'2003 will be a watershed year for India's telecom industry'

Mahesh Uppal

Competition in the long distance telephony sector, the successful divestment of Videsh Sanchar Nigam Limited and the opening up of Internet telephony were some of the important happenings in the telecom sector in 2002.

More significant were the rapid strides made by Bharat Sanchar Nigam Limited and the cellular industry, both of which have expanded their subscriber bases to bringing India's teledensity to over 4 per cent.

The rapid fall in mobile and long distance as well as Internet browsing charges by both government and private operators were sooner and much lower than anticipated. These prices are less than half of what they were last year.

The Universal Service Fund has been created and the guidelines for its working have been released. Much will depend on how it deals with the uniquely India specific challenges of providing subsidies for universal service, which are needed not by a small minority of poor subscribers (as in developed countries), but by a substantial majority of the populace.

2002 saw the first sign of the deregulation of 802.11 (or Wi-Fi) wireless networks seen by many as an important tool for quick and cheap access to services. There is a long way to go, but an important beginning has been made.

The Supreme Court judgement on Wireless in Local Loop-based limited mobility services has raised serious questions about the role of regulatory processes in India.

Major highs

In 2002, we saw that every part of the telecom sector had been open up to competition. We saw increased confidence amongst both public and private players.

Mobile telecom players are likely have close to 10 million subscribers by year-end. The prices are on-eighths of what they were just five years ago. The Internet services have expanded. Several new international gateways are functional.

Major lows

The unseemly controversy between the government and Tatas over VSNL board decisions, the continuing controversy between GSM cellular and CDMA based limited mobility services based on wireless in the local loop threw up some of the most serious challenges for the industry and its governance.

It brought to surface many of the anomalies in the policy and regulatory regime as well as, sometimes, the short-sightedness of Indian telecom operators. The other low is the virtual inability of private fixed line players to deliver on their promises of services for rural subscribers.

Their market share continues to be barely two percent. There is real fear now that it will be BSNL who will end up serving the less well off subscribers while private players target its urban and long distance revenues.

Teledensity

India's teledensity is over 4 per cent now and is expected to reach about 15 per cent in the next 5 years. This is no mean achievement since it was less than 1 per cent ten years ago.

However, it is useful not to be overly dependent on teledensity as a measure of success since it disguises the fact that it is a crude average for the whole country.

India's vast rural majority by themselves have only 1 per cent teledensity. Simlarly, while mobile subscribers contribute a quarter of the teledensity, there is hardly a single mobile user (out of the 10 million) who is not already connected by a fixed line.

So access per person is actually much less than the teledensity must suggest. To be fair the number in rural areas is probably more than 1 per cent since most PCOs count as one line but provide access to often hundreds.

Telecom is the largest net receprient of foreign investment

India's telecom liberalisation has attracted close to US$2 billion making this sector perhaps the largest net recipient of foreign investment. Cellular industry accounts for over half of this.

The large foreign direct investment is significant but could have been much more. The scale of FDI in telecom must be seen in terms as much of the successes such as AT&T, Hutchison etc as some major failures like Bell Canada, Swisscom, BT and others who have quit the sector.

There is now the likelihood of large investments from CDMA players like Qualcomm, Samsung etc. However, recent controversial regulatory decisions have caused much concern amongst foreign investors especially in GSM cellular and have led many to appeal to government for reviews.

Government initiatives in the telecom sector

There is a lot that government has done and much more that it still needs to do. The sector has seen growth but much of the public policy concerns about wider and cheaper local access to telephony is yet to come true. The real success stories in India are BSNL and the cellular industry.

And the real winner is the subscriber with some disposable income who has never had it so good both in terms of range of services as well as prices.

An important issue for the government is to recognise that having chosen to leave the telecom services to the market, it has no choice but to ensure that markets work effectively and fairly. This means coming up with a robust regime for competition management. This is one area, where our successes have been the least and our risks some of the highest.

What is also urgently required is a policy for rural communications. A policy that outlines the strategy that government has for providing rural communications in a cost effective or viable fashion.

This is not easy in view of the very high investments required, but not impossible in an environment where huge expertise and large investments can be channelled if the approach is coherent and creative.

There are many best practices from countries particularly in Latin America. They have shown how markets, if properly regulated, can ensure not only greater access to rural and poorer subscribers, but also do so keeping subsidies at their lowest and sometimes even zero.

Reliance Infocomm a formidable competitor

Reliance Infocomm is poised to be a formidable competitor. Their ambitious All India plan, the reported rock bottom tariffs, their own deep pockets coupled with their savvy knowledge about the Indian regulatory environment is likely to make a major impact on the telecom sector.

This is especially so for mobile and long distance segments, where they have an offering that is bound to shake the existing players out of their complacency.

The incumbent BSNL too will be in direct line of the Reliance challenge since a crash in their profitable long distance market will undoubtedly affect their mostly loss-making local call business, especially in rural areas which are currently subsidised from these profits.

Major challenges for India's telecom reform process

2003 will be a watershed year for India's telecom sector. Many private sector companies are going to be in a do-or-die battle for subscribers and revenues. Consumers can expect to be further spoilt with better and cheaper services.

India's telecom regulator, the Telecom Regulatory Authority of India will be faced with increasingly complex challenges especially related to competition management and will need all the expertise and luck to get it right.

2003 will be throwing up major challenges for India's telecom reform process. It will be soon clear whether the fruits of competition in India's telecom sector are going to be available to all. The expansion of connectivity and services to the poor and rural will determine whether India's telecom reform programme is actually working.

Mahesh Uppal, is director, Telecommunications and Computer Information Systems- an independent consultancy specializing in regulation and policy. He spoke to Kanchana Suggu over e-mail.

2002: The Year That Was