telecom sector mkt
TRANSCRIPT
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TELECOM SECTOR IN INDIA - CHALLENGES AND
OPPORTUNITIES
External GuideMr. Sanjiv Jain
Director of Galaxy Rent A-Tel Pvt Ltd.
Submitted To
Sumanta Sharma
Submitted By:Prashant AgarwalFW/2004-06/PGPMarketing & H.R.
IIPM, New DelhiThesis ID: DEL/MKT/FW06703
Date: October 2006
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ACKNOWLEDGEMENT
It is well-established fact that behind every achievement lies an
unfathomable sea of gratitude to those who have extended their support and without
whom the project would never have come into existence, without their help the
present work would never have assumed its forms and completion.
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TABLE OF CONTENTS
TopicsPage
SYNOPSIS
Chapter 1
INTRODUCTION
OBJECTIVE
Chapter 2
RESEARCH METHODOLOGY
Chapter 3
CCRITICAL REVIEW OF LITERATURE
Chapter 4
DATA ANALYSIS AND PRESENTATION
RECOMMENDED MARKETING STRATEGIES
Chapter 5
CONCLUSION
RECOMMENDATIONS
REFERENCES
ANNEXURE
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LETTER FOR APPROVAL
Dear Prashant,I have received your synopsis as well as the confirmation that Mr.SanjivJain would guide you through the thesis.This letter is a formal approvalto the topic proposed by you Telecom sector in India - Challenges andOpportunities.Please go ahead with the thesis. Make it a comprehensive thesis byusing empirical data as the basis of the research.Remember to register your topic at the Library (B27) either by goingthere or by forwarding my mail to [email protected] and send methe id number for my records. Furthermore, you are required to send mea total of at least 6 thesis guidance response sheets (I will be mailing theformat once I receive your id number) before the coalescence of thethesis.
Regards,Sumanta SharmaAssociate Dean (Department of Projects)The Indian Institute of Planning & ManagementSatbari Campus
New Delhi 110074Phone: 011 26655080
Dear Prashantpls note down ur thesis id no-DEL/MKT/FW06703,and mail back to sumanta sir for his reference.Anuj Kumar(Librarian)
http://f3mail.rediff.com/bn/compose.cgi?login=prashant_agarwal82&session_id=3L9PK1KJKs8lTXF4BvIzZcavO3iR7IV&FormName=mail_to_individual&[email protected]://f3mail.rediff.com/bn/compose.cgi?login=prashant_agarwal82&session_id=3L9PK1KJKs8lTXF4BvIzZcavO3iR7IV&FormName=mail_to_individual&[email protected] -
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SYNOPSIS
Details of the Student:
Name: Prashant AgarwalBatch: FW/2004-06/PGPSpecialization: Marketing & H.R.Phone No: 9891073410, 9818666438Email: [email protected]
Desired Area of Research:
Telecom Sector.
Title of the thesis:
Telecom sector in India - Challenges and Opportunities
Problem Definition /Hypothesis:
Internet services of VSNL and MTNL..
ISP policy.
The telecom sector suffers from poor technical performance.
Widespread equipment outage, low productivity, chronic unmet demand, and
rampant corruption.
Organization Identity for the Study:
Airtel, Hutch, Idea, Tata Indi-Com, Reliance and MTNL.
Literature relating to the Problem:
The secondary data will be collected from news paper, journals, telecom & business
magazines and internet.
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The primary data will be collected from structured questionnaires which are requiredto be filled up by the persons who are facilitating the services of this industry.
Objective of Thesis:
To understand what are the opportunities and scope of telecom sector. Moreoverwhat they are doing in order to serve their customers, clients as well as future
prospects in better and in most effective manner, which in turn help them inincreasing their market share, and profitability by providing value for money &desired quality of service to their customers. Moreover projection of customersneed well in advance and using proper medium to communicate & educate theircustomers to make maximum use of available services and offers..
Studying how telecom sector is generating revenue by providing various valueadded service such as GPRS, Caller tunes, ring tones, wallpapers, and other valueadded services. To study and review the various marketing strategies of various
players present in the telecom industry. Also to compare and contrast the profiles ofcompanies and market segment captured by them.
Scope of your thesis work:
The reason for selecting the topic is that I am working in the telecom sector &moreover this sector is one of the fastest growing sectors of service industry inIndia. This sector is growing very fast as compared to the other sectors, & at thesame time lot of opportunities, and expectation came from the customers to provideexcellent service in less cost.
Threats:
Increasing competition and decreased profit margins due to drastic reduction in thecall rates.
Information Source:
I will collect primary and secondary data for the thesis. I will collect primary data byvisiting various reputed organizations like Airtel, Hutch, Reliance, etc.
Research Methodology:
Qualitative Research Design.
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Primary Sources:
Questionnaires.
In-depth Interviews of cellular service providers.
Secondary Sources:
News papers.
Journals.
Articles.
Telecom & business magazines.
Internet.
Details of the External Guide:
Name of the concerned person: Mr. Sanjiv Jain
Qualification: Post Graduate Diploma in Marketing & Brand management.
Designation: Director of Galaxy Rent A-Tel Pvt Ltd.
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CHAPTER-1
INTRODUCTION TO THE INDIAN TELECOM SECTOR
1.1 History
The British government introduced telecommunications services in India in 1851
near Calcutta by as a means of providing defense, law and order, general
administration, and revenue collection. Since that time, telecommunications has
played a critical role in shaping Indias march toward progress, and the importance it
holds for the future of India cannot be overstated. Telecommunications in India were
introduced only 5 years after Alexander Graham Bell invented telephones in 1881;
British firms introduced POTS (plain old telephone services) into the colony. By the
time India was independent in 1947, the country had 321 switching centers
(telephone exchanges) in urban areas and a tele-density of 0.25 phones per thousand
people. During the state-led planned economic policies till the mid 1980s, the
government controlled all aspects of the telecommunications sector through the
ministry of Posts and Telegraph as a natural monopoly.. After the Public Accounts
Committee of the Lok Sabha recommended a complete overhaul of
telecommunications, which was working in a most unsatisfactory manner in 1985,
a long sought re-organization was undertaken in 1986 to split the public postal and
telecom operations into separate departments.
Until 1985 India's telecom sector was a typical PTT model. The Ministry of Posts
and Telegraphs and its department controlled the posts and telecom services and
infrastructure. The sector was mainly governed by theIndian Telegraph Act of 1885.
In 1985 postal services were separated from telecom, and the Ministry of
Communications and its Department of Telecommunications (DOT) were assigned
powers including manufacturing equipment, policymaking, providing services and
creating infrastructure.. The government did not give priority to the development of
this sector. The national five-year Plans show that until 1985, the government's
investment in the telecom sector was less than three per cent; it was only from 1992
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onwards that government spending increased to 11.9 per cent and more. It was only
in the early eighties, with technological advancements and international
developments, that the government took initiatives to move from the closed-
economy ideology towards more market-oriented reforms. The information
technology policy focused on the export of software and computers. To achieve this
goal, tariffs were lowered on imported goods and direct access to imported
equipment and technologies was allowed.
However, in the case of telecommunications, the government's approach was half-
hearted. The government was reluctant to break the dominance of DOT or let go of
its own powers. In 1984, overcoming resistance from DOT, the government was
successful in allowing private investment in the manufacture of customer premise
equipment. The government franchised public call offices and also set up two new
companies. Mahanagar Telephone Nigam Limited (MTNL), a mostly government
owned company which offered basic services in Delhi and Bombay, and Videsh
Sanchar Nigam Limited (VSNL), which offered international long-distance services.
Although these initiatives proved to be positive, they could not bridge the
overwhelming demand for infrastructure and services. Advancement of
technologies, international agencies such as the World Bank and trade blocks
(OECD), drew attention of the Indian government to the urgent need to develop the
telecom sector, as a means of overall economic development. The government
responded by constituting independent telecom reconstruction committees (for
instance, Artherya committee) for taking advice.
1.2 Recent Developments
India's 21.59 million-line telephone network is one of the largest in the world and
the 3rd largest among emerging economies (after China and Republic of Korea).
Given the low telephone penetration rate - 2.2 per 100 people of population, which
is much below the global average, India offers vast scope for growth. It is therefore
not surprising that India has one of the fastest growing telecommunication systems
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in the world with system size (total connections) growing at an average of more than
20 percent over the last 4 years.
The Indian economy is currently undergoing a structural shift. The production of
merchandise such as agriculture and manufactured products are contributing a
smaller share of economic output, while contribution of the service sector is
growing. The service sector in India today accounts for more than 48% of economic
activity and is likely to grow at the rate of 8% per annum. A majority of service
workers are engaged in the creation, processing and distribution of information. The
telecom sector therefore assumes major importance as an enabling infrastructure.
Accordingly, it is vital for the country that there be a comprehensive and forward
looking telecommunications policy which creates a suitable framework for
development of this service industry. The availability of infrastructure for
electronically transferring and accessing information is perceived as critical for
hastening the realization of economic, social and cultural benefits as well as for
conferring competitive advantage.
The telecom sector in India has witnessed rapid changes in the last five years. There
have been far reaching developments in Information Technology (IT), consumer
electronics and media industries across the globe. Convergence of both markets and
technologies is a reality that is forcing realignment of the industry. At one level,
telephone and broadcasting industries are entering each other's markets, while at
another level, technology is blurring the difference between different conduit
systems such as wireline and wireless. As in the case of most countries, separate
licenses have been issued in India for Basic, Cellular, Internet Service Providers,
satellite and cable TV operators, each with a distinct industry structure, terms of
entry, and varying requirement to create infrastructure. However, this convergence
that now allows operators to use their facilities to deliver some services reserved for
other operators, necessitated a re-look into the existing policy framework.
For the country to grow and create a place for itself in the international arena, it was
felt that the infrastructure needs to be built and maintained, wherein the role of
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telecom was indisputably very crucial. The government in this direction announced
the National Telecom Policy in 1994 (NTP 94). This provided for opening up the
telecom sector to competition in Basic Services as well as Value Added Services
like Cellular Mobile Services, Radio Paging, VSAT Services etc. It also set target
for provision of telephone on demand and opening up of long distance telephony.
This was followed by a New Telecom Policy declaration in March 1999 (NTP 99),
to remove some of the bottlenecks and move the liberalization process forward.
In Y2K, India has a population of over a billion, but only 27 million telephones. This
translates into a tele -density of 2.7 phones per 100 people. By 2005, the government
according to its National Telecom Policy 1999 (NTP99) wants to increase this tele -
density to 7 and double it to 15 by 2010. Currently just over 50 per cent or 374,695
villages out of a total 600,000 villages are connected to the world by the telephone. The
government wants to connect the rest by 2002 and increase rural tele -density eight-fold
by 2010, from the current 0.5 to 4 phones per 100 people. To this end, the Indian
government has given up its state monopoly and introduced competition to spur the
growth rate of telecom in all areas. Foreign companies have also been encouraged to
invest in the telecom sector and ownership guidelines have been liberalized. While
the ownership has been restricted to 49 per cent in the telecom services like basic
telephony, cellular, paging and Internet service providers (though companies like
Orange, the cellular operator in Mumbai have been able to get around this restriction
with ease: foreign companies are allowed to own up to 74 per cent in
communication satellite companies and wholly own manufacturing operations. The
initiatives form part of the economic liberalization policies followed by the
government since 1991 when a chronic shortage of capital, a ballooning fiscal deficit
and a precarious position of external reserves led to the start of Indias economic
reforms. The expectation was that new influx of private capital along with gains of
efficiency from competition would help accelerate economic growth. But results so far,
at best have been mixed. After the initial euphoria of liberalization, the Indian economy
slipped into recession by 1995. Annual GDP growth rates fell as the government, by and
large, withdrew as an investor in the economy while the private sector failed to step into
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fill the investment gap. It has only managed to recover since 1998 on the back of strong
agricultural growth and a pick up in industrial demand subsequently.
1.3 Existing Structure of Telecom Sector
Telecommunications was not perceived as one of the key infrastructures for rapid
economic development during the formative years of the Indian economy. The low
levels of investment in this sector have affected the quality, quantity and range of
services provided. In 1998, Indian Telephone density per 100 persons was 2.2 while
the world average was 14.26. For the provision of basic services, the entire country
is divided into 21 telecom circles, excluding Delhi and Mumbai. Department of
Telecom Service (DTS) provides basic services in the 21 telecom circles, while
Mahanagar Telephone Nigam Limited (MTNL) serves Delhi and Mumbai. Six
private licenses have been issued for the provision of basic services, out of which
only three have commenced services at present.
Private participation in the cellular mobile market, on the other hand, has been
comparatively more successful. Eight cellular licenses, two in each of the metros
were awarded in October 1994. Subsequently bidding resulted in the award of
licenses in 18 Circles. As many as 137 licenses (of which 93 licenses were actually
operational by December 98) have been issued for providing radio paging services
for which bids were invited in two stages, first for 27 large cities (which had a
population of over one million) and in the second round for 19 Telecom Circles. The
number of licensees selected for each area range from two to four.
1.4 Indian Cellular Market Overview
Indian cellular market is poised to grow at CAGR (compounded annual growth rate)
46 percent for next five years, the best in Asia-Pacific region and subscriber base
will touch 44 million by 2006.
Cellular Telephony will be frontrunner in the growth of Indian telecom sector,
which will be amongst those countries witnessing fastest growth till 2006. Telecom
services worldwide would witness growth of over 5 percent in 2003.
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Gartner predicted. Gartner said the growth rate would be even ahead of China in
percentage terms. The subscriber base currently pegged at 8 million will grow to 44
million by 2006. There will be entry of new players, which will not only lower the
price points but will also help broaden the market with innovative product offerings
and solutions. Basic services will continue to play a key role in increasing tele
density. Revenues from fixed telecommunication services will grow at a CAGR of
15 percent in the next 5 years from current $ 6.9 billion to $ 14 billion.
Cellular Operators Association of India (COAI) The Cellular Operators Association
of India (COAI) was instituted in 1995 as a registered, non-profit, non-governmental
society dedicated to the advancement of communication - in particular of modern
communication through Cellular Mobile Telephone Services. It seeks to establish
and sustain a world-class cellular infrastructure and deliver the benefits of affordable
mobile communication services to the people of India. Indian cellular subscriber
base has jumped 9-fold in four years. But they are still way behind in terms of
minutes of usage. Average market figures suggest that while the number of cellular
subscribers has increased 1817 percent between April '98-02, the minutes of usage
for post-paid cell users has risen by around 331 percent and that of pre-paid has
increased 220 percent. These are substantiated by Telecom regulatory Authority of
India (TRAI) figures, which suggest the growth of minutes of usage for post-paid
cellular users has gone up from 119 minutes per month per subscriber (MMS) in
April '98 to 394 MMS in April '02. A rise of about 331 percent. According to
Cellular Operators Association of India (COAI), the total number of cellular
subscribers has grown from 9, 13,869 in April '98 to 81, 70,575 in August '02, a
whopping 900 percent rise.
If current trend is any indication, penetration numbers may portray wireless
telephony as a pygmy compared to wireline (or fixed line) telephony, but looking at
incremental figures one gets the real picture of what's going on in the local
telephone market. India is fast going wireless. Wireless telephony, mobile and
limited mobility, is snatching a rapidly increasing share of incremental telephoneconnections in India. And the financial year ending March '03 may well be a
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watershed for wireless telephony. According to market sources, numbers indicate
that in '02-03, wireless may garner over 50% share of new connections.
So far, wireline has been much ahead of wireless in both new connections and, of
course, penetration. In the year gone by, year ending March '02, wireless got just
about 34% of new connections. Wireless penetration was just 15% of total phone
connections in India. A year before that, as on end-March '01, wireless penetration
was just under 10%.
The industry is considered as having the highest potential for investment in India.
The growth in demand for telecom services in India is not limited to basic telephone
services. India has witnessed rapid growth in cellular, radio paging, value-added
services, internet and global mobile communication by satellite (GMPCS) services.
This is expected to soar in the next few years.
Recognizing that the telecom sector is one of the prime movers of the economy, the
Government's regulatory and policy initiatives have also been directed towards
establishing a world class telecommunications infrastructure in India.
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CHAPTER-2
LIBERALIZATION OF THE TELECOM SECTOR2.1 Introduction
Like many other sectors, the telecom sector too continued to enjoy government
monopoly so long as the basic telephone services were under the control of the
government. It was the National Telecom Policy of 1994 that paved the way for
private-sector participation and funding to achieve the aim of universal coverage of
telephone services at affordable prices. Since then, a number of private companies
have been given the license to provide various value-added services in the country.
The TRAI (Telecom Regulatory Authority of India) was established to act as an
independent regulatory body to protect and promote the interests of consumers and
to ensure fair competition. The government also accorded the status of an
infrastructure sector to the telecom industry, making it eligible for all fiscal benefits
that are enjoyed by other infrastructure sectors. There are two major government-
controlled companies in the telecom business, namely MTNL (Mahanagar
Telephone Nigam Limited) and VSNL (Videsh Sanchar Nigam Ltd). The MTNL
provides basic telecom services in Mumbai and Delhi. Services in the rest of country
are provided by the DoT/DTS Department of Telecommunications / Department of
Telecom Services). The VSNL enjoys sole control over international telephony as
all incoming and outgoing international calls are routed through its gateways. The
VSNL also provides such value-added services as gateway packet data transmission,
electronic data interchange, online data search, Internet, Inmarsat (International
Maritime Satellite) mobile services, satellite uplinking, private leased channels, and
video conferencing. Because of its hold over international telephony, the tariff for
incoming and outgoing calls has remained high in the absence of any competition.
Contrary to these, international call rates are declining globally with rising tariff
volumes, increased capacities, and improved transmission technology. The telecom
sector is witnessing a breakdown of most of the monopolies in favor of market-
controlled players, as huge investments are needed to construct a backbone access
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network. The VSNL, according to an earlier plan, was to remain insulated from
competition until 2004. The governments decision to allow many foreign or
domestic companies would only result in lowering the international call rates due to
increased competition in the satellite gateways business. It is difficult to envisage
the impact of the governments decision on consumers in the short run. But what
would interest the common man would be improved services in basic telephony by
the introduction of competition, which ensures the fulfilment of universal service
obligation to one and all.
After the 1991 Economic Policy made a shift from a closed economic model to a
market-oriented model, private sector was invited to participate in reforming India's
telecom sector. However, the government took a half-hearted approach in
overhauling the legal and regulatory regime. Competition was allowed in cellular
and basic services. The Ministry of Communications and the incumbent Department
of Telecommunications (DOT) issued licenses to their competitors. Lack of
transparency in issuing licenses and unrealistic license fees derailed the reform
process and led to wasteful litigation. The courts did not support the regulator and
virtually made its role redundant. After the elections in 1999, the telecom sector
was the key sector in which major decisions were made. The DOT's service arm
was corporatized and the government decided to privatize its international long-
distance carrier, Videsh Sanchar Nigam Ltd. (VSNL), before 2002. It decided to
introduce more competition in cellular, basic and domestic long-distance services.
2.2 Private Sector Participation in Mobile Telecommunication
In 1992, competition was allowed in cellular mobile services. However, the
government failed to overhaul the legal and regulatory regime to suit the
competition process, and the antique 1885 Actwas left in place to govern the new
competitive era. The Ministry of Communications and the DOT became responsible
for issuing and regulating licenses to new entrants in Delhi, Mumbai, Chennai and
Calcutta. Two private operators were allowed to compete in these four major cities.
Although the liberalization process had a rough start, it was clear that the Indian
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market was huge and therefore had great potential to draw private investment. The
DOT, in May 1993, asked the leading Indian financial institution, Industrial Credit
and Investment Corporation of India (ICICI) to prepare a report on the development
of regulatory institution and to recommend terms and conditions for the private
sector entry in basic services.
In an emerging economy, great amounts of discretion lie with the sector
managers of the government, which, in India, lies with the Ministry of
Communications [in practice, coextensive with the DOT]. If such discretion is
unlimited or unrestrained and vests in a single person or office at any time, it is
unlikely to command the level of comfort which is mandatory for attracting
substantial private investment. The discretion should be so hedged that the
decision-making process becomes tolerably predictable and reliable. and
transparent. The investor would rather go by the written law. than be guided by
platitudes and pronouncements of the decision-maker. Thus, until the law is
formally changed. the value of the investment opportunity will be dismissed.
Subsequent to the announcement of the policies, auctions were held for cellular
licenses in 20 states in December 1994 and for basic services in January 1995 .The
first round of the basic service (wire line) auction attracted 80 bids for 40 licenses
from 16 companies. In 7 of the circles (Delhi, Haryana, Karnataka) Maharashtra,
Orissa, Rajasthan, and Uttar Pradesh West), the bids followed some level of
rationality. In circles where an unknown Indian company Himachal Futuristic
communications Ltd (HFCL) was the highest bidder, they realized that they were
subject to the well known winners curse. The total license fee for which HFCL
bid was much higher than any of the bids of the second placed bidders, and virtually
more than all the other bids put together. Thus, the government was forced to call
for a second round of bidding because HFCL backed out of following through on the
bids; also, many circles received either one bid or no bids. In January 1996, the DOT
initiated a fresh rounding of bidding for thirteen circles in the basic sector. Caution
among the players and the lack of credibility about the outcome of auction led toonly six bids. Further, because the more lucrative (grade A) circles had been
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awarded in the first round, the only circles left for bidding were the less lucrative
circles, and those in which HFCL reneged where the government specified a
minimum bid which was considered too high by the bidders. In seven circles the
earlier bids were too low or there were no takers. For six circles certain successful
bidders were eliminated by a subsequent change in DOTs policy of limiting
licenses to three circles for each bidder. Finally, bidders for 13 circles were selected
with eight circles drawing no takers. In the telecom sector, the total foreign direct
investment was 43.13 billion rupees in the period 1993 to June 2000 or less than a
billion US dollars. The reticence of the private sector, especially foreign companies,
to invest large amounts of capital into infrastructure sectors like telecom can largely
be traced to failings of government and regulatory policy. But moving from a
control mindset to a regulatory one has not been easy for the Indian government.
2.3 Critical View of the Liberalization Efforts
A large part of problems in liberalizing Indias economy have arisen from the states
inability even unwillingness - to give up control of the sectors it has liberalized.
Thus while more independent regulators have been set up in the last four years than
the number of general elections India has had, most regulators are independent only
in name.
The role of a regulator is to advise the ministry on policy, solve disputes among
service providers and ensure that the rules and regulations governing business are
followed. It is also the agency to intervene in case market failures take place and
protect consumer interests. The crux of the problem has been that the state and itsassociated agencies like the bureaucracy, long used to exercising control, have been
unable to build a regulatory structure that provides credible commitment against the
exercise of arbitrary discretion by the state and changes in regulatory environment.
The Indian government has devised various methods to keep control over a
particular sector, even after an independent regulator has been appointed.
Legislation governing these new institutions has been often poorly worded,
ambiguously framed and open to legal challenge by the state entities. The telecom
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sector has been in a mess till February 2000 because of inherent conflicts between
the Telecom Regulatory Authority Act, which was passed to create the independent
regulator for the sector, and the Indian Telegraph Act of 1885, which provides the
legal framework for the telecommunications sector.
In some sectors like capital market, decisions of independent regulators are appealed
to a government ministry. In the telecom sector, the state, that is, the Department of
Telecommunications, DoT, refused to submit to the jurisdiction of the regulator till
the judicial authority was removed from the regulator with the appointment of a
separate disputes and appellate tribunal. It did so by litigating against every decision
made by the regulator in the civil courts. The independent regulators are routinely
staffed with bureaucrats. None of the existing regulators are headed by anyone other
than former bureaucrats and judges, who help perpetuate the mind-set of control
over regulation. Besides, in areas like telecom and the Internet, keeping up with
technology changes is imperative, but there are few signs of technical experts or
private sector executives among the regulators. Many of the problems of the telecom
sector have arisen because of the multitude of roles played by the state. These
conflicts have been highlighted in the context of the sector switching from a regime
of government control to competitive and regulated one. The telecom sector, in
particular, has suffered from confused government policy and ineffective regulation,
not least because state-owned companies and departments remain the largest players
in this sector. These companies have not responded well to the threat of competition
and therefore policies have been seemingly framed or changed to further the
interests of the state. Though an independent regulator has been created, the
institution has already had a complete makeover because many of regulators
decisions went against the wishes of the state players. Indeed, at the end of a decade
of reforms, the state remains the largest player in the telecom industry and its role is
only increasing as state-owned companies enter new businesses like cellular
telephony, Internet access and broadband data networks. While many of the
problems associated with the telecom policy have been resolved with the NTP 99,
several questions about the role of the state-owned service provider cum policy
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maker remain. These uncertainties and lack of a strong regulatory infrastructure
mean that the spread of private telecom services has been limited only to the more
populous urban clusters in the country.
Moreover, government policy has segmented the telecom sector into a series of
different services like basic, cellular, ISP, paging, Internet and radio-trunking. This
goes against the grain of the sector where convergence of voice data images and
video technologies is forcing regulators in other parts of the world to take a holistic
view.
2.4 Competition in Services
After having a consultation process for allowing competition in basic, cellular and
long-distance service TRAI had recommended unlimited competition in basic and
domestic long-distance service. However, taking into consideration spectrum
limitations, it recommended a fourth cellular player be introduced in the 21 circles.
On August 15, 2000, the government accepted TRAI's recommendations foropening unlimited competition in domestic long-distance services. So far, apart from
the government's BSNL and VSNL companies, two private companies who received
a green signal from the government are Bharati Group and Reliance Industries
limited. These companies are dominant players in the basic, cellular and Internet and
are extensively deploying fiber optic infrastructure in various states.
2.5 The Role of the Private Sector
Many foreign telecommunications companies participated in the bidding for the
right to offer basic (wire line) telephony in India. The main attraction was the then
widely used number of 250 million middle class potential customers, and the
waiting list of more than 3 million. Companies that bid included multinational like
AT&T, US West, Bell Atlantic, Nynex (at that time a separate company), NTT, and
Bell Canada, and small ones like Bezeq of Israel, and Shinawatra of Thailand. Their
Indian partners included the Tatas, the Birlas, RPG, Reliance, BPL, Essar, ShyamTelecom and Himachal Futuristic Communications Limited (HFCL). However,
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disillusioned by the governments terrible handling of the telecom services
deregulation, several international telecom giants had by 1999, pulled out of India.
While Bell Canada and Swisscom have withdrawn from India for good, US
companies like AT&T and US West have frozen fresh investments blaming
unfriendly telecom policies, particularly high license fee outflows and the lack of
a powerful regulator. Moreover, many south East Asian telecom operators also
pulled out after 1996 in the aftermath of the South East Asian currency crisis, which
reduced their ability to invest in other countries.
It is difficult to say who is to blame for the auctions fiasco, where firms bid huge
amounts and then realized that these fees did not match with their predictions of
demand and usage. The DoT itself gave indications as to the size of the market,
especially in regard to basic telephones, because it alone had knowledge of how
demand grew and how much it would be in the light of its experience of over 100
years. Nevertheless, the Indian firms participating in the auction had no prior
telecom experience, while the foreign partners knew the business, but little about
Indian market conditions or the usage patterns of consumers. For the government of
India, despite the problems of the auctions and the unrealistic high bids, the cellular
licenses raised over $7 billion. However, this method of licensing though a single
sealed bid auction without any information of the selection criteria has led to many
problems in the cellular sector. There is little doubt that the bidders overestimated
revenues and demand patterns. However, the high license fees, which formed 50 per
cent of the total rollout cost for a cellular operator, led to high tariffs for the
consumers. This in turn impacted demand for these services. Moreover, the license
fees had to be paid up front every year. That is, it did not matter whether the new
operators had a network, subscribers, traffic or revenues, but they had to pay an up
front fixed fee to the government every year. Given the high sunken cost of initial
investment, the lower than expected subscriber base and the high license fees,
cellular operators in India, with the exception of those in Mumbai and New Delhi
markets have been posting losses from the outset. In 1999, the cellular telephone
industry was posting losses worth $92 million every month. Industry experts say that
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overestimation of market size and usage was the main culprit with companies, which
had projected 300 minutes of usage, could get subscribers to barely talk for 100
minutes in a month. Besides, average revenue per user was only $23 compared to
projections, which had ranged between $41 and $58 per month. As a result by July
1999 cellular companies and the six basic services license holders owed almost $900
million in license fees to the government and many had decided to exit the business
completely. One main problem of the telecom sectors licensing policy that was
pointed out was that the licensor was the incumbent operator. By contrast, when the
electricity generating business was also thrown open to the private sector, operators
were not required to pay a license fee; some received guaranteed prices and fixed
quantities which the incumbent state electricity company would have to buy.
Moreover, the state electricity boards did not license the new producers of power. In
the telecom sector, the incumbent DoT, which was deprived of its lines of business
in the value added services, was entrusted to license rivals to itself, even for basic
telephone services.
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CHAPTER-3
REGULATORY FRAMEWORK
3.1 Introduction
It becomes immensely important to understand the regulatory framework in which
the telecom sector is entitled to operate. Although the pace of reform, now, have
gained momentum, the regulatory framework to deal with the increased level of
telecommunicationization of the Indian economy should not be found wanting to
deal with any such situation. It also becomes important from the point of view of
this study that this particular aspect should be mentioned in brief, since it provides
the basis for comment on the state of the present day realities in the telecom sector.
Following are the major governing laws for the telecom sector:
(a) The Indian Telegraph Act 1885.
(b) The Indian Wireless Telegraphy Act 1933.
(c) The Telegraph Wires (Unlawful possession) Act 1950.
(d) The Telecom Regulatory Authority of India Act 1997.
(e) The Cable Television Networks (Regulation) Act 1995.
The Regulatory framework consists of two bodies viz., Telecom Regulatory
Authority of India (TRAI) and Telecom Dispute Settlement and Appellants Tribunal
(TDSAT). The role of TRAI is to make recommendations, either suo motu or on a
request from the licensor, on the following matters, namely:-
i. Need and timing for introduction of new service provider;
ii. Terms and conditions of license to a service provider;
iii. Revocation of license for non-compliance of terms and conditions of license:
iv. Measures to facilitate competition and promote efficiency in the operation of
telecommunication services so as to facilitate growth in such services.
v. Technological improvements in the services provided by the service
providers.
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vi. Type of equipment to be used by the service providers after inspection of
equipment used in the network.
vii. Measures for the development of telecommunication technology and any
other matter relatable to telecommunication industry in general;
viii. Efficient management of available spectrum;
The role of the tribunal (TDSAT) shall be as follows:
a. Adjudicate any dispute -
b. Between a licensor and a licensee;
c. Between two or more service providers;
d. Between a service provider and a group of consumers:
e. Hear and dispose of appeal against any direction, decision or order of the
f. Authority under this Act.
3.2 The Telecom Regulatory Authority of India Act, 1997 (TRAI Act)
The enactment of the TRAI Act was also a long delayed legislative process. In the
view of an independent consultant who participated in the drafting exercise, Mahesh
Uppal: to suggest, even indirectly, that the government had, at that time [of drafting
the TRAI Act], a clear idea of what it was that it wanted the TRAI to achieve, is
stretching credibility.
India's telecom regime was schizophrenic during the period of drafting and
redrafting of the TRAI Act and indeed much of the period before that. At virtually
every stage of the process, there were controversies. The creation of the new
independent regulatory agency was a significant episode, perhaps ultimately a
defining one. TRAI was not given responsibility to issue and revoke licenses, but
only to recommend them. It had responsibility to fix tariffs and resolve disputes. The
DOT surrendered its regulatory role in principle, though it still retained policy-
making, licensing, and operative powers within the same organizational boundaries
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3.3 Overhauling Legal and Regulatory Framework
3.3(a) Amendments to the TRAI Act of 1997
Soon after the GTCR was formed and the sub-groups were created, they sprang into
action to overhaul the legal and regulatory regime and to expedite the
implementation of the 1999 policy. On the recommendations of the sub-group
headed by Information and Broadcasting Minister Arun Jailey to amend the TRAI
Act of 1997, the parliament amended the Act in March 2000. TRAI's regulatory role
was split from dispute settlement.
The new TRAI, with two full time members and two part time, is responsible for
recommending the introduction of new service providers, technological
improvements, quality standards, and fixing the terms and conditions of licenses. It
is mandatory for the government to seek TRAI's recommendations, although it will
not necessarily accept them. The newly constituted Telecom Dispute Settlement and
Appellate Tribunal (TDSAT) is empowered by a chairperson to have a one or two
member bench to adjudicate disputes between a licensor and a licensee, service
providers and between a service provider and a group of consumers. Decisions ofthe Tribunal can be challenged only in the Supreme Court
3.4 Main Functions Entrusted to Telecom Regulatory Authority of India
To ensure technical compatibility and effective interconnection between
different operators and service providers
Regulate the revenue sharing arrangement between different service
providers
To lay down and ensure time frames for making available local and long
distance DoT circuits between service providers
To protect consumer interests through monitoring of service quality
standards
To ensure compliance of license conditions, universal service obligations and
the stated
Overall pricing policy by all operators and service providers
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To levy fees and other charges and to make regulations in that behalf
To settle disputes between service providers
To fix tariff for telecom service and ensure price regulation
To render advice to the government in the national context on technology
options, service, provision and other allied matters concerned with telecom
Any other matter referred to it by the government
TRAI is to exercise recommendatory functions on the need and timing for
introduction of new service provider and the terms and conditions oflicense to a service provider. In the exercise of its powers and the
performance of its functions, TRAI shall be bound by directions on
questions of policy given by the Government. TRAI is vested with
judicial authority and powers. Appeals against its decisions will lie with
the High Court.
3.5 General Principles for Regulators
According to Noll, all regulatory processes are inherently conflictual and
participants in the regulatory process will seek to influence the process to their own
advantage in any way that is available to them. Submitting information that supports
a favorable decision is one way of exercising influence. Another is to seek
intervention by political allies.
There are primarily two problems for regulators in developing countries. One is the
problem of regulatory capture where the regulator allows the regulated firms to
charge high prices, earn high profits and provide low quality service. The other is
expropriation. This can arise from two reasons: user groups may either be well
organized in the regulatory process and cause service to be provided below cost or
an election may cause political pressure to be placed on regulators to favour users
against suppliers. Noll suggest that the solution to both capture and expropriation is
the same. This is to construct a regulatory agency that it unlikely to be influenced by
any particular interests. First, the personnel of regulatory agencies should be
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heterogeneous and stable and short-term changes in the political control of
government should not cause dramatic swings in the composition of the agency.
Moreover, the careers of regulators should be secure and remunerative enough so
that regulators are not constantly seeking other employment. The British and
Japanese systems have professionals who are the regulatory authorities but policy
authority rests with cabinet of ministers, and seek to achieve independence by giving
more authority to civil servants. Second, the regulator can be given independent
authority to generate information and even resources to represent interests that
otherwise are not organized to participate in its processes. Third, the regulator
should be subject to openness requirements so that the agency conducts all business
in public, refrains from secret contacts with interested parties and not only gives
indications of decisions it is likely to make but the reasoning behind that decision.
Openness forces regulators to reveal informational basis for their decision and is
therefore useful for revealing whether the agencys decision is biased and
unsupported by facts. Fourth, the decisions of the regulator can be subject to
review by another body that is freer of representation biases, especially biases
affecting participation in the agencys processes, at the instigation of anyone who is
dissatisfied with a decision. Levy and Spiller suggested that the most common
reviewing body is a general-purpose court that itself is politically independent and
diverse in composition.
3.6 The Telecom Policy 1994
The 1994 policy totally dismissed privatization of incumbent companies and made it
clear that the much- needed private foreign investment will supplement DOT's
efforts in spreading basic telephony. The policy was unrealistic as it failed to clearly
define how universal access and service goals were to be achieved. On one hand, it
admitted that India had 0.8 per cent of teledensity; on the other, it stated that the
telephone would be provided on demand by 1997. It allowed competition in basic
services by way of duopoly in each state (called circles) and allowed foreign
companies to partner with Indian counterparts to compete with DOT in 20 circles.
However, implementation of the policy was left in the hands of the incumbent DOT.
In August 1995, the first eight cellular licensees in four metropolitan cities began
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commercial services. In late 1995, the DOT and the Ministry issued about three
dozen licenses to cellular operators in all other provinces of India.
The controversy and delay in awarding basic service licenses led only six companies
to take licenses in offering services in only few states. For the remaining states there
was no company ready to match the unrealistic reserve- price, which the ministry
and DOT had fixed. Moreover, the companies who had taken licenses later failed to
fulfill their license conditions as their business plans were flawed. They also had
serious claims against the government and its agencies, especially DOT, for not
giving timely clearances in order for them to start their commercial operations on
time. Both cellular and basic service operators had committed to unrealistic license
fees and were struggling to survive in the Indian market. They owed almost $873
million to the government towards their outstanding license fees. By 1999, only two
basic service operators were able to offer services in two provinces and they had few
subscribers; the cellular operators had signed only one million subscribers.
Therefore, to a certain extent, these companies, in going along with government's
ineptitude to some extent were responsible for delaying needed reforms.
The National Telecom Policy, which was in the works since 1990 was finally
announced in May 1994. The National Telecom Policy of 1994, only envisaged a
supplementary role for the private sector to the DoTs national efforts. However, the
NTP 1994 did take liberalization forward by introducing competition in basic
services and throwing the sector open to private sector firms. NTP 94 spelt out five
basic objectives of which two objectives of availability of telephone on demand and
universal service (connecting all villages) were targeted to be realized by 1997. Both
of these objectives have remained unrealized. In regard to quality of service,
matching "world standard" and providing "widest possible range of services" "at
reasonable prices" were stated aims. Two other objectives were to make the country
a major manufacturing base and exporter of telecom equipment and to ensure the
country's defense and security needs. (The powers of licensing and spectrum
management were retained by the Government on the ground that both need to be
strictly monitored in order to protect the strategic interests and security of the
country). There were serious gaps in the policy document as regards provision of a
suitable environment for entry of private service provider and on the issue of
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regulation. The 1994 policy was designed with the approach that services should
continue to be provided largely by a strong incumbent that faced little competition..
In addition, while major targets were specified in NTP 94, an accurate assessment of
the underlying resource requirements was not done. For example, to realize the
enunciated objectives, an estimated Rs. 230 billion of additional resources were
required. A need for private sector contribution to the effort was clearly recognized,
but various implementation problems including incomplete reforms, mitigated the
efforts to achieve the targets. Meanwhile, convergence arising due to changes in
technology and the overall market structure for service provision had changed and
there was a need to provide fresh directions through another policy.
3.7 National Telecommunication Policy 1999
Faced with a situation where investments in the sector were at a standstill and
private companies were no longer interested unless the rules of the game were
changed and the role of the referee made clearer, the government embarked on a
series of policy changes aimed at solving the problems of the sector. The
government decided to implement a new National Telecom Policy in 1999, which
apart from setting the ambitious targets for universal coverage and tele - densities,
also allowed the private sector operators in the telecommunication service providers
to shift from a license fee regime to a revenue sharing one.
3.7(a) Primary Objectives Of The NTP99:
Provision of universal service to all uncovered areas, including rural areas
Create a modern telecom infrastructure taking into account the convergence
of IT, media, telecom
Transform telecom sector to a competitive environment providing equal
opportunities and level playing field for all players In the best traditions of
Indian planning, NTP99 also set several landmarks and targets to be
achieved in the next ten years.
Telephone on demand by the year 2002
Tele-density of 7 by 2005 and 15 by 2010
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Telecom coverage of all villages by 2002 5
Increase rural tele -density from 0.5 to 4 by 20105
Internet access to all district head quarters by October 20005
Internet access to all villages by 20025
(As per the available information, all the above targets have not been fully achieved,
except telephone on demand in metros, but considerable progress has been made in
other areas)
As per the revenue sharing regime, companies would have to pay 15 per cent of their
total revenues to the government. However, this is not the long-term share, as TRAI
has recommended that the percentage of revenue share to be paid by operators
should be 17 per cent of the adjusted gross revenue. The only caveat, which
companies accepted gladly, was that in order to qualify for the new revenue sharing
arrangement, all the entrants would have to withdraw their cases against the
government in the court. All the twenty-nine firms, including 22 cellular operators
decided to move to the new arrangement. However, even in the course of the new
telecom policy, the state-owned incumbents managed to further consolidate their
position and even extend it into other sectors. The government has managed to place
two government players erstwhile DTS and now converted into a corporate entity
called Bharat Sanchar Nigam Limited (BSNL) and MTNL - as the third cellular
entrant in all the 24 markets. The decision of the incumbents to venture into a new
area may be because of the strong growth the market enjoyed during 1999, when the
cellular subscriber base grew by about 58 percent to 1.8 million subscribers.85 By
June 2000 it had crossed the two million mark.
Moreover, while DTS will have to pay the revenue share of 15 per cent like other
cellular operators, it is likely that DTS will get the money back to fund its
developmental activities of increasing rural penetration of telecom services. NTP
99 also introduced one of the most progressive and liberal Internet Service Provider
Policies, where licenses for a token fee of Rs 1 have been granted to 340 ISPs. Of
these 70 ISPs have become operational. Moreover, the government has allowed 100
ISPs to set up international gateways to the Internet, by-passing the international
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gateway of VSNL, the monopoly international long distance provider. To meet these
teledensity targets, an estimated capital expenditure of Rs. 4,000 billion for
installing about 130 million lines will be required. Recognizing the role of private
investment, NTP 99 envisages multiple operators in the market for various services.
Another major change has been a shift from the existing license fee system to one
based on one time entry fee combined with revenue share payments.
3.7(b) Notable Advances Marked By The NTP 99
1. Speeding up competition in long distance, including usage of existing
backbone network of public and private entities in Rail transport, Power and
Energy sectors for data (immediately) and for domestic long distance voice
communication.
2. The Fixed Service Providers (FSP) shall be freely permittedto establish 'last
mile' linkages to provide fixed services and carry long distance traffic within
their service area without seeking an additional licence.
3. Transforming in a time bound manner, the telecommunications sector to a
greater competitive environment in both urban and rural areas providingequal opportunities and level playing field for all players.
4. Strengthening research and development efforts in the country and provide
an impetus to build world-class manufacturing capabilities.
5. Achieving efficiency and transparency in spectrum management.
6. Interconnect between private service providers in same Circle and between
services provider and VSNL along with introduction of competition in
Domestic Long Distance.
7. Undertaking to review interconnectivity between private service providers of
different service areas, in consultation with TRAI.
8. Permission for 'resale' of domestic telephony.
9. Clarity regarding number of licenses that each operator may be granted.
10. Emphasis on certain other issues including Standardisation, Human
Resource
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NTP 99 proposes that the long-term policy will be to have uniform 20-year licenses
for both Basic and Cellular Mobile services. Extensions of license periods initially
by five years and subsequent ten-year extensions are also envisaged. These
provisions need to be used in a transparent manner, which again brings up the issue
of government divesting itself of the licensing powers in favour of the regulatory
Authority. Internet Telephony has not been permitted under NTP 99
3.8 Assessment of Regulatory Reform
Regulatory reform in Indian telecom can be seen as a two-step process. One, the
establishment of an independent regulator and, two, the regulatory Authority
implementing reform on the basis of its policy initiatives. A crucial concomitant of
this process is the separation of the incumbent service provider from the policy
maker. Since its establishment, the telecom regulator in India has taken a number of
initiatives pertaining to tariffs, interconnection charge and revenue sharing, and has
provided its recommendations on license conditions/license fee for certain service
segments. The regulator has also addressed a number of disputes under Section 14 of
the Act. An important feature of the TRAI Act 1999 is that the Authority has to
ensure transparency while exercising its powers and discharging its functions.
Hence, the TRAI has adopted a procedure of consultations, under which it prepares
consultation papers on the issues under consideration, seeks comments from the
general public and experts in the area, and provides an Explanatory Memorandum
along with its Tariff Orders, interconnection charge or revenue sharing Regulation,
and its recommendations. Such an exercise is being performed for the first time by
policy makers in India.
TRAI has also been vested with powers to frame regulations necessary for its
functioning, including for the levy of fees and charges for services. The TRAI Act
provides for a separate fund ('Telecom Regulatory Authority of India General
Fund'), which will be credited with all grants, fees and charges received by TRAI,
and funds from other approved sources. Provision has also been made for Central
Government grants towards meeting the expenses of the regulatory Authority. As
mentioned above, there is now a perception among the Government that the powers
of the regulator need to be increased. An overall perspective that would be important
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in this regard is to emphasize a system which makes it possible to quickly
implement reform. Certain other features derived from the experience of regulatory
reform across countries would be of use. Instead, they will focus more on promoting
multiple outlets for voice telephony and ensuring that a reliable and universal virtual
public network is maintained across a crazy quilt of interconnected technologies and
applications. Overall, this will likely mean decreased reliance on individual
licensing of particular services and facilities and increased reliance on general rules.
It will also involve greater coordination among authorities in different industry
sectors. Telecommunications regulation will be less concerned with licensing and
pricing and more concerned and continuous efforts to adapt standards of reliabilityand interoperability to unrelenting technology changes, as well as with frequency
allocation and assignment, dispute resolution and consumer protection. A lot more
of the telecommunication industry will probably end up being regulated by the
market.
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CHAPTER - 4
INDIAN CELLULAR MARKET4.1 Country Profile
India is the 7th largest country in the world and the second largest in Asia with a
land mass of 3.29 million square Km, and a population of over 900 million. The
second largest populous country, India is the home of 16 per cent of world's
population and accounts for 2.42 per cent of the total world area. One of the most
striking features of the Indian economy is the sheer size of the consumer market.
Private consumption expenditure grew at 13 per cent per annum (at current prices)
through the 1980s and was estimated at Rs. 3,418 billion (US $ 110 billion) in 1990-
91. The overall growth of 13 per cent is composed of widely differing growth rates
in the various sectors. Expenditure on transport and communication is increasing by
as high as 21 per cent per annum. This reflects a perceptible shift in consumer
spending from primary products to manufactured goods and services, which is also
borne out by the increasing share of manufactured goods and services in the
country's GDP. The spectacular increase in consumer spending has been
accompanied by increasing sophistication.
4.2 Some Facts About the Indian Telecom Market
India has 1000 million people & 180 million households
40 million fixed line telephones, 10 million mobile and four million Internet
connections
Target for Growth: 100 million lines by 2005 and 200 million lines by 2010
Major public confidence as ost of long distance calls in India reduces from
Rs 30 ($0.60) to Rs 9 ($0.18) per minute
International Call charges reduce by 40%
VoIP opened up for International calls
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4.3 Telecommunications Network
India operates one of the largest telecom networks in Asia comprising over 21,718
telephone exchanges, 14.62 million telephone lines, an extensive local and long
distance transmission network with 132,022 route kms of terrestrial microwave
radio relay, coaxial cables and about 36,632 Km of optical fibre systems. The voice
and non-voice telecom services include data transmission, facsimile, mobile radio,
radio paging and leased line services to cater to a variety of needs, both residential
and business. A dedicated packet switched Public Data Network with international
access for Computer Communication services is also available. Tenders have been
invited for operation of Radio Paging Services. 95 licences have been issued for
operation of services in 27 cities. Services have commenced in all the 27 cities with
over 186,000 subscribers. Rest of the country has been divided in 19 circles and
licences are to be issued. The country has been divided into 18 telecom circles and 4
metro cities for operation of Cellular Mobile Service. Despite the sustained high
growth of telecom services in the last five years, the telephone to population ratio in
India has just reached 1.3 per hundred people. India's telecoms sector is carved into
22 circles or zones, classified as "metro" and "A", "B" and "C" circles, based on
subscriber potential, market lucrativeness and the state of already present
infrastructure.
The number of cellular subscribers in India grew at a scorching pace touching 10.48
million by 2002-end with the monthly addition from November to December 2002
rising to 7, 50,000. The all-India figures were up from 9.7 million in November
2002 to 10.4 million in December, a rise of 7.7 percent. This is a 92 percent increase
over the previous year's subscriber base of 5.4 million, according to the figures
released by the Cellular Operators Association of India (COAI). Cellular subscriber
base has been growing at a massive pace for the past three years. In 1999, the
announcement of the New Telecom Policy and the migration package from fixed
license fee to annual revenue share regime gave a boost to the mobile sector. The
result was that the cell subscriber base moved up from 790,000 in 1997 to 3.1
million in 2000.
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4.4 Phenomenal Growth of the Indian Cellular Market
The four metro circles showed fewer additions to their total mobile users -registering
an increase of 4.4 percent from November to December 2002, Circles B and C saw
high growth of 11.52 percent and 11.14 per cent respectively. The less lucrative
circle C saw an increase of 8.58 for the one-month period. Metros recorded
additions of 172,000, circle A an addition of 277,000, circle B of 268,000 and circle
C an increase of 36,142. On a year on year basis, the numbers in metros topped the
list with 4.054 million representing a 38.69 percent rise; circle A-3.516 million,
registering a 33.54 percent increase; Circle B-2.550 million, a growth of 24.33
percent and circle C 360,000, witnessing a 3.44 percent rise.
The International Telecommunication Union feels India has the potential to become
No 1 in terms of the number of mobile phone users, considering the number of
people currently without mobile phones in the country. Currently, China has the
highest number of mobile phone subscribers. Michael Minges, head,
Telecommunications Data and Statistics Unit, ITU Telecommunication Bureau,
said: "India has the least mobile connectivity with only 10.1 million subscribers as
compared with China. India is the largest unserved market and therefore there is
huge potential." According to the ITU report, in the last 10 years the
telecommunication environment in the Asia-Pacific region has changed rapidly. The
rate of change has been the most dramatic in the mobile communication sector.
City Service ProviderDec'
1997
Dec'
1998
Dec'
1999
Dec'
2000
Dec'
2001Dec' 2002 Mar' 2003
Delhi
Bharti 123091 113259 153498 273262 484850 834269 902357
Sterling 96047 106201 126054 187617 343241 0 0
MTNL 0 0 0 0 45408 129809 132417
Idea 0 0 0 0 0 128306 165900
Hutchison Essar 0 0 0 0 0 580328 605485
Total 219138 219460 279552 460879 873499 1672712 1806159
Delhi Growth Rate YoY (%) 9.9 10.0 40.2 131.1 337.9 738.6 805.5
Mumbai BPL Mobile 92230 111241 155373 261654 378912 573877 621172
Hutchison Max 122772 91601 143371 218677 380835 615836 665086
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MTNL 0 0 0 0 73248 110279 159500
Bharti Cellular 0 0 0 0 0 212304 243278
Total 215002 202842 298744 480331 832995 1512296 1689036
Mumbai Growth RateYOY(%) 15.3 8.8 60.3 157.7 346.8 711.2 806.0
Chennai
RPG Cellular 25491 16244 24041 57647 107979 166305 179284
SkyCell 23044 18450 22963 38577 0 0
Bharti Mobinet 0 0 0 0 121036 200728 215109
Hutchison Essar 0 0 0 0 0 51832 55760
Total 48543 34694 47004 96224 229015 418865 450153
Chennai Growth Rate YoY(%) 5.9 -24.3 2.6 110.0 399.8 814.1 882.4
Calcutta
Modi 36664 20459 33126 90132 0 0 0
Bhari Mobitel 0 0 0 0 94077 188237 200736
Hutchison Telecom 0 0 0 0 0 247327 274281
BSNL 0 0 0 0 0 14997 19159
Usha Martin 26640 22386 34904 67426 131528
Total 63304 42845 68030 157558 225605 450561 494176
Calcutta Growth Rate YoY(%) 6.3 -28.1 14.2 164.5 278.7 656.4 729.6
All Metro Total 545987 499841 693330 1194992 2161114 4054434 4439524
Metro Growth Rate YoY (%) 11.14 1.74 41.13 143.25 339.90 725.30 803.68
All India Total 794232 1070603 1599364 3107449 5478932 10480430 12687637
All India Growth Rate YoY(%) 20.01 61.76 141.66 369.52 727.85 1483.55 1817.05
Cellular Subscriber (GSM) Growth (Dec 97 to Mar2003)
The table on the preceding page describes the phenomenal increase in the cellular
subscriber base (The data is for GSM subscribers only, authenticated data for WLL
subscribers could not be found). The varied reasons for such a stupendous growth
have placed India in the right orbit for a rightful position as a major global player in
the world, in not so distant future. An increase of 1817%, could only be described as
envious and considering that not even a sizable potential of the Indian market has
been tapped, so far, makes the whole data much more meaningful, from investors
and companies point of view. It would be prudent to add at this juncture that this
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bewildering growth rate has been achieved at the very nascent stages of Indian
telephony, and as the years progress and the base year for comparisons (Base year in
this study has been taken as 1997) shifts to some latter year, the developments
would look more sober as the market passes over from the initial stages of
introduction towards growth and maturity.
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
Dec'1997 Dec'1998 Dec'1999 Dec'2000 Dec'2001 Dec'2002 Mar'2003
Year
National Vs Metro Growth (%)
Metros National
Metr o Cities Subscriber Growth Rate
-200.0
0.0
200.0
400.0
600.0
800.0
1000.0
Year
Percentage
Delhi Mumbai Chennai Calcutta
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All India Growth Rate YoY(%)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Dec'1997Dec'1999
Dec'2001Mar'2003
Year
Percentage
There is a need to look at the various reasons that have contributed to the growth of
cellular sector in India. If one were to look at the figures above, it becomes clear that
the growth started from the metros to begin with and then caught up with the
national fancy. It would be imprudent to say that inclination towards being more
mobile was just a fad, or a pass. Instead there are certain deep rooted and wellexplainable reasons thereto.
4.5 Reasons For Boom In Consumer Spending
The overall consumer attitude has resulted in the development of a very conducive
environment for industrial as well as economic growth. Needless to say, higher
disposable income, as a result of increased employment, better salary and wages
structure, have resulted in more spending power. Combining increased levels of
awareness and a paradigm shift towards value orientation rather than pure price
sensitivity has lead to an interesting environment for business, both services and
manufacturing activities
1. Sustained economic growth of 5.5 per cent per year through the 80s. and
more than 12% in case of Industrial growth till late 90s.
2. Increase in urban population by 75 million in the last decade to touch over
235 million in 1993 and estimated to be over 550 million by 2003 .
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3. Drastic change in lifestyles with the emergence of multiple income urban
households.
4. Increase in awareness created by the media - television (including CNN,
STAR TV), radio (with many new FM channels) and print media.
5. Increasing literacy levels The aggregate number of literates being 442
million, as per 1991 census.
Another notable development is that the perceptual shift of consumers towards the
need for better connectivity: from business and personal point of view, along with
westernization have contributed to the phenomenal increase in the demand forcellular services. One should also bear in mind that this would not have been
possible, had the affordability of telecom services would not have come to todays
level.
Telecom Affordability
0
5
10
15
20
25
30
35
97 98 99 00 01 02 03Year
Avg.Min.Call
Rates(Local/1min)
Indian customers have always been highly price sensitive and the price factor has a
great role to play in making a product/service/concept a success or a failure. Since
the initial charging for cellular services was very high, it was a niche product/service
rather than being a utility, but now with the call rate coming down to as low as 40
paise (Reliance Tariff Rates under the Dhirubhai Ambani Pioneer Offer), the cellular
sector has witnessed a revolution as the affordability increased, and at the samwe
time the utility has increased many folds, the result of which is a phenomenal
1817% growth (Dec 97 to March 2003).
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Call Usage Pattern and Contribution towards Total Call Revenue (Aggregate)
Usage Share Of Total
Subscribers
Contribution towards Call
Revenue(Calls Bi- Monthly)
>10,000 2.70% 47.10%
5001 to 10,000 2.50% 9.80%
2001 to 5000 7.90% 13.40%
1,001 to 2,000 14% 11.60%
501 to 1,000 21.30% 10%
0 to 500 51.60% 8.10%
Source: Indian Telecom Review, Business World, February, 2003
As the telecom affordability has gone up, the no. of users have experienced a
phenomenal growth, but as is evident, the maximum users are the least revenue
getters from a companys perspective and curtail their telecom spending to the bare
requirement as stipulated by the service providers. So, the companies derive their
nos. from here and their revenues from the top most category.
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The change in perception also has helped the Indian customers venture into spending
over non-conventional items which had a negligible share in the early 90s, this is a
macro effect and has its bearing on all the aspects of Consumer spending pattern and
not specifically on the spending on fulfilling telecom needs. But nevertheless
telecom sector is also one of the beneficiaries of this phenomenon.
4.6 Major Players in the Indian Cellular Sector
Besides the service providers in the metros (Please refer to Table 4a), the Indian
telecom market is divided into circles, the details of the service providers in the
various circles respectively is provided in theAnnexure-3, A Note on Major Service
Providers
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CHAPTER-5
TECHNOLOGY IN USE AND THE CONTROVERSY
BETWEEN GSM & WLL OPERATORS
The technological aspect is undertaken in this study, because it becomes important
to understand the basic concept of underlying technology, by the virtue of which,
modern telephony (especially in the Indian context) is functioning. It also provides
the means of comparison and differentiation between the service offerings, their
limitations and advantages, which reside in the very fundamentals of the technology
that is being used. It also becomes Important to mention here that the battle between
wireline and wireless was the first taste of competition that the post liberalized
telecom sector had. Now, the tussle and the market share-bone of contention remains
between the CDMA and the GSM based operators.
Broadly, for the purpose of this study, we try to understand:
1. Wireline Technology & Wireless Technology
2. Distinction between WLL & GSM Technology
India today lacks the infrastructure required for high speed communication that is
imperative for the telecom revolution. Most of the present lines are copper cables
operating at (low) while the optical networks that have been laid by the DoT,
covering a distance of 31,771 km operate with a bandwidth of 51.84 Mbps. Looking
into the future, the current capacity of our communication networks will be far
outstripped by the demand.
5.1 Wireline Technology
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The traditional wireline telephony to which India has been exposed to till recently,
had been the forte of state run MTNL & BSNL. The fundamental technology
behind this concept seems very rudimentary, if compared to the technological
options that are now available. It involves carrying of voice and data traffic
over co-axial copper wires, from the provider till the end user. For long
distance, there is the use of satellites and tie ups with other operators for which
there is a charge payable, and needless to say, this is passed on to the
customers. Besides, the underlying technology itself faces certain lacunae,
owing to the fact that the data suffers loss of transmission, leakages, stress,
and a very high Last mile linkage cost. The answer to this particular problem lies in abandoning reliance on the physical medium of carrying
traffic, to the maximum extent possible. This brings the concept of wireless
connectivity into the picture.
5.2 Wireless Technology
The first mobile wireless phones utilized analog transmission technologies, the
dominant analog standard being known as AMPS, (Advanced Mobile Phone
System). Analog standards operated on bands of spectrum with a lower frequency
and greater wavelength than subsequent standards, providing a significant signal
range per cell along with a high propensity for interference. These networks were
based on digital, rather than analog technologies, and were circuit-switched. Circuit-
switched cellular data is still the most widely used mobile wireless data service.
Digital technology offered an appealing combination of performance and spectral
efficiency (in terms of management of scarce frequency bands), as well as the
development of features like speech security and data communications over high
quality transmissions. It is also compatible with Integrated Services Digital Network
(ISDN) technology, which was being developed for land-based telecommunication
systems throughout the world.
There are a variety of wireless technologies, for telecommunication purposes.
FDMA- Frequency Division Multiple Access.
TDMA- Time division Multiple Access.
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CDMA- Code Division Multiple Access.
TDMA is a digital air interface that divides a single radio frequency channel into 6
unique time slots, allowing a number of users to access a single channel at one time
without interference. By dividing the channel into slots, three signals (two time slots
for each signal) can be transmitted over a single channel. In this way, TDMA
technology (also referred to as ANSI-136), provides a 3 to 1 gain in capacity over
analog technology. There are approximately about 120 million worldwide TDMA
subscriber for 2002.
CDMA is being used in India, which is a full-fledged cellular technology. It is in
fact being used in U.S, and Korea.
5.3 Limited Mobility for Voice
WLL means that a subscriber is linked to the nearest exchange through radio links
instead of copper wires.
Unique government initiative for rapid phone expansion
Mobile WLL CDMA phone connects to POTS system
Allows data transfer rates of 144 Kbps
20 Km radius of mobility from base station
Extends POTS but encroaches on cellular networks
Multiple conflicts: license fees, revenue fees, interconnect
agreements, urban-rural commitments
Currently about 800,000 subscribers to WLL phones
5.3(a) Wireless Local Loop (WLL)
The Wireless Local Loop technology is India's indigenous technology. It was highly
appreciated by UNDP. This technology replaces the wires and copper in local loop
with a wireless system. It requires a compact base station, mounted on a rooftop or
poles in the streets, which is used for transmission on a wireless medium to homes
and offices. The technology is claimed to bring down the cost of per line telephone
connection from Rs. 40 000 to 10 000 and facilities both voice and data. It is suited
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for both dense urban and sparse rural deployment scenarios. India and other nations
such as Fiji, Tunisia, Nigeria and Madagascar have already started to deploy.
Frost & Sullivan forecasts that WLL transmission equipment will eventually
constitute nearly 30% of all new lines. This technology will assist in more rapid
installation of the network and is ideal for both urban and rural areas. Very small
aperture terminals (VSATs) and low earth orbiting satellites (LEOs) are also being
touted as intriguing technological solutions for rural telecommunications. None of
these technologies is a panacea, but each of them will satisfy the demands of rural
telecommunications. Different technologies will be more or less appropriate based
on specific circumstances. It is most likely that a mix of these technologies will
provide the ultimate solution.
5.3(b) Advantages Of WLL Over Traditional Wireline Connectivity
WLL is cheaper and quicker than copper lines. As the cost of copper rises over time,
so does the cost of acquisition, and set up of traditional system for wireline
connectivity. In a traditional set up the most costly part is the last mile, especially
in the rural and far flung areas.
WLL is economical in this respect. Close to 90% of faults in telephonic lines occur
in this last mile. With radio links replacing copper wires, the faults become almost
negligible.
5.4 GSM Technology
The idea of cell-based mobile radio systems appeared at Bell Laboratories in the
United States in the early 1970s. However, mobile cellular systems were not
introduced for commercial use until a decade later. During the early 1980s, analog
cellular telephone systems experienced very rapid growth in Europe, particularly in
Scandinavia and the United Kingdom. The most prevalent wireless technology in the
world today, is GSM. The GSM MoU (Global System for Mobile Communications)
was instituted in 1987 to promote and expedite the adoption, development and
deployment and evolution of the GSM standard for digital wireless communications.
The GSM membership has grown exponentially since 1992. The membership now
extends to 323 members from over 125 countries. ( table given below) The GSM
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network now services over 125 million customers world-wide. The world's satellite
operators have also joined the GSM community, which further adds to its strength
and impact on world markets. GSM is today, the world's leading digital standard
accounting for 64% of the global digital wireless market.
Year Membership Networks on AirCountries /
Areas
Customers
(millions)
1992 54 31 13 0.25
1993 78 48 34 1.4
1994 102 60 65 4.5
1995 156 86 113 12.5
1996 208 105 189 30
1997 256 110 233 70.3
1998 291 120 298 108
1998 323 128 300 125
2000 400 140 380 300
Today's GSM platform is a hugely successful wireless technology and an
unprecedented story of global achievement. In less than ten years since the first
GSM network was commercially launched, it became the world's leading and fastest
growing mobile standard, spanning over 190 countries. Today, GSM technology is
in use by more than one in ten of the world's population and it is estimated that at the
end of 2002 there were 787 million GSM subscribers across the 190 countries of the
world.
The digital nature of GSM allows the transmission of data (both synchronous and
asynchronous) to or from ISDN terminals, although the most basic service support
by GSM is telephony. Speech, which is inherently analog, has to be digitized. The
method employed by ISDN, and by current telephone systems for multiplexing
voice lines over high-speed trunks and optical