| INDUSTRY STRUCTURE
| POLICIES | TELECOM
SERVICES | GLOBAL
SCENARIO | CONCLUSION
end March 2000, with a capacity of 32.6 mn lines and 26.5 mn working connections,
India's telecommunication network ranked among the top 15 national networks
in the world. However, for a country of India's size, with an estimated
population of over a bn and a population growth rate of nearly 1.5% p.a.,
the current all-India telephone density of 2.8 telephone lines per 100
persons compares unfavorably with global benchmarks. The penetration is
nearly 50 per 100 in the US, 10 per 100 in Brazil, with the global average
being 11 per 100. With the present growth rate of about 20% p.a., India's
teledensity is likely to touch only three per 100 by the end of 2002.
represents one of the world's largest, underdeveloped telecom markets.
It has a strong, high-consumption middle-class population of around 300
mn. The current low telephone penetration offers telecom companies substantial
growth potential in India, along with the opportunity to adapt newer technologies
for the feasible and continuing change that is sweeping through the industry
Department of Telecommunication (DoT), now known as Bharat Sanchar Nigam
Ltd. (BSNL), is India's single largest provider of telecom services. Since
1992, when the telecom sector was opened to private players, the main
thrust has been on achieving twin goals-promoting efficiency through competition;
and establishing world-class networks to maximise universal access to
opening up of the telecom sector was greeted with a lot of optimism about
the potential and spread of telecom services. Enthused, many private operators
bid for telecom circles at high licence fees. However, the high investment
requirements were not matched by a corresponding increase in revenues.
With the subscriber base not swelling fast enough, and airtime usage remaining
sluggish, business plans began to fail.
telecom sector is now witnessing renewed interest, with the government
initiating steps to improve infrastructure and increase the penetration
rate. As the Indian telecom sector moves to wireless and data-based communication,
competition and regulatory changes are taking place at a brisk pace and
redefining business strategies. Business models are becoming more flexible
and embracing new ways of doing business. The Indian regulatory authority,
the Telecom Regulatory Authority of India (TRAI), has re-examined old
implementation of the New Telecom Policy (NTP) 1999, which allowed existing
private operators to migrate from fixed-licence fee to a one-time entry
fee plus revenue sharing, has expectedly led to the improvement in project
viability of many basic and cellular service projects. It has set in motion
a rapid and desirable transformation in the sector. There are already
signs of many private operators breaking even and moving towards profits.
the privatisation process has been marred by delays, changes in policy
guidelines, allegations of corruption, and a bureaucratic licensing regime.
As a result, the initial momentum of privatisation appears to have slowed
down considerably. The recent government policy initiative to open up
National Long Distance (NLD) telephony to competition and end VSNL's monopoly
over international long-distance telephony by April 2002 will remove hurdles
(including the availability of bandwidth) and benefit the customer by
improved performance, and a better quality and range of service.
is still a huge wait-list of telephone connections to be provided. The
main reason for this is that private sector participation has not been
up to the government's expectations. Of the 13 licences that have been
granted for basic services, only three have been operational (Hughes Tele.com
in Maharashtra, Bharti Telecom in Madhya Pradesh and Tata Teleservices
in Andhra Pradesh). All the three companies have been unable to meet their
service commitments, and, in most cases, have failed to deliver any service
to the rural areas.
telecom sector is governed by outdated laws such as The Indian Telegraph
Act, 1985 and the Indian Wireless Act, 1933. There is a need to revamp
the existing laws to enable convergence in the sector.
telephone network, which was set up in 1851, was first managed by private
firms. In 1943, the Indian government nationalised the sector. Until 1985,
the Department of Posts and Telegraphs and the Ministry of Communications
administered the telecommunications and postal services. Thereafter, the
two services were separated, and the Department of Telecommunications
(DoT) was created to oversee telecom services.
1986, two government-owned corporations, Mahanagar Telephone Nigam Ltd.
(MTNL) and Videsh Sanchar Nigam Ltd. (VSNL), were established. The former
took over the operations of the telecom and telex networks in Delhi and
Mumbai, while the latter was made responsible for international operations.
on 1 October 2000, the government corporatised the Department of Telecom
Services (DTS) to form Bharat Sanchar Nigam Ltd (BSNL).
9th Five Year Plan Target (1997-2002)
|Microwave & UHF
1984, the manufacture of telecom equipment was exclusively reserved for
government enterprises - Indian Telephone Industries for switching, transmission
and terminal equipment; Hindustan Cables for cable products; and Hindustan
Teleprinters for telex machines and modems. Thereafter, the government
allowed the private sector to enter the manufacture of telephone instruments,
cables, transmission equipment and small switching exchanges developed
by the Centre for the Developmenf of Telecommunications (C-DoT). The manufacture
of large exchanges has also been thrown open to the private sector. At
present, the private sector is allowed to manufacture the entire range
of telecom equipment.
from a few large public and private sector companies, medium-sized units
dominate the industry. The role of the public sector is on the decline
and its presence is mainly in exchanges and transmission hardware. Switching
equipment constitutes nearly 45%, by value, of the total production, followed
by telecom cables and other transmission hardware (38%).
has been a reduction in rates of basic customs duty on several telecom
items. Custom duties on many of the items will be "zero" per cent as per
the WTO agreement.
of customs duty:
|Other optic fibre
|Pager and their
Regulatory Authority of India
is now widely recognised that there is need for a regulatory mechanism
to facilitate competition and enhance efficiency in the telecom sector.
In India, one major problem with the regulatory framework was that the
Department of Telecommunications (DoT) played a dual role of being both
a regulator as well as a service provider. In order to ensure a level
playing field and to separate the functions of DoT (now know as BSNL)
as the regulator and an operator, the government set up an autonomous
regulatory body, the Telecom Regulatory Authority of India (TRAI) in March
was created to arbitrate between DoT and private operators with respect
to licensing issues, technical compatibility and setting up of tariff.
However, since the role of TRAI under the TRAI Act, 1997 was unclear,
protracted litigation ensued. In an effort to remove ambiguities and put
an end to the controversy surrounding the regulatory authority, in January
2000, the government promulgated the TRAI (Amendment) Act, 2000 to reconstitute
the powers of TRAI. The Act redefines the role of TRAI by bifurcating
it into two bodies, one acting as the regulator and the other acting as
the adjudicator, in the form of a tribunal.
ordinance allows the new TRAI to set tariffs and fix terms and conditions
under which the operators can interconnect with others. It also requires
the government to seek recommendations from TRAI before issuing a licence.
The judicial powers were vested with the Telecom Dispute Settlement and
Appellate Tribunal, which will adjudicate appeals of service providers.
Any appeal against the decision of the tribunal can be made only in the
was pushed toward liberalising the telecom sector after a severe fiscal
and balance-of-payments crisis in 1991. Specialised services, including
cellular, were liberalised in December 1991, when bids were invited from
Indian companies for cellular licences in four metros. The licensing process
ran into trouble and, after litigation, licences were finally awarded
in 1994, and services commenced in 1995. The basic telephone service was
liberalised after the announcement of the National Telecommunications
Policy (NTP) in 1994.
1994 policy announced ambitious goals for provision of telephones (20
mn lines by 2000) and also liberalised the telecommunications sector further.
In order to achieve these objectives, the government permitted the entry
of the private sector in basic telecom service, to compete with the DoT/DTS.
Although licences were granted to various operators under the NTP 1994,
private operators were unable to achieve financial closure for various
reasons, including the huge licence fees and the tendering process being
mired in controversy from the outset. This resulted in delays in rollouts
and commissioning of service.
- Telephone on demand
- All villages to
be covered by 1997.
- In urban areas,
a PCO for every 500 persons by 1997.
- Value-added services
available internationally to be made available in India by 1996.
The NTP 94 was considered
to be inadequate in addressing the changes taking place in the telecom
sector. Subsequent events, like the Asian financial crisis and sanctions
by developed countries after the Pokhran nuclear blasts, affected investments
in the sector. In March 1999, the government announced the NTP 1999 in
a move to ensure project viability and accelerate the subscriber base.
However, it emphasised the core objective of achieving high urban and
rural teledensity and world-class service at reasonable prices.
- Allows private
operators (both basic and cellular) to migrate from fixed-licence to
one-time entry fee plus revenue sharing.
- Licence period
to be extended to 20 years and further extendable by 10 more years.
- Competition to
be introduced, with MTNL/DoT being the third operator in areas it wants
to enter. It will issue fresh licence based on bidding for the fourth
- Monopoly over DoT's
domestic NLD service to end on 1 January 2000.
between fixed, cellular and other telecom service operators to be allowed
freely, without obligation to DoT, at mutually determined interconnect
terms from 1 January 2000.
- Existing networks
of public and private transmission companies, the railways, GAIL, IOC,
ONGC and others, will be immediately allowed for use of long-distance
data transmission and long-distance voice communication from 1 January
National long distance
(NLD) service, which was hitherto the monopoly of DoT, has been opened
up to competition. Guidelines for private entry into this service have
decisions have been announced at regular intervals of time. With each
announcement the environment under which existing players operate is changing
rapidly and some of these policies can jeopardise investments. With nearly
five months over since the NLD policy was announced there has not been
a single player applying for a licence.
- NLD Guidelines
- Unlimited entry
for carrying both inter-circle and intra-circle calls.
- Total foreign equity
(including equity of NRIs and international funding agencies) must not
exceed 49%. · Promoters must have a combined net worth of Rs.25 bn.
- Private operators
will have to enter into an arrangement with fixed-service providers
within a circle for traffic between long-distance and short-distance
- Seven years time
frame set for rollout of network, spread over four phases. Any shortfall
in network coverage would result in encashment and forfeiture of bank
guarantee of that phase.
- Private operators
to pay one-time entry fee of Rs.1 bn plus a bank guarantee of Rs.4 bn,
which would be repayed in four phases. The revenue sharing agreement
would be to the extent of 15%.
- Private operators
allowed to set up landing facilities that access submarine cables and
use excess bandwidth available.
- Licence period
would be for 20 years and extendable by 10 years.
schedule for rolling out the network is tight given the problem of getting
the right of way for building a telecom backbone. To add to this, there
is a payment of Rs 1 bn by way of licence fee, and Rs 4 bn as guarantees,
which is refundable if it lays out the network in the stipulated time
frame. There is also the issue of intra-circle call. There is as yet no
clarity on who will carry the call between two cities in the same circle
and how much of the revenue will be shared between the originator and
the terminator of the call.
a decision taken in early September 2000, the government allowed private
telephone operators to carry international voice traffic. This ended the
monopoly of VSNL with effect from April 2002, two years ahead of schedule.
The government offered a range of benefits to VSNL as compensation for
its loss of monopoly. These benefits would include the waiver of the Rs
5 bn licence fee for NLD operation and compensating with a national ISP
inception, reforms in the telecom sector have been hampered by inconsistent
policies that have essentially been at protecting the interests of its
departments. This has forced telecom investors to scale down their strategies
and turn their attention to other promising destinations.
newly formed BSNL (formerly known as DoT) controls the basic telecom service
across India, except in Mumbai and Delhi, where the basic service is provided
by MTNL. In accordance with the NTP 1994, bids were invited for basic
telecom licences in 21 telecom circles (into which the country has been
divided for licensing purposes). Only one operator was allowed in each
telecom circle, to work with DoT.
the bid, 13 licences were issued to private companies, of which only three
are operational. Private basic service companies have commenced operations
in Madhya Pradesh (Bharti Telenet), Andhra Pradesh (Tata Teleservices)
and Maharashtra (Hughes Tele.com). Of the remaining, nine have been caught
up in litigation, while one could end in a re-bid.
second round of liberalisation has begun in the basic telecom service.
The TRAI has recommended to the DoT the grant of 15 new circles and migration
of the existing six operators to revenue sharing arrangement from the
fixed licence fee. The authority has recommended no restriction on the
number of operators.
Demand, Work Connections and Wait List:
basic service providers, like Reliance Telecom and Essar Commvision, are
expected to begin their services shortly. The amount of the licence fee
bid by these companies has proven to be the major deterrent to the financial
closure of their projects. After the inclusion of the revised inter-connection
agreement and the assignability clause, the bankability of the projects
India, value-added services, such as paging and cellular telephony, have
only recently been introduced, and the demand for telecom services continues
to outstrip supply.
services are presently available in 18 circles and four metros. Licences
were issued following competitive bids, after which two licences were
issued to each company. Although mobile telephony has not taken off as
expected, indications are that the number of users is slowly picking up.
Factors like falling call rates (as a result of expanding network), a
slew of value-added services, and the reduction in prices of handsets
have significantly contributed to increased penetration.
in Cellular Subscriptions:
services in India started in September 1995 in the metros and December
1996 in the rest of India. There are eight service providers in the four
metros and 34 in the 18 circles. Of late, cellular subscription has been
growing at a faster pace. The growth has been mainly due to the increasing
subscriber base in the metros, mainly Mumbai and Delhi.
of the reasons for the faster growth in cellular subscription has been
the lowering of tariff rates subsequent to migrating to revenue sharing.
In the Union Budget, the government has announced reduction in rates of
basic custom duties on several telecom items.
cellular market is also likely to witness increased activity once MTNL
and DoT offer such services across the country. As entry barriers get
dismantled, penetration of mobile telephony is likely to improve significantly.
late, mergers and acquisitions (M&A) activities in the sector have reached
a fast pace. The logic driving such M&A activity is that smaller companies
are finding it increasingly difficult to spend huge sums of money in implementing
new technology, as prices of services are falling. The key players in
this sector are the BPL group, Bharti group, Hutchinson group and Birla
uses the Global System of Mobile Communication standard (GSM) for cellular
telecom services. However, certain vexing problems remain, like excessive
interconnection charges, discriminatory pricing, and denial of adequate
share of interconnection benefits.
paging services have been available in Mumbai and Delhi through MTNL since
December 1992. In July 1992, the DoT invited bids for radio paging franchises
in 27 cities, with a maximum of four paging operators allocated to any
one city. As of 1 April 1997, DoT has awarded 106 licences to 19 companies
for the 27 major cities. Sixteen of these licences for three companies
have since been cancelled. According to the statistics available with
DoT, 78 licencees have started commercial services in these cities.
the telecom sector has been one of the most promising sectors. Companies
have been sinking in huge sums of money to develop cutting-edge technology
that would deliver everything from Internet over mobile phones to telephone
services over cable TV. According to certain reports, capital spending
by telephone companies has gone up from $ 42 bn in 1996 to more than $
100 bn in 2000.
the growth in spending has been much higher than the revenues and profits
earned from such spending. If this keeps happening and if revenue growth
falls below expectations, it will be difficult to sustain the productivity
gains that have engineered the current expansion. That will also have
serious repercussions for the global economy.
progress has also been made in optical communication technology, increasing
the capacity of communications systems by staggering amounts. The implications
of all this will be profound, as voice, data and video will be transmitted
at lightning speeds.
shift to revenue sharing arrangement and the improved regulatory environment
have radically improved the investment climate. The big basic and cellular
operators are once again seeking to raise funds from the market (equity
as well as debt). The future will belong to companies who adapt themselves
quickly to changes in technologies. Operators will have to look at value-added
services to improve revenue streams. Customers will be benefited substantially
with increase in competition.
the use of internet picking up and expected to grow at a more rapid pace
in future, the government will have to address the issue affecting various
other player in the sector. The Convergence Bill which is to be introduced
should facilitate in adapting to the emerging business realities.