the licensing cells of DoT leads to further confusion and lack of certainty. Lack of regulatory certainty enabling RA for customer/network provisioning under NLD and ISP licenses will harm the operations of multinational companies operating in India. We further respectfully request that DoT resolve this issue to allow international telecom providers to manage their networks in a manner consistent with global best practices. Presently, the Data Services Cell continues to hold-up RA applications if submitted with provisioning functionality,

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resulting in outright denial of applications or resulting in delays anywhere from 6-months to a year for an approval. We welcome DoT’s decision to form a committee comprising of representatives from MHA, DoT and ACTO. The charter of the committee is to develop uniform RA compliance requirements. We understand that the committee is still in the process of deliberating various options. The committee had some meetings to discuss and finalize the compliance requirements wherein the group members presented and deliberated various suggestions. So far the Committee has not been able to arrive at any uniform requirement. Pending finalization of the compliance requirements, RA approvals have been delayed, severely affecting the expansion plans of companies and further jeopardizing investment in India. We request that until the time DoT finalizes the uniform compliance requirements, that all pending RA applications should be processed per the existing policy established through Press Note 3 of 2007. Encryption Standards. Companies support the freedom of business and consumers in India to use strong encryption to protect their corporate and personal information. Strong encryption uses robust encryption algorithms. The freedom to use strong encryption is a global standard for securing information online, such as confidential business information, financial information, online transactions and internal government communications, from intrusion by hackers, thieves, competitors and other wrongdoers. The Subcommittee understands that the government is considering upgrading encryption levels which at present are restricted up to 40 bit under the NLD/ILD/ISP License. This opportunity for change has been granted by way of an amendment in the Information Technology Act 2008, under the provisions of Section 84-A, which empowers the central government to prescribe modes and methods of encryption for secure e-commerce transactions. We request the Government of India to liberalize the present encryption policy as strong encryption also enables India’s rapidly growing IT and BPO industries, which rely on strong encryption to secure their global clients’ confidential information. U.S. companies urge India to adopt policies that protect the freedom to use strong encryption online and, consistent with global practice; do not set limits on the type of encryption technologies employable by the private sector. The Subcommittee supports and cooperates in the efforts of the U.S. IT Subcommittee led by the U.S.-India Business Council in working to enhance understanding of this issue. The Department of Telecommunications, through the Telecommunications Engineering Center (TEC) has also constituted a committee comprising of representatives from industry to find out possible solution for the interception and monitoring of encrypted communications. We understand that the Committee has finalized its report and have been submitted to DoT for approval. We look forward to the final encryption policy which we believe will be in line with industry stakeholder input. USIBC and TIA on behalf of its members have been working with the

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Department of Information Technology (DIT) for the last two years and have contributed meaningfully by sharing not only international best practices but also international experts on encryption for face-to-face meetings with the Government of India. We look forward to being of further assistance if it will be helpful, and learning of the results of this committee’s efforts. Cloud Services. We strongly support the initiative to recognize new and emerging solutions like cloud computing that will significantly speed up design and roll out of services. In order to fully harness the power of cloud computing, it is necessary that India undertake a review of existing laws, especially as they relate to data privacy, data security, and standards. It will be necessary for India to enact privacy regulations that foster the cross-border flow of data so that these technologies can be offered at globally competitive prices in India. Light touch, minimal regulation will be necessary to facilitate cloud services. Since cloud computing is in the nascent/evolving stage in India, we request that India consult closely with industry stakeholders to ensure the adoption of international best practices. Service Disruption. India is experiencing a sharp increase in telecommunications service disruptions owing to damaged high-capacity fiber-optic cable facilities. This is caused by frequent cable cuts by agencies/organizations that lay underground infrastructure or are constructing roads and other types of infrastructure. These disruptions have begun to impact the business of global carriers operating in India both from a quality and economics perspective. In order to provide end-to-end, always-on connectivity, global carriers rely on leased circuits procured from access providers in India. This service provisioning is backed by strict Service Level Agreement (SLA) norms due to the need for high quality and resilient connectivity. Frequent stoppages due to cable cuts experienced in the access providers’ networks cause serious losses to both customers and global carriers – who pay significant penalties on account of non-conformity to SLA norms. We recommend that telecommunication be declared “essential” services to avoid rights of way obstacles. This would help laying and maintenance of fiber through public and private infrastructure without being delayed by difficult and cumbersome approval processes. We also urge the government of India to coordinate the work of relevant agencies at the national, state and local level to improve protection of telecommunications infrastructure from inadvertent damage caused by construction related cable cuts. With a rapidly expanding economy leading to both more construction activity, and the proliferation of high capacity fiber optic facilities, improved governmental and industry coordination is needed. All industry sectors would benefit from establishing such cooperation based on global best practices. Open Skies. To sustain communications services and applications, companies and end-users rely on robust infrastructure and the ability to select the technology and provider based on cost, effectiveness and availability. This ability to source the best-suited infrastructure for a given application or service enhances the resulting service and may advance its service launch or reduce consumer costs. For satellite infrastructure, the U.S. and many WTO members have adopted policies that permit users of satellite services the flexibility to work directly with any satellite operator that has the ability to serve them, without constraint by government preferences. U.S. industry encourages India to adopt such an “open skies” satellite policy to

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allow consumers the flexibility to select the satellite capacity provider that best suits their business requirements. Licensing Requirements and Fees. As in the past, we urge India to reevaluate the basis for license fees, capitalization requirements, and bank guarantees. In line with international best practices, requirements relating to capitalization, the rationale for which makes little sense in most cases, should be eliminated. While bank guarantees are appropriate in limited cases, such requirements should reflect the scope of business intended to be offered and should be a temporary, not permanent requirement. In the past, we have urged India to take a closer look at the methodology it currently uses to calculate license fees for both ILD and NLD operators providing enterprise data services to ensure that India’s license fee regime does not frustrate the goals of promoting competition, creating a level playing field among all service providers, and reducing the sales price of services to consumers. Under the current methodology, license fees for these operators are based on revenues from both licensed and unlicensed activities, which make the calculation of such fees unnecessarily burdensome. The new Unified License regime contemplated by the draft National Telecommunications Policy should ensure that fees be minimal and equitable. We are quite concerned by reports that DoT is considering increasing the existing uniform license fees for ILD, NLD, and ISP licenses from 6% to 8% of Adjusted Gross Revenue (AGR). While we support the periodic review of the policy framework to remove inconsistencies and ensure up-to-date practices, the review should not increase the fee on existing telecom operators who already pay the 6% license fee. Such an adjustment may be best applied to licensees that are operating under multiple license fee regimes (like UASLs) where concerns relating to arbitrage have been noted in the past. We recommend that the uniform license fee of 6% be maintained for ILD, NLD and ISP licensees, and others as appropriate. Multi-stage assessment of licensing fees effectively acting as “double taxation.” We believe that license fees should not be applied in a manner that results in a multi-stage and cumulative assessment. Input costs (particularly for bandwidth for data services) are not deductible from the adjusted gross revenue on which the license fee is calculated and results in the multi-stage assessment of license fees in some cases. Whereas facilities-based operators using their own networks need only pay the license fee once, wholesale inputs (such as bandwidth) that operators such as stand-alone ILDOs, NLDOs, ISPs, and potentially ISPs buy from other operators as part of their own infrastructure-based service offerings are subject to the license fee twice – once when they are sold from the first network owner to the second operator, and then again when the second operator sells them to the end user, effectively acting as a “double tax.” As a consequence of levying a license fee at every sales point in the supply chain, a telecom operator who buys wholesale inputs from other licensed operators is placed at a competitive disadvantage with those who do not need to buy these inputs. This “double taxation” has a direct bearing on end pricing of services to the consumer and has a negative impact on competition, putting those who buy essential inputs, such as bandwidth, from facilities-based operators at a competitive disadvantage. Bandwidth is a critical infrastructure component for providing enterprise data services. The revenue accrued from providing services

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is subject to a 6% license fee payment assessed on Adjusted Gross Revenue (AGR). However, the costs of infrastructure resources, such as bandwidth, are not deductible from AGR. We believe that infrastructure creation should be incentivized by allowing the underlying costs to be deducted from AGR for purposes of licensing fee assessment. Since bandwidth infrastructure is a basic and essential resource that is used by all carriers, it should not be taxed through the license fee. Instead only telecom services provided to the end user should be subject to the license fee. With respect to DoT and TRAI discussions regarding revenue neutrality and outsourcing as it relates to license fee assessment, we believe that the “double taxation” issue is separate. As there are different categories of licenses that permit the offering of different types of services, the concept of revenue neutrality may not be the ideal benchmark. If carriers are allowed to deduct from AGR interconnection charges for voice calls, we believe that the same should be allowed for bandwidth for data services. Furthermore, we believe that the outsourcing model being used by some operators is not relevant in the context of the “double taxation” issue because (1) the bandwidth is used as an infrastructure over which services can be offered; and (2) the costs incurred by operators who outsource certain functions to third parties is not a bandwidth cost but rather technical and other support functions associated with running and maintaining their networks. In the United States, the Federal Communications Commission (FCC) has adopted the excise tax approach purposes of Universal Service Obligation Fund (USOF) contribution, where each carrier is assessed a fee based upon its revenue from end-users. (5) Internet Protocol (IP) –Enabled Services and Business Process Outsourcing (BPO) Business Process Outsourcing providers rely on next generation telecom infrastructure in the provision of their services. The use of VoIP in the call center business can significantly reduce costs while improving service offerings and scale-ability at the enterprise level. VoIP is also an engine of growth for other parts of the communications sector. Unfortunately in India, VoIP can only be used in CUGs (closed user groups, or just among sites). For example, if a company has two offices, they are allowed to link using an IP trunk and VoIP, but not out to the PSTN/PLMN (Public network) within India. So companies must maintain separate systems for internal and external communications, increasing establishment costs. We continue to note that VoIP provided over public networks that can connect to the Public Switched Telephone Network (PSTN) eliminates the requirement of users to have a dual-investment in infrastructure; that enterprise users realize enormous savings in the cost of moving telephones or adding telephones; and that company investment in Internet communications realizes higher return because more applications can be managed on a single infrastructure. Furthermore, VoIP offers advantages for companies in their business continuity planning by enabling companies to reconfigure where they receive calls in a flexible manner. This function allows companies to reroute their communications and continue operations when an emergency strikes, such as a natural disaster or other event.

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The Subcommittee was encouraged by the TRAI recommendation published in August 2008 that called for liberalization of VoIP services, but DoT has rejected this recommendation. We urge DoT to reconsider the important benefits that liberalization of VoIP would have on the Indian ICT sector. Please direct any questions to: Nicolas Fetchko Director, International and Government Affairs Telecommunications Industry Association 202-346-3246 nfetchko@tiaonline.org

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Annex A

Comments on Ministry of Communications and Information Technology Draft: National Telecom Policy (NTP), 2011

Overview: The Telecommunications Industry Association (TIA), the U.S.-India Business Council (USIBC) and the Information Technology Industry Council (ITI) welcome the opportunity to submit comments to India’s 2011 draft National Telecommunications Policy. We applaud the Indian Government’s attempt to take stock of the current state of the information and communication technology and electronic (ICTE) industry and the application of ICTEs in the broader Indian economy, and to examine holistically how to encourage investment and growth in this important economic sector. TIA, USIBC and ITI represent hundreds of the world’s leading ICTE companies, which represent billions of dollars of investment and commerce with India and employ hundreds of thousands of Indians in the ICTE space. We believe that India must carefully evaluate potential policies for both their short-term and long-term consequences to ensure that the country continues to benefit from the global nature of innovation and trade in the ICTE space that has enabled rapid growth and cost-saving economies of scale in this dynamic sector. We note that in many places the draft policy does not provide much detail in terms of how specific policy proposals will be implemented. We urge the Ministry of Communications and Information Technology (MCIT) to continue to consult in an open and transparent manner with all interested stakeholders as implementation regulations are developed to ensure that all views are taken into consideration. We understand that the policy will be implemented through the issuance of a series of Government notifications. We request that the Government of India offer all stakeholders an opportunity to comment on the draft notifications. We would also urge the Government of India to provide adequate notice between the time of the announcement of the notification and the time of implementation to enable industry to adapt to any regulatory changes. Despite the lack of detail in some places, we note that some of the proposed provisions in the triad of policies are problematic as written. Specifically, those policy recommendations pushing for mandatory national standards, incentives based on inclusion of local content in ICT procurement, incentives for exports of ICT, allocation of spectrum for indigenous equipment, and the leverage of domestic market demand to increase local manufacturing likely will be counterproductive to the Indian economy and/or run afoul of India’s international obligations. More generally, we are concerned that MCIT is considering policies that will not enable it to achieve some of its legitimate objectives. Innovation is increasingly collaborative and cross-border, and the ICT industry is based on a complex, global supply chain. Attempts to develop an entire domestic ICT infrastructure for security and economic reasons by using protectionist trade measures will not be successful. Furthermore, this approach would contradict the spirit and thrust of the recent National Competition Policy drafted under the direction of the Ministry of Corporate Affairs (MCA). Indeed, closing off parts of its market to foreign ICT products through preferred market access provisions or other market distorting mechanisms, will reduce,

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not increase, both India’s competitiveness in the technology sector and the security of its own ICT digital products and networks.

National Telecom Policy, 2011 The tremendous growth of India’s telecommunications sector has formed the backbone of BPO services while providing hundreds of millions of Indian consumers with access to communications services. The National Telecom Policy admirably sets a goal of creating a national network through the convergence of fixed and wireless services that will bring voice, data and video services to all of India. This is an ambitious plan that would create “Broadband on Demand” in India. TIA, USIBC and ITI applaud the plan’s ambition and our member companies stand ready to work with the Indian government and Indian companies to make this vision a reality. We want to underscore that the success of India’s telecom sector is the result of market opening policies that have enabled competition and the ability of telecommunications service providers to procure equipment on commercially negotiated terms to build out the robust telecommunications India now enjoys today. We are therefore concerned that some of the measures that India contemplates in its National Telecom Policy (NTP) would significantly reverse what, to date, has been a very successful approach that has revolutionized the way India communicates with itself and the rest of the world. If India’s goal is to build on this success and continue to grow this sector, we strongly believe it needs to continue to open the market to competition, reduce barriers to market entry, and promote further collaboration with the world by promoting the use of global standards and practices. Mandating domestic standards, creating preference programs for local technologies, and adopting unique Indian security standards will not allow India to keep pace with rapid global developments in technology, but rather cause it to fall behind. We address each of the draft policy’s key objectives and their corresponding strategy recommendations below. Broadband, Rural Telephony and Universal Service Obligation Fund (USOF) TIA, USIBC and ITI applaud India’s commitment to expanding broadband throughout India. Meeting India’s goal of “Broadband on Demand” will require a light regulatory touch that harnesses the power of the private sector to invest in broadband, while effectively using the Universal Service Obligation Fund to encourage deployment of converged telecommunications services in low population density areas where investment in infrastructure exceeds possible returns on investment. We are encouraged by the draft policy’s recognition that the deployment of a mix of different technologies is necessary to meet India’s needs. Upgrading existing networks and expanding India’s fiber and mobile broadband infrastructure will be essential to meeting India’s ICT development goals. India’s telecommunications sector has benefited greatly from being able to access the best available technology the world has to offer through a competitive telecommunications equipment market. While we understand India’s desire to increase the participation of Indian companies in the equipment market, this should not come at the expense of consumers or telecommunications

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service providers, who will ultimately bear the cost of any mechanisms the government undertakes to provide preferential market access to domestic manufacturers. It is important to bear in mind that the rapid expansion of India’s telecommunications networks has been the direct result of policies to increase competition, which have forced telecommunications service providers to innovate to deliver sophisticated services to consumers at the world’s lowest level of average revenue per user (ARPU). R&D, Manufacturing and Standardization of Telecommunication Equipment The explosion of telecommunications services globally has been a result of increased competition among service providers and a very competitive international market for telecommunications equipment. New technologies and services have proliferated as established companies and entrepreneurs invent new ways to use broadband networks to deliver new services to users. While it is admirable that India is seeking to better harness the power of ICTs for India’s development, it is disconcerting that the National Telecommunications Policy would aim to try to take a centralized/government-centric approach to developing technologies. Certainly, promoting greater collaboration amongst stakeholders is a worthwhile endeavor, and creating a forum for such collaboration through Indian academic and research organizations is laudable. However, as innovation in technology is happening at a lightning pace and on a global scale, policies that would isolate Indian companies from global innovation through indigenous R&D programs may place India at a disadvantage globally. We are concerned by the inclusion and lack of detail provided by the NTP regarding incentivizing telecommunications service providers to use indigenously developed products. While the NTP makes reference to conducting preferential market access (PMA) programs in a manner consistent with India’s international commitments, we will not be able to comment fully on this until India explains in detail how it intends to do this. It is important to note, however, that preferential incentives for the purchase of domestically manufactured products (SectionIV.2.11) that distort the market for telecommunications equipment not only would hurt consumers, but will also act as a hindrance to India meeting its goal of making broadband available “on demand.” Moreover, “buy-local” policies encourage similar beggar-thy-neighbor policies in other countries, which would undermine India’s goal of becoming a globally-competitive exporter of ICTE. Specifically, even if the contemplated PMA is eventually limited to procurement by governmental authorities solely for government purposes and falls outside of India’s current WTO commitments, such measures would still not be in the best interests of Indian consumers. As the Ministry of Corporate Affairs’ draft National Competition Policy rightly stresses, OECD data strongly suggests that increasing competition in government procurement practices could make a big difference to the Indian economy:

“Public procurement of goods or services is a key economic activity of governments accounting for 20-30 percent of GDP in India as per estimates available. As per the findings of an OECD survey, savings to public treasuries between 17 percent and 43 percent have been achieved in some developing countries through

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implementation of competitive procurement processes. In view of the huge public expenditure on procurement including in infrastructural sector, substantial savings can be achieved in India by infusing greater competition, which in turn could release resources for the much needed investment in social sector development in the country.”4

In addition to significant monetary savings, competitive procurement processes also enable governments to purchase higher quality and more innovative products that in turn can significantly increase their efficiency and productivity. Moreover, financial subsidies for creation and deployment of domestically manufactured products, such as those that may be used in conjunction with the Brand India fund (Section IV.2.9), would violate India’s WTO commitments.5 Likewise, incentives provided for the export of telecom equipment, as suggested in Section IV.2.16 are prohibited by WTO law. Such incentive programs distort trade and have not proven to be sustainable in the long term. We also urge India to consider carefully what sorts of tests it will require for entry into the Indian market per Section IV.2.14 and IV.2.15. In the United States, the Federal Communications Commission (FCC) generally requires testing only for products that use radio frequency spectrum. Other devices are able to demonstrate conformance with FCC technical requirements through manufacturers’ declarations of conformity. It is not standard global practice for countries to require testing of products for security, which is an issue that is often negotiated between vendor and service provider and specific to the type of equipment in question. Burdensome testing requirements quickly lead to increased equipment costs and delays in getting products to market. Before implementing any new testing/certification regime, we strongly urge India to engage stakeholders – all interested service providers and vendors – to determine the best way to meet the testing goals identified in the draft NTP. If India mandates unique Indian standards in these areas, this will also lead to increased costs for manufacturers (both domestic, who may need to build different products for export, and foreign, who will need to build products uniquely for the Indian market). These costs will be paid initially by telecommunications service providers procuring equipment who will, in turn, pass the cost along to Indian consumers. Neither unique Indian standards, when international standards exist, nor overly burdensome testing and certification requirements are in the interests of India. Because such requirements distort trade and hurt everyone affected, they are discouraged by WTO law.6 4 Draft National Competition Policy, The Ministry of Corporate Affairs of the Government of India (September 2011). 5 Article 3.1 (b) of the WTO Agreement on Subsidies and Countervailing Measures prohibits WTO members from granting incentives conditioned on the use of domestic over imported goods. 6 See WTO Agreement on Technical Barriers to Trade (TBT), Article 2.2 (national standards should be based on relevant international standards) & Article 5.1.2 (conformity assessments should not impose unnecessary obstacles to trade or be more trade restrictive than necessary).

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Licensing, Convergence and Value Added Services TIA, USIBC, and ITI wholeheartedly support a review of the current licensing regime to reflect the realities of converged networks and new technologies and services. Such a review should be conducted through comprehensive stakeholder consultation to ensure all stakeholders can contribute to the development of the new regulations. Moving toward a unified licensing regime, provided that the cost is not prohibitive for new entrants, will enable telecommunications service providers to quickly move into new business areas without seeking permission from the government. We are curious why the government has established two different Unified Access Service License categories, however. It raises concerns that there will be a regulatory distinction created between Network Service Operators (those who own and manage the physical infrastructure) and Service Delivery Operators (those that provide services over networks, but do not own or manage the networks). Although the draft NTP does not provide details, it would appear that a so-called Network Service Operator would need to purchase two licenses to be able to provide services over its own networks, whereas a Service Delivery Operator would only require one license. Depending on the license terms (price, obligations, etc.) this could lead to a disincentive to investment in infrastructure and an undermining of India’s overarching broadband goals. Furthermore, if spectrum will be de-linked from licenses (which we support), licensing costs should reflect administrative costs and not be used as a government revenue generator, per international best practice. Spectrum Management We applaud the NTP’s goal to make available spectrum in globally-harmonized bands. Increasing the amount of spectrum available for commercial wireless services will contribute to increasing access to wireless broadband services by Indian citizens and help fulfill India’s vision for “Broadband on Demand.” We oppose allocating scarce spectrum for encouraging indigenous innovation, not only because it may not be in line with India’s WTO commitments, but also because any measure that favors local over foreign products has proven to be counterproductive in the long run by reducing competiveness and consumer choice.7 DoT’s recently released National Frequency Allocation Plan contains specific references to reserving spectrum in the following bands for indigenously developed products: 900 MHz, 1427-1435 MHz, 1800 MHz, 1880-1900 MHz as well as 1900-1910 paired with 1980-1990 MHz. Restricting spectrum to specific technology or specifically-sourced technology represents a significant step backwards for spectrum policy in India. Throughout the world, governments are today allocating spectrum for advanced wireless uses, without restriction, recognizing that government regulation cannot stay in front of the technology innovation curve. We further urge India to promote participation by Indian industry in global standards bodies that are pursuing mobile technologies so that any

7 Any regulation promulgated pursuant to Section IV.4.7 that favors domestic over foreign goods would likely violate Article III of the General Agreement on Tariffs and Trade (GATT), whether the domestic preference is connected to a service or otherwise. See GATT, Article III.4 (“The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”)

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future innovative technologies are developed using global standards that Indian companies can use to compete in the global market. As India revises its regulation and develops a separate “Spectrum Act,” we encourage the Government of India to consult with all stakeholders on their provisions. Telecom Infrastructure/Row Issues, Green Telecom, Clear Skyline, Mitigation Efforts During Disasters and Emergencies We applaud the NTP’s provisions to promote public-private partnership in promoting the build-out of network infrastructure. Streamlining rights-of-way and tower installation requirements, while promoting better coordination among all levels of government, will be essential to removing regulatory roadblocks and speeding up the pace of network deployment. We generally support establishing national strategies on disaster management and recovery for the telecommunications network; however, rather than mandating a standard operating procedure for all service providers, a more effective solution would be to promote public-private partnerships for industry and government to work together to develop voluntary best practices to respond to disasters. This will help ensure that the government and industry can work together as technologies and circumstances change. Standard operating procedures that are not subject to periodic review are less likely to be effective, when needed. Quality of Service and Protection of Consumer Interest TIA, USIBC, and ITI support ensuring that consumers are made aware of the terms of their service agreements with service providers provided that the requirements are not unduly burdensome and there is no interference by government in pricing and service offerings. Security Having provided a great deal of input to DoT’s formulation of its telecommunications license amendment regarding Telecommunications Service Providers responsibilities with respect to securing their networks, we continue to be concerned that the Government of India believes that the path to securing its telecommunications networks lies in government mandate of technologies and standards. In light of the rapid innovation in technology and the ever evolving threat landscape, government mandates, which become obsolete almost at the same time they are published, will not serve to keep India safe nor allow it to become a global ICT hub. Furthermore, requiring unique Indian ICT security standards will not allow flexibility for vendors or service providers to implement cybersecurity practices that can effectively leverage new technologies and business models, address constantly changing threat dynamics, or manage new risks and vulnerabilities. Unique domestic security technologies and standards could create issues for Indian companies that rely on networks with globally-deployable security solutions to communicate with the rest of the globe. In the area of telecom network security, we continue to strongly urge India to adopt a flexible approach based on public-private partnerships that will

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enable the government and industry to develop voluntary best practices and share information to confront an ever-changing threat landscape.8 As India looks to develop capacity in information assurance, telecommunications security, and testing requirements, we urge robust stakeholder consultations with equipment vendors and service providers to ensure that security needs are met in the least burdensome way and in accordance with global standards and best practices. Such globally recognized cybersecurity standards have been reviewed by international experts for robustness and security assurances. Promoting indigenous manufacturing of security solutions at the expense of global standards and solutions9 will leave India with fewer tools to fight cyber threats rather than more. Skill Development and Public Sector TIA, USIBC and ITI member companies employ hundreds of thousands of Indian ICT experts and wholeheartedly support improving and expanding education and training for students interested in careers in the technology field. As international collaboration is critical to innovation in the ICT sector, we encourage India to take an open approach to seeking and collaborating with international companies, universities, and research organizations. Policies that focus on indigenous innovation or create an un-level playing field by promoting domestically manufactured products over others inhibits and undermines international collaboration and the ability of India to meet its ICT development goals. Cloud Services Cloud computing relies on interoperability of technology and the free flow of data on a global scale. For example, the ability to access and manage data remotely across borders is an integral aspect of global services, including cloud services. India is in a unique position to take advantage of opportunities in this growing industry. However, should India promote domestic technologies over global ones, use domestic security standards over global ones, and enact privacy and data security regulations that inhibit the cross border flow of data, the prospects of India capitalizing on this important new development in computing will be limited.

8 Compare U.S. Cyberspace Policy Review, supra note 11, p.3 (“Information and communications networks are largely owned and operated by the private sector, both nationally and internationally. Thus addressing network security issues requires a public-private partnership as well as international cooperation and norms”) and p. 31 (“Working with the private sector, the [U.S.] Federal government should 9 As noted in the U.S. Government’s Cyberspace Policy Review, “International norms are critical to establishing a secure and thriving digital infrastructure. In addition, differing national and regional laws and practices – such as laws concerning the investigation and prosecution of cybercrime; data preservation, protection, and privacy; and approaches for network defense and response to cyber-attacks – present serious challenges to achieving a safe, secure, and resilient digital environment. Only by working with international partners can the United States best address these challenges, enhance cybersecurity, and reap the full benefits of the digital age.” Executive Summary, Cyberspace Policy Review: Assuring a Trusted and Resilient Information and Communications Infrastructure (U.S. Government 2010), p. vi.

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Telecom Enterprise Services, Data Use, New Technologies and IPV 6 Compliant Networks Continual consultation with stakeholders will be imperative as India continues to review and refine its regulatory approaches to the telecommunications sector. We have been encouraged that India has sought out and engaged industry globally and other governments to discuss international best practices in a number of fields. Each country has its own tradition of regulations, approaches to its economy and security concerns. In the fast paced globalized economy, however, global approaches to standards and minimizing the burden of regulations are key to maintaining and developing global competitiveness. The success of India’s telecommunications sector has become a model for the world, yet the strong record of open markets and competition are threatened by efforts to create winners and losers as is contemplated by the draft NTP. We hope that India will continue to seek global collaboration and continue to expand its open approach to regulation in the ICT sector by avoiding unnecessary burdensome regulations and market-distorting policies. Financing of Telecom Sector Establishing financing mechanisms for the telecommunications sector could facilitate network build-out and help create “broadband on demand” as envisioned by the draft policy. As India develops the rules and mechanisms that would govern how a Telecom Finance Corporation would operate, we urge India to continue to adhere to concepts of technology neutrality and ensure that decisions on what projects to finance be based on its technical and economic merits, rather than on the origin of the technology. Role of Regulator, Changes in Legislation No comment.

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Annex B

Comments on Ministry of Communications and Information Technology Draft: National Policy on Information Technology (NPIT), 2011

Overview: The Telecommunications Industry Association (TIA), the U.S.-India Business Council (USIBC) and the Information Technology Industry Council (ITI) welcome the opportunity to submit comments to India’s 2011 draft National Policy on Information Technology and appreciate the Indian government seeking stakeholder input. We applaud the Indian Government’s attempt to take stock of the current state of the information and communication technology and electronic (ICTE) industry and the application of ICTEs in the broader Indian economy, and to examine holistically how to encourage investment and growth in this important economic sector. TIA, USIBC and ITI represent hundreds of the world’s leading ICTE companies, which represent billions of dollars of investment and commerce with India and employ hundreds of thousands of Indians in the ICTE space. We believe that India must carefully evaluate potential policies for both their short-term and long-term consequences to ensure that the country continues to benefit from the global nature of innovation and trade in the ICTE space that has enabled rapid growth and cost-saving economies of scale in this dynamic sector. We note that in many places the draft NPIT does not provide much detail in terms of how specific policy proposals will be implemented. We urge the Ministry of Communications and Information Technology (MCIT) to continue to consult in an open and transparent manner with all interested stakeholders as implementation regulations are developed to ensure that all views are taken into consideration. We understand that the policy will be implemented through the issuance of a series of Government notifications. We request that the Government of India offer all stakeholders an opportunity to comment on the draft notifications. We would also urge the Government of India to provide adequate notice between the time of the announcement of the notification and the time of implementation to enable industry to adapt to any regulatory changes. We also believe that the implementation of the final provisions of this effort would require the review of existing regulations in order to advance this policy’s objectives, particularly to create a conducive environment for innovative online services and next generation technologies. Despite their lack of detail in some places, we note that some of the proposed provisions in the triad of policies are problematic as written. Specifically, those policy recommendations pushing for mandatory national standards, incentives based on inclusion of local content in ICT procurement, incentives for exports of ICT products, allocation of spectrum for indigenous equipment, and the leverage of domestic market demand to increase local manufacturing, likely will be counterproductive to the Indian economy and could violate India’s international obligations. More generally, we are concerned that MCIT is considering policies that will not enable it to achieve some of its legitimate objectives. Innovation is increasingly collaborative and cross-border, and the ICT industry is based on a complex, global supply chain. Attempts to develop an

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entire domestic ICT infrastructure for security and economic reasons by using protectionist trade measures will not be successful. Furthermore, this approach would contradict the spirit and thrust of the recent National Competition Policy drafted under the direction of the Ministry of Corporate Affairs (MCA). Indeed, closing off parts of its market to foreign ICT products through preferred market access provisions or other market distorting mechanisms will reduce, not increase, both India’s competitiveness in the technology sector and the security of its own ICT digital products and networks.

National Policy on Information Technology, 2011 The Draft NPIT places appropriate emphasis on the diffusion and use of information and communication technologies as a critical driver of innovation and economic development. A robust ICT infrastructure can lead to the development of innovative services and new business opportunities that companies can provide on a global scale. India has benefitted from rapid growth in the provision of IT-related services because of its open-market and competitive policy approach. However, the vast majority of benefits of ICT come from the widespread use of ICT, rather than from its development and manufacture. Therefore, we think it is important that India separate and focus on the goal of promoting ICT diffusion and use rather than promoting domestic ICT production. While it is admirable for India to set out a goal for it to be a global hub for IT and information technology and electronic services (ITES), it is important that India focus on the key steps that create a conducive environment to the growth and investment in this sector that allows India to partake in the global economy in a constructive and collaborative way that does not restrict trade or impede the use and development of global standards. We address each of the draft policy’s key objectives and their corresponding strategy recommendations below. Creating an ecosystem for a globally competitive IT/ITES Industry TIA, USIBC, and ITI applaud the priority placed on improving the ecosystem in India to spur growth in the IT/ITES sector. Improving India’s taxation structure to incentivize investment in ICT infrastructure and services will remove barriers to growth. While details on the exact mechanisms are not provided in the draft policy, fiscal incentives for the incorporation of ICTs into companies would have the benefit of modernizing Indian industry and making it more competitive. We urge India to ensure that these programs are implemented in a way that are not trade restrictive or contravene the principle of technology neutrality. The market should be able to decide which technologies succeed or fail in the global marketplace. Human Resource Development Increasing the human resource capacity in India to partake in, and contribute to, the ICT industry is an admirable goal. Global ICT companies, many of which employ Indian nationals in India or abroad, recognize the valuable contributions India has made to the ICT industry internationally. Labor market regulation is taking on increasing significance, particularly with the development of global business models for the delivery of professional IT services. In considering economic policy and promoting investment, the Government of India must take into consideration the Indian economy’s capacity to develop and adapt in the face of rapid technology change, global

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integration, and international competition. The responsiveness of the education system, labor market, and tax and social security systems will affect the economy’s ability to prosper. Technology allows businesses to make use of the best available talent wherever it may be located by connecting different skills. Projects can be executed in sequence across time zones using global teams. These are some of the factors driving competition between countries as they try to attract investment and employment growth. Many national employment policy frameworks are outdated, focusing on traditional manufacturing employment, and are not conducive to the demands of IT services. Therefore, changes are needed to workforce and employment policies. Without change, India and India’s workers will fail to capture the opportunities of the new economy. Businesses will be constrained by strict employment rules meant to sustain models that are many decades old. Government actions aimed at updating rules to govern labor specific to the IT and ITES sector could have a decisive impact on investment and jobs in the ICT sector in India. Promotion of Innovation and R&D in the IT Sector The draft NPIT contains some laudable high-level strategies to promote R&D and Innovation. The policy identifies several approaches, such as fiscal benefits to start-ups and SMEs and promoting more collaboration between industry and academic/research institutions in India. We urge India to ensure that these policies are implemented in a way that is technology neutral and does not involve subsidization of specific industries and entities contrary to India’s international commitments. Subsidies have a perverse effect on the market, creating an uneven playing field and potentially perpetuating an unviable technology or business model at the expense of alternatives. Any programs that promote innovation must recognize the global nature of innovation in the ICT sector, with research taking place on a global scale through inter-organization collaboration. Ensuring that India’s treatment of intellectual property meets international standards and commitments will also be important to promoting R&D and innovation in India. The strong protection and enforcement of IP, regardless of its source, produces the best benefits to an economy. “[R]esearch has established that intellectual property protections in developing societies…directly encourages technology transfers from more advanced economies through both direct imports and foreign direct investment. Moreover, technology transfers to developing nations expand as those nations strengthen their patent protections…”10 According to the World Bank, “since 1980, the world’s greatest economic gains have been achieved by developing nations that aggressively opened their economies to foreign technologies and business methods and protected the intellectual property rights of their developers”.11

10 “The Economic Value of Intellectual Property,” Robert J. Shapiro & Kevin A. Hasselt, pp. 2-3 (Oct. 2005); available: http://sonecon.com/docs/studies/IntellectualPropertyReport-October2005.pdf (summarizing significant research on conditions affecting technology transfer). 11 Id. (citing World Bank, World Development Indicators, op. cit.) (Emphasis added).

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Enhancing productivity and competitiveness in key sectors through ICT The proliferation of the application of ICTs throughout global industry has been a critical component of increasing competitiveness and productivity. India is right to want to try to promote increasing adoption of ICTs in Indian industry and other important sectors. As mentioned above, it is important that Indian companies be able to choose from the best technology solutions the market has to offer. Technology biased or trade-restrictive approaches that benefit only Indian companies will limit the choices of Indian companies and affect their ability to incorporate ICTs into their business models in a manner that meets both their technical and cost requirements. Moreover, policies that violate key international commitments could lead to retaliatory steps by other countries that could severely undermine India’s global IT and BPO industry. Creating an ecosystem for Internet and mobile driven Service Industry India’s mobile industry has had tremendous success because of the important market liberalization policies that have opened the market to competition and allowed telecommunications carriers the freedom to procure and deploy the most appropriate technologies the world has to offer. It is important that India not reverse this course, as it would be detrimental to the country’s goal of being a global ICT hub. Indian entrepreneurs will be well-positioned to develop applications across a range of government and commercial services that will meet the language needs and other preferences of Indian consumers. Policies that limit the choice of technologies on which these new applications and services can be delivered will result in less-efficient, costlier, and, ultimately, slower and less robust service. A key component of an ecosystem that promotes the Internet industry is a regulatory regime that allows the free flow of information and reduces burdens on the functioning of the web services that make this dynamic medium a powerful engine of economic growth. We hope that in order to advance this objective of the policy of promoting the Internet industry that the Government reviews regulations affecting Internet communications providers and online services in India. Enabling Service Delivery through e-Governance Making delivery of government services through online means is an important means of expanding and making more effective the provision of government services to India’s citizens. Using ICTs will also improve government transparency by giving Indian citizens access to government documents, regulations, and policy proposals. We urge India to use global standards where available in the deployment of e-governance solutions. We believe that India should not limit itself to only open source or open technology solutions, as suggested in Section IV.6.7. Standards that are developed through voluntary, industry-led, and consensus-based processes offer important technical and cost advantages, as well. India should choose the technological solution that best meets its technical needs and budgetary requirements, rather than choosing a solution only on the basis of whether IP licensing exists.

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Mobile-based Value Added Services Given the enormous growth of connectivity in the mobile sector, it makes sense that mobile tools, including financial, agricultural, and education services, among others, could be expanded to a greater number of Indian citizens to promote growth in all levels of Indian society, including the critical rural economy. We urge India to continue to promote an open-market approach to the provision of value-added services so that companies and entrepreneurs can develop the most cost effective and technically robust method to deliver these services in India. Close collaboration will be needed between telecommunication services providers, technology developers, and financial (or other sector) service providers. Policies should be avoided that would preclude any stakeholders from participating in the development of these services. Furthermore, the promotion of mobile value added services should not come at the expense of promoting traditional online services delivered through non-mobile devices. An important element of this would also be to not modify the existing policy approach in India, which is also the case globally, of leaving the value-added services space as a dynamic unlicensed business sector, possessing low entry barriers allowing the unprecedented involvement of innovative startups and small developers. Development of Language Technologies Speech to text technologies are evolving and innovating on a global scale. It is important that Indian companies be able to collaborate and develop the applications with global companies to enable delivery of online services to the multilingual Indian populace. Any policies that restrict global collaboration and market access or skew the development of these technologies will delay the possibility of the best possible technologies from reaching Indian consumers in a time-efficient manner. Such restrictions also will undercut the NPIT objective to make India the global hub for language technologies. Geographic Information System (GIS) -based IT Services GIS-based IT Services are an important globally developing field that creates the opportunity for a wide variety of applications. Creating an ecosystem for continued deployment of mobile and fixed broadband infrastructure will be the essential platform for delivery of these types of services in India. India will need to ensure that any eventual rules and regulations regarding data privacy strike an appropriate balance to enable these and other types of data services. Security of Cyber Space We commend India’s acknowledgement of the global nature of cyberspace in citing compliance with “international security best practices and conformity assessment” (Section IV.10.1). In order for India to realize its broader ICTE development goals, India’s efforts to improve cybersecurity must reflect cyberspace’s borderless nature and be based on globally-accepted standards, best practices, and international assurance programs. This approach will improve security, because:

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• Nationally-focused efforts may not have the benefit of the best-peer review processes traditionally found in global standards bodies;

• Proven and effective security measures must be deployed across the entire global digital infrastructure; and

• The need to meet multiple, conflicting security requirements in multiple jurisdictions raises enterprises’ costs, demanding valuable security resources.

This approach will also improve interoperability of India’s digital infrastructure, because security practices and technologies can be better-aligned across borders and permit more of India’s private sector resources to be used for investment and innovation to address future security challenges. Given the interconnected nature of the global digital infrastructure (GDI), cybersecurity is a global challenge requiring global solutions.12 TIA, USIBC and ITI have been closely engaged with governments to promote the adoption of global approaches that do not restrict trade or impede global data traffic upon which the world economy now depends. Our associations and member companies stand ready to cooperate with Indian policymakers as they continue to address this important issue. Examples of global approaches to cyber security include those developed under organizations such as the Common Criteria, and ISO/IEC and through technology development associations such as 3GPP and 3GPP2. The nature of today’s GDI leverages technologies designed and developed globally, and while a focus on building domestic capabilities is important, India must participate in the global cybersecurity dialogue among government, industry and academia.13 Approaches that mandate standards or limit companies’ flexibility to utilize globally-accepted security technologies, as suggested by Section IV.10.2, undermine cybersecurity. We encourage India to avoid developing unique, domestic security solutions that are not globally-based, as this could lead to problems of interoperability and deny India the benefits of global collaboration in this very important area. In light of the ever evolving nature of threats to cyberspace, we encourage India to adopt a flexible approach that encourages public-private partnership that brings industry and government stakeholders together to share information, respond to threats, and develop best practices. Such an approach includes consideration of globally-recognized

12 As noted in the U.S. Government’s Cyberspace Policy Review, “International norms are critical to establishing a secure and thriving digital infrastructure. In addition, differing national and regional laws and practices – such as laws concerning the investigation and prosecution of cybercrime, data preservation, protection, and privacy; and approaches for network defense and response to cyber-attacks – present serious challenges to achieving a safe secure, and resilient digital environment. Only by working with international partners can the United States best address these challenges, enhance cybersecurity, and reap the full benefits of the digital age.” Executive Summary, Cyberspace Policy Review: Assuring a Trusted and Resilient Information and Communications Infrastructure (U.S. Government 2010), p. vi. 13 Compare U.S. Cyberspace Review, supra note 11, p.3 (“information and communications networks are largely owned and operated by the private sector, both nationally and internationally. Thus, addressing network security issues requires a public-private partnership as well as international cooperation and norms”) and p. 31 (“Working with the private sector, the [U.S.] Federal government should coordinate and expand international partnerships to address the full range of cybersecurity related activities, policies, and opportunities associated with the information and communications infrastructure upon which U.S. businesses, government services, the U.S. military, and nations depend.”)

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cybersecurity standards which have been reviewed by international experts for robustness and security assurances, such as the examples provided in the previous paragraph. We commend India’s focus on user responsibility with regard to cybersecurity. Cyberspace’s stakeholders – consumers, businesses, governments, and infrastructure owners and operators – need to know how to reduce risks to their property, reputations, and operations. However, many stakeholders are not aware of, and also do not adequately utilize, the range of tools available to them, such as information sharing, risk management models, technology, training, and globally accepted security standards, guidelines, and best practices. Raising awareness so that cyberspace’s stakeholders can use these tools is critical to improving cybersecurity. Finally, we urge India to consult with stakeholders including global technology vendors as it seeks to establish an Information Security Assurance Framework in light of the concerns noted above. A framework that creates unnecessary burdens or barriers to market entry will end up reducing the availability of the world’s most innovative technologies. In light of the accelerated pace of development of new technologies in the ICT space, India could find itself behind the global ICT curve if it creates unwieldy information assurance frameworks that use unique Indian standards or approaches and slow the introduction of the latest technologies to market.

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Annex C

Comments on Ministry of Communications and Information Technology Draft: National Electronics Policy (NPE), 2011

Overview: The Telecommunications Industry Association (TIA), the U.S.-India Business Council (USIBC) and the Information Technology Industry Council (ITI) welcome the opportunity to submit comments to India’s 2011 draft national policies on electronics. We applaud the Indian Government’s attempt to take stock of the current state of the information and communication technology and electronic (ICTE) industry and the application of ICTEs in the broader Indian economy, and to examine holistically how to encourage investment and growth in this important economic sector. TIA, USIBC and ITI represent hundreds of the world’s leading ICTE companies, which represent billions of dollars of investment and commerce with India and employ hundreds of thousands of Indians in the ICTE space. We believe that India must carefully evaluate potential policies for both their short-term and long-term consequences to ensure that the country continues to benefit from the global nature of innovation and trade in the ICTE space that has enabled rapid growth and cost-saving economies of scale in this dynamic sector. We note that in many places the draft policies do not provide much detail in terms of how specific policy proposals will be implemented. We urge the Ministry of Communications and Information Technology (MCIT) to continue to consult in an open and transparent manner with all interested stakeholders as implementation regulations are developed to ensure that all views are taken into consideration. We understand that the policy will be implemented through the issuance of a series of Government notifications. We request that the Government of India offer all stakeholders an opportunity to comment on the draft notifications. We would also urge the Government of India to provide adequate notice between the time of the announcement of the notification and the time of implementation to enable industry to adapt to any regulatory changes. Despite their lack of detail in some places, we note that some of the proposed provisions in the triad of policies are problematic as written. Specifically, those policy recommendations pushing for mandatory national standards, incentives based on inclusion of local content in ICT procurement, incentives for exports of ICT, allocation of spectrum for indigenous equipment, and the leverage of domestic market demand to increase local manufacturing, likely will be counterproductive to the Indian economy and/or run afoul of India’s international obligations. More generally, we are concerned that MCIT is considering policies that will not enable it to achieve some of its legitimate objectives. Innovation is increasingly collaborative and cross-border, and the ICT industry is based on a complex, global supply chain. Attempts to develop an entire domestic ICT infrastructure for security and economic reasons by using protectionist trade measures will not be successful. Furthermore, this approach would contradict the spirit and thrust of the recent National Competition Policy drafted under the direction of the Ministry of Corporate Affairs (MCA). Indeed, closing off parts of its market to foreign ICT products through preferred market access provisions or other market distorting mechanisms, will reduce,

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not increase, both India’s competitiveness in the technology sector and the security of its own ICT digital products and networks.

National Electronics Policy, 2011 The draft National Electronics Policy (NEP) correctly recognizes the potential benefits to the Indian economy and Indian citizens from promoting the application of ICTE across a number of services in India. We support the Ministry’s objective to facilitate increased R&D and manufacturing in the electronics sector, and believe that the draft policy includes some positive incentives to promote investment in the electronics system design and manufacturing (ESDM). At the same time, there are concerning proposals that would restrict trade and investment, and thus act as disincentives to global collaboration in R&D, which is a key element of innovation in ICTE today.14 The NEP’s ambitious mission to “promote indigenous manufacturing in the entire value-chain of ESDM” (Section II.1) disregards the international norms of how ICT products are developed globally. Although the Government of India should improve the ecosystem to incentivize investment and increase local IP and manufacturing, some of its provisions would appear to manage and even mandate domestic innovation. Such policies may produce short term benefits in some cases but always have failed in the long term.15 We address each of the draft policy’s key objectives and its corresponding strategy recommendations below. Creating an Ecosystem for a globally-competitive ESDM Sector: We support India creating an ecosystem to increase growth and investment for Electronics System Design and Manufacturing (ESDM). Providing fiscal incentives that are not discriminatory may help overcome some of the costs associated with lack of adequate infrastructure such as transportation and power (e.g., Sections IV.1.1 & IV.1.4-5). However, it is important for India to continue to expand investment in ICT R&D and manufacturing to create a stable foundation for this sector’s growth. We also support the concept of setting up Electronic Manufacturing Clusters (EMCs) to facilitate investment in India, provided again that participation in the EMCs and related benefits is granted to companies on a non-discriminatory basis. Having long-noted issues with India’s tax regime, we applaud the proposal to establish a stable tax regime at both the Central and State levels to attract global investments. We recommend that all electronics products receive the lowest possible tax rates under the Central

14 Innovation is diffusing at ever increasing rates, is increasingly interdisciplinary, technologically complex, collaborative and cross-border in nature. See Innovate America, Council on Competitiveness (2004). For example, some companies have R&D centers in various geographies that enable them to design products around the clock. In addition, co-authorship of scientific research papers has increased significantly, from only about 7% of scientific articles in 1985 to about 22% in 2007. (OECD) Notably, out of the awards given to the top 100 U.S. product innovations each year, the number of award-winning innovations attributed to a private sector firm operating alone averaged 67 in the 1970s, but dropped to an average of only 27 in the last decade. Today, about two-thirds of award-winning innovations involve some kind of inter-organizational collaboration. (ITIF) 15 See generally “The Good, the Bad and The Ugly (and The Self-Destructive) of Innovation Policy: A Policymakers Guide to Creating Effective Innovation Policy.” The Information Technology and Innovation Foundation (October 2010).

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Sales Tax Act to spur adoption of ICTEs in India. (See Appendix A for more specific recommendations on tax). We are concerned, however, about the language in the draft NEP that would provide preferential market access (PMA) for domestically-manufactured/-designed electronic products for which the IPR resides in India (Section IV.1.3). India’s spectacular growth in the ICTE space has been due to its open approach to ICTE trade. While the draft policy does not spell-out the mechanisms India would use to achieve PMA, we underscore the importance of India maintaining its commitments under the World Trade Organization (WTO). Moreover, even if the contemplated PMA is limited to procurement by governmental authorities solely for government purposes and falls outside of India’s current WTO commitments, such measures would not be in the best interests of Indian consumers and would deny access to global technological and product innovations. As MCA’s draft National Competition Policy rightly stresses, OECD data strongly suggest that increasing competition in government procurement practices could make a big difference to the Indian economy:

“Public procurement of goods or services is a key economic activity of governments accounting for 20-30 percent of GDP in India as per estimates available. As per the findings of an OECD survey, savings to public treasuries between 17 percent and 43 percent have been achieved in some developing countries through implementation of competitive procurement processes. In view of the huge public expenditure on procurement including infrastructural sector, substantial savings can be achieved in India by infusing greater competition, which in turn could release resources for the much needed investment in social sector development in the country.”16

In addition to significant monetary savings, competitive procurement processes also enable governments to purchase higher quality and more innovative products that in turn can significantly increase their efficiency and productivity. We also note that the draft National Electronics Policy is sending contradictory signals to potential global investors by seeking to attract foreign investment while at the same time indicating that the products manufactured by foreign investors will be subject to trade restrictive policies. We strongly urge India to avoid trade restrictive measures as they will not help India achieve its goal of growing the ICTE sector. Finally, we would like to understand better what measures the Indian government is proposing with respect to facilitating the creation of a semiconductor wafer factory in India, as they are not spelled out in the draft electronics policy (Section IV 1.2). 16 Draft National Competition Policy, The Ministry of Corporate Affairs of the Government of India (September 2011).

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Promotion of Exports: We understand India’s desire to promote further exports, as this is a common goal shared by all countries in an attempt to spur economic growth and job creation. While we are unfamiliar with India’s Focus Products Scheme, we would like to reiterate the point that any such export schemes be undertaken consistent with India’s international commitments. For example, NEP Section IV 2.1 suggests that incentives may be used to facilitate the export of domestic ICT products. Under WTO law, however, government incentives cannot be linked to export performance goals because they distort trade.17 Human Resource Development: TIA, USIBC, and ITI wholeheartedly support efforts to increase education in fields related to the ICT industry. Innovation takes place on a global scale, and encouraging ties between Indian and international universities and research organizations will leverage the strengths of Indian and global institutions to the benefit of all. We welcome any opportunity provided to contribute for skill development and capacity building in the ICT sector. Developing and mandating standards: While understanding the desire of India to ensure that products meet certain safety and other standards, we urge caution in how to approach this objective to avoid creating unnecessary safety and other technical requirements that fail to fulfill a legitimate regulatory objective and could retard the growth of the ICT sector in India. More specifically, we note that mandatory standards (i.e., technical regulations) which impose requirements to address legitimate objectives such as safety can interfere with the innovation that India seeks to encourage in the domestic ICT sector, so any regulations should be carefully defined to be narrowly focused on areas where public safety is at stake and voluntary standards have proven to provide inadequate protection. In fact, WTO members “shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.”18 Beyond legitimate safety issues, we urge India to establish a voluntary, industry-led, and consensus-based approach to standards development for other ICT issues such as power savings, which allows all companies - domestic or foreign - to participate in the development of such standards. This will ensure an appropriate balance between all stakeholders (e.g., standards developers, standards implementers, the government, and consumers of the standards-based products). Yet India should avoid pushing for the development of unique Indian standards, but rather encourage national standards bodies to draw upon, where appropriate, relevant existing global standards and participate in their enhancements to meet its needs.19 This will ensure that India does not adopt unique requirements that create obstacles to economies of scale and make it more complicated for Indian companies to export their products globally, which is a key goal of

17 WTO Agreement on Subsidies and Countervailing Measures, Article 3.1(a). 18 WTO Agreement on Technical Barriers to Trade (TBT), Article 2.2. 19 Id., Art. 2.4 &2.6

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the electronics policy. Indeed to minimize obstacles to trade, per India’s WTO commitments, voluntary standards (like technical regulations) also must be based on relevant global standards and not be more trade restrictive than necessary.20 India should continue to adhere to the principle of technology neutrality to ensure that all technologies, irrespective of where they were developed, have an opportunity to compete in the Indian marketplace. In terms of ensuring compliance with technical regulations or standards, testing and compliance procedures also should not be more trade restrictive than necessary.21 Otherwise, they impose burdens that can lead to increased costs and delays in marketing products for all companies. Cybersecurity: While the strategies laid out in the draft electronics policy are not very specific, we reiterate our view that India should evaluate carefully the costs and benefits to different approaches to cybersecurity, whether they are cybersecurity, telecommunications network security, or lawful intercept. We urge India to undertake a flexible approach based on public-private partnerships that allows for an evolutionary approach to cybersecurity in a way consistent with global approaches and is responsive to evolving threats. Such an approach includes consideration of globally recognized cybersecurity standards which have been reviewed by international experts for robustness and security assurances. A unique Indian approach mandated by government that attempts to ensure cybersecurity based on the exclusive use of technologies developed in India, without incorporating global approaches, as suggested in Section IV.5 of the NEP, will undermine India’s ability to secure its networks and access cutting-edge technology and solutions. Given the interconnected nature of the global digital infrastructure (GDI), cybersecurity is a global challenge requiring global solutions. We would strongly encourage the government to consider global solutions, including global standards, which focus on how the technology is developed and the testable security properties that make a given technology trustworthy. Global standards, include, but not limited to, those developed under the Common Criteria, 3GPP, 3GPP2, and ISO/IEC. The nature of today’s GDI leverages technologies designed and developed globally, and while a focus on building domestic capabilities is important, India must participate in the global cybersecurity dialogue among government, industry and academia to achieve its security objectives. Furthermore, an approach that includes mandating unique Indian standards or technologies would run counter to India’s other priorities with respect to making India an international hub for ICTEs and promoting the export of Indian ICTEs. Strategic Electronics: While not entirely clear what specific policies India will pursue in creating linkages between the Indian ICTE industry and strategic sectors such as Defense, Atomic Energy, Space, etc., we think that these linkages are important globally as modernization of these sectors depends on the

20 Id. Annex 3 (Code of Good Practice), Par. E&F. The Bureau of Indian Standards has accepted the WTO Code of Good Practice and thus is subject to Annex 3 of the TBT Agreement. See India’s Experience on TBT Notification System and Procedures for Information Exchange, G/TBT/W/93 (24 September 1998), Par. 2(d). 21 Id., Art. 5.1.2.

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application of ICTEs. One method of increasing investment into strategic electronics would be to expand the Ministry of Defense’s offset policy to allow offset obligations to be invested in industries not specifically tied to defense. Creating eco-system for vibrant innovation and R&D in ESDM sector including nanoelectronics The creation of an Electronic Development Fund to promote innovation, the development of intellectual property, R&D, and the commercialization of products appears to be a potentially beneficial initiative. We recommend that the fund be managed in a manner that encourages applications from all interested actors and does not discriminate between companies based on origin. Also, in order to discourage the development of Indian-based non-practicing entities (NPEs), we suggest funding be prioritized for those companies that will eventually implement, manufacture, and/or commercialize the developed intellectual property and R&D as opposed to those entities which will only license the developed intellectual property. Furthermore, the fund should be technology neutral and not be used to promote any technology over any other, or contrary to WTO requirements, require the use of local content in developing products.22 We look forward to receiving further information before providing commenting on the mechanisms governing the “Fund of Funds,” the VLSI Incubation Centers, or the mechanisms by which India will promote development of a microprocessor for specific/strategic applications. We urge India to solicit stakeholder input as these programs are developed. Electronics in Other Sectors While we do not have specific comments on the various sectors listed in this section, we urge India to again take an approach that promotes competition, promotes consultation with industry, and is technology neutral. Implementing trade- restrictive policies or picking winners and losers in the marketplace will not achieve the desired goals of the National Electronics Policy of making India a global ICTE hub. Handling e-waste: Industry would welcome an opportunity to work closely with the Indian government to streamline the e-waste rules of 2011. Industry wants to work with the Indian government to effectively address India’s e-waste concerns in a manner that is consistent with global norms and does not create unnecessary or overly-burdensome regulation while strengthening environmental protection. To that end, we would welcome an opportunity to work with the Indian government to implement the Extended Producers Responsibility under the e-waste rules in a manner that protects the environment, is not overly-burdensome, and does not act as a barrier to commerce. Governance Structures: We believe institutionalizing public-private cooperation through a National Electronics Mission will be helpful as a mechanism to discuss policies with respect to electronics in India. Reflecting the global nature of ICTE, we strongly urge that the National Electronics Mission be open to the participation by all stakeholder companies, irrespective of national origin. 22 See WTO Agreement on Subsidies and Countervailing Measures, Article 3.1(b).

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Appendix A: Creating a Fair and Predictable Tax and Customs Environment

Developing a more transparent and predictable tax environment is a critical element in strengthening India’s ICTE competiveness. The country’s current tax and customs regime constitutes a challenge for many companies and serves to deter investment in the electronics, IT and telecommunications sectors. The economic success of the software and related services sector in India represents one of the most compelling examples of ICT-enabled growth in the world today. Over the past few years, however, the level of competition has grown dramatically. Where Israel and Ireland were once the only major competitors in this space, today’s global environment has created credible competitors across a broad range of products, price points and services. New competition has emerged in China, the Philippines, Vietnam, and emerging economies in Eastern Europe. At this time of increasing globalization and competition and in light of the global economic slowdown, greater budgetary pressures exist to increase revenue and decrease cost. Over the past three years, important tax incentives in India have lapsed and taxes on a number of ICT E-related products and services have been increasing as have some of the costs/complexities of doing business in India. The Government can help foster further IT-related investment by addressing a number of tax-related problems:

• Lack of a Meaningful Dispute Resolution: While the Government of India has taken some positive steps to develop a more formal and streamlined process for companies to appeal and resolve domestic and international tax disputes, the resolution process remains slow. Developing a more comprehensive dispute resolution process will create greater certainty for ICTE companies.

• Proposed Overhaul of the Direct Tax Code: The introduction of the Direct Tax Code (DTC) is one of the most important developments in India’s tax regime. While this is a welcome reform, ICTE companies continue to have some concerns with certain provisions in the draft DTC. A more formalized consultative mechanism with the Ministry of Finance and Department of Information Technology on the ICTE-related portions of the DTC could be extremely beneficial in streamlining key tax provisions and encouraging further tax reforms.

• Advance Pricing Mechanism: The creation of an advance pricing mechanism to provide clarity and security to foreign IT firms on their future tax liabilities would help create long-term certainty that will lead to greater ICTE-related investment.

• Customs Collection and Treatment: A major challenge for U.S. ICTE companies remains customs collections at the local level. For many years, Customs officials in certain ports have imposed arbitrary and unfair customs valuations on certain goods and services, particularly in the IT software and hardware sectors. Moreover, local Customs officials have, in some instances, applied valuations retroactively. When disagreements on customs valuations arise, local authorities have often refused to release the products to

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companies for distribution in the Indian market, or issue legal notices which would allow the companies to contest such withholding activity in the Indian courts. As a result, many companies were unable to distribute imported products in India, often times having to abandon vital and expensive shipments, thereby significantly disrupting local operations. Most troubling, a significant number of companies with long histories in India, substantial investments and track records of compliance have been treated in a manner more commensurate with likely flight risks, known offenders and fly-by-night operations. Actions of local officials, which we believe are not reflective of the policies or standards of treatment that the Indian government condones, are significantly undermining the external perception of India as a desirable business destination. These actions also raise concerns of due process, transparency, non-discrimination and predictability – critical success factors of the digital economy. Specifically, customs inspectors have taken aggressive and hostile approaches to dealing with executives of multinational companies. In the midst of efforts to cooperate with ongoing customs investigations, some of our member companies have been subjected to office raids, seizures, and harassment, including multi-hour interviews of staff and executives without any legal representation and personal threats by Indian authorities. This harassment, including CEOs and CFOs, at the hands of Customs officials has shaken the personal confidence of key executives in India. The Department of Information Technology was extremely helpful in resolving some of these specific Customs cases. However, the structural causes of customs disputes remains. For India to remain globally competitive, a predictable and fair customs environment must be the norm. We strongly recommend that the Department of IT and the Ministry of Finance institute more formal consultation mechanism to address Customs disputes and ensure that future problems are addressed in a timely and fair manner.

Other key tax reforms that should be considered by the Government include:

• Treating transfer pricing and permanent establishment principles in-line with

international best practices, both in terms of transfer pricing mark-ups and the definition of what qualifies as a permanent establishment.

• Reducing customs duties and excise on IT hardware and software, including hidden

duties that add costs to bringing IT products to market.

• Implementing a Service Tax rationalization, including CENVAT for service tax paid on

transactions with Affiliates; software being double taxed as a service and as a good, and delays over Service Tax refunds.

• Negotiating a Binding Arbitration MOU to resolve bilateral tax issues and foster greater

investment between both countries.

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• Removing the SAD on import of components utilized for manufacture in Excise Exempt

Zones:

• Having the Ministry of Finance recommend that State Governments adopt uniform CST

laws to eliminate differential tax treatment for IT companies for the same set of goods.

• Pressing the Ministry to consider withdrawing the MRP-based assessment for notebooks

and monitors as a bulk of these products are imported and it is administratively difficult for importers to get MRP labels affixed at product’s original destination.

• Providing a suitable abatement for arriving at the taxable value of services for Annual

Maintenance Contract which fall under the category of “Management, Maintenance and Repair Services” under the Finance Act 1994.

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Annex D

Comments on DoT’s Telecommunications Network Security Regulations On behalf of the members of the Telecommunications Industry Association and U.S.-India Business Council, we want to thank you for the significant improvements that are reflected in the latest telecommunications security regulations embodied in the recent amendment to the licenses held by different types of telecommunications service providers in India. We believe the intent of these revised regulations is to create a more flexible approach that is more consistent with global practice and the realities of the market. The removal of the mandatory technology transfer requirements, the mandatory 3rd party escrow requirements, and the mandatory contractual terms represent a much-needed step forward in improving the regulatory approach to improving the security of India’s telecommunications networks in line with global best practices and standards. While the revised license amendment represents important improvement, certain elements of the revised regulations are concerning due to their deviation from global practice whilst others require clarification to understand how they will be implemented to ensure that these do not become stumbling blocks or have unintended consequences. We look forward to engaging with the Indian government as it works through the implementation of these regulations to find practical and effective solutions to the issues raised below:

a) In country security assurance testing beginning April 1, 2013: The new regulations require that all equipment procured by telecommunications service providers licensed in India be tested in Indian laboratories starting April 1, 2013. While we understand that the Indian government may feel products tested locally may provide greater security assurance, there is no evidence that the geography of development or testing of a product corresponds with the level of assurance provided by the product. Furthermore this requirement is broadly impractical and inconsistent with the mutual recognition provision of the Common Criteria Agreement. There are longstanding internationally accredited/recognized laboratories conducting testing in this area and the location where the test is performed, in accordance with global best practice, should and does have no bearing on the accuracy of the test in question as long as the laboratory has achieved the appropriate certification. We understand that the concept of “network elements’ under clause iii of the license amendment refers only to “core” network equipment, which is helpful to focusing implementation on protection of the most important network elements or those most susceptible to security breaches. However, even mandatory testing in laboratories in India for only “core” equipment runs counter to Common Criteria and will likely fail to provide greater product assurance. Recommendation: Private sector entities, such as TSPs, should have the ability to determine which of their vendors’ products require formal testing and certification and

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how to most effectively procure certified products. We recommend India allow the TSPs this flexibility under the revised license amendments. While in some cases, it may be desirable for a vendor to test their product in laboratory located in India, it may be impractical in some cases where the same product is already being tested and a security certificate is obtained from an internationally accredited laboratory. Providing flexibility in terms of where products are tested is critical for maintaining a trusted global market for ICT products.

b) Facility Inspection: The new regulations require that the vendor, through its agreement with the telecommunications service provider (TSP), allow the TSP, licensor/DoT, and or its designated agencies to inspect the hardware, software, design, development, manufacturing facility and supply chain, and subject all software to a security/threat check any time during the supply of equipment. Given the proprietary and sensitive issues surrounding the design of products, this provision creates concerns as to the intrusive nature of such a request into the intellectual property rights, legal obligations and business operations of vendors. In addition, such inspections will be time consuming, costly, and overly burdensome, and will likely negatively impact a vendor’s ability to effectively and efficiently get products into the marketplace. Also, equipment and software suppliers in many jurisdictions must also satisfy national-level legal and regulatory obligations with respect to any customer inspections or visits, which could create another obstacle to fulfilling this obligation. Finally, if a product has achieved the necessary testing certifications by an accredited lab, it is unclear what an intrusive, overly burdensome and unprecedented requirement such as this would achieve in practical terms. Recommendation: We recommend DoT replace the mandatory facility inspection requirement with a provision that allows the equipment/software supplier and the TSP negotiate mutually acceptable customer assurance arrangements consistent with industry best practices and the relevant national laws governing the equipment/software supplier.

c) Security Breach/Blacklisting of Products: The new regulations establish penalties for “inadvertent inadequacy/inadequacies in precaution” and “inadequate measures, act of intentional omissions, deliberate vulnerability left into the equipment or in case of deliberate attempt for a security breach.” The amendment provides for the imposition of a strict liability penalty in addition to possible “blacklisting” of a vendor from the Indian market. These provisions have a potentially significant adverse impact on telecommunications service providers and vendors. First, the concept of what would constitute adequacy remains undefined in the amendment. We assume this determination would be left to the discretion of a five member committee to identify and define. This system presents several concerns: 1) the ability to achieve a consistent and predictable

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definition of “adequate;” 2) the composition and expertise of the five-member panel, how they are appointed and whose interest they represent; 3) the process for conducting an investigation into the breach and determining adequacy; and 4) the ability for a service provider or vendor to effectively respond to an allegation of an intentional omission or deliberate vulnerability and there is no appeal mechanism. Unfortunately, there is very little information provided on the legal due process that would be involved in making a determination in these instances. The lack of clear judicial procedures and rights of appeal, create regulatory uncertainty that could create unforeseen complications for DoT, vendors, and TSPs in the future. Recommendation: We recommend that the procedures for making a determination of penalty under these provisions be revisited and opened to a public comment procedure. Determining fault in security breaches can be highly complex and require clear legal procedures based on the rule of law. The stakes for companies in such a scenario are too high to not be grounded in the law. We also recommend the adoption of due process protections and an appeal process which should be extended to include all TSPs and vendors subject to the regulations. Furthermore, given the highly technical and complicated nature of the network security, we recommend that the liability provision not be strictly applied in terms of penalties. Rather, the committee, once properly constituted under clear framework of due process, should be given the discretion to determine the appropriate penalty in all cases.

d) Further Clarifications/Confirmations: Several additional questions have arisen in light of the new regulations and it would be helpful if DoT could clarify/confirm how they will be addressed:

a. How will equipment procurement clearance requests initiated under the prior clearance process be treated now that the new license amendment has been issued to supersede the earlier license amendments dating back to December 2009?

b. With respect to the requirement to keep O&M logs, as specified in vii (c) of the revised license amendment, we urge DoT to specify and define activity logs, which are required to be submitted by the licensee. As a service provider, numerous activities are undertaken in the network on a second by second basis. It is important to identify the activity and specifics (including format) that will be required. Industry would work collaboratively with DoT to construct appropriate specifications.

c. DoT / CERT-IN should define the specifics to be included in the requisite report. Global operators routinely monitor the traffic patterns on their global network to

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detect possible intrusions and attacks. Again we would urge DoT/CERT-IN to ensure this requirement is implemented in a balanced way that reflects global network management, and defined criteria of what level of network security threat must be reported.

d. With respect to the requirement for telecommunications service providers to establish a monitoring facility to detect intrusions, attacks and frauds, and to report the same to DoT, global operators already have such facilities within their global network, and will report such incidents as per the reporting requirements as defined by the licensor.

e. Future changes to telecom licenses should be conducted through the Telecom

Security Council of India (TSCI) so that all industry is able to provide input before regulations are promulgated.