``It is still trying to deal with market issues through policy,'' telecommunications consultant Mahesh Uppal told Reuters.Questions also remained on how the government would carryout its plan to transform the service wing of the department of telecommunications (DoT) into a state company.

The policy, released on Friday, broke an industry deadlock and offered a way out for firms which had won phone service licences but could do little business in the face of poor subscriber growth and problems with bankers.The new policy involves a switch from a current framework of tenure-based licencesawarded through tenders to a revenue-sharing regime in which several players will compete in each area.

The new regime will be applied only in areas where the government has no past commitment to licensees or where the licenced firms are ready to vacate.But the government sought advice from the attorney-general on how firms stuck in old licences could migrate to a new regime.

``Referring the issue..to the attorney-general is indeed a very pragmatic and rational decision of the cabinet,'' said president of the Confederation of Indian Industry (CII), Rajesh Shah.In a boost to communication links and Internet expansion, Friday's policy allowed cable television firms to carry voice and data under licence. It also announced free-market competition in domestic long-distance services from January 1, 2000.

On Saturday, the government removed a freeze it had imposed on tariff cuts in long-distance call charges announced by the Telecom Regulatory Authority of India (TRAI) earlier this month.The government alsoannounced it was committed to having an independent regulator, and gave the TRAI arbitration powers in disputes between the government and telecoms firms.

Industry officials cheered these steps, but said the TRAI's role as an arbitrator was limited, and would not go as far as its earlier-envisaged role as final adjudicator. ``For instance, arbitrators do not give interim relief or enforce awards. They also cannot penalise,'' Uppal said. ``I would still be circumspect if I were a banker. They (bankers) need a market savvy regulator...The pressure on the regulator is still very much an issue,'' he said.

Another doubt lingered on a decision by the government to offer a subsidy to the DoT equal to the licence fees it would pay so that it could meet its social objectives of extending telephone services to far-flung rural areas.One industry official, who asked not to be identified, said this could give the DoT a less-than-fair cost advantage.

``We hope the DoT does not use this to clean up its balancesheet,'' he said.``The whole thing of the DoT's transition is unclear. It must have clear milestones,'' he added.Spokesman for Birla AT&T Communications, Virat Bhatia a mobile phone service venture involving AT&T and India's Aditya Birla group, said the new policy had addressed high service costs and the need for fair competition and regulation. ``The response, however, could have been more powerful than the policy contains,...'' he added. (Reuters)