The Telecommunication Sector
India’s telecommunications network has experienced impressive growth since the independence. The number of telephone lines has risen from 86,000 to about 8 million in 1998. The number of exchanges has also gone up from 321 to more than 18,620. Despite this frenetic pace of growth, India’s telecommunication sector has the highest proportion of unfulfilled demand among all service sectors. India’s burgeoning middle class has kept demand for telephones far ahead of availability.
The Indian government was quick to realize that, for the new economic reforms to succeed in improving India’s competitiveness in the global market, its telecommunication infrastructure must improve. Therefore, in the Eighth Plan, development of the telecommunications sector was given high priority. The government’s approach to the telecommunications sector has undergone a metamorphosis since 1984, when the Department of Telecommunications (DoT) prepare its first perspective plan. Tjis envisaged total telephone line demand reaching 20 million by the year 2000 and aimed at providing telephone and telex connections practically on demand. All these spell good opportunities for foreign investors since the government has announced plans to privatize the basic telecommunications services.
Government Organizations in the Telecommunications Sector
Summary of Guidelines for Private Sector
More...Telecommunications Reforms
Traditionally, the telecommunications has been regarded as a relatively straightforward utility. Over then last quarter century, the importance of the telecommunications as a vital channel for economic and social development has become evident. Telecommunications is now widely considered as a strategic investment to maintain and develop competitive advantage at all levels – national, regional and firm. Telecommunications constitutes a core infrastructure for any economy characterized by a growing information intensity.
In addition to providing basic services, telecommunications is being increasingly used in connection with a broad range of economic, production and distribution activities, delivery of social services and government administration. It also contributes to the quality of life and the attainment of various social, political and security-related objectives.
In many countries, telecommunication services traditionally have been provided for by government departments or state-owned enterprises. These entities build and operate country-wide infrastructures, meet the demand for basic telephone services and introduce other advanced services. In the 80s, however, driven by the twin forces of technological innovation and increasing demand, a wave of liberalization and privatization have introduced major changes to the structure of the telecommunications sector in many industrialized nations. For example, there was the divestiture of AT&T in 1984; the establishment of facilities-based duopoly, privatization of British Telecom and Cable & Wireless in the United Kingdoms in 1981 and 1984 respectively; and the introduction of competition and privatization of NTT in Japan in 1985.
The drive to telecommunications reform, beginning in industrial economies, ahs quickly spread to developing countries. This was exemplified by the privatization of Singapore Telecom, a statutory board for more than 40 years, in 1992. India realizes that for the new economic reforms to succeed in improving its competitiveness in the global market, its telecommunications services must be developed to be of world class standard. There is a pressing need for India to overhaul its telecommunications sector. This has begun with the liberalization of the telecommunications sector in 1992, followed by a series of government policies and guidelines to attract foreign direct investment in basic telecommunication services in 1994.
India has a network comprising of 23,527 exchanges, with a 12 million working telephones. The number of telephone connections grew at 8.3% annually in the 80s. The telephone density in India is only 0.8% as compared to the world average of 10%.
A total of 2,491subscriber trunk dialing (STD) stations was
in operation at the beginning of 1994. Long-distance traffic is carried mostly
by coaxial cable and low-capacity microwave radio relay; since 1985, however,
significant trunk capacity has been added in the form of fiber-optic cable
and a domestic satellite system with 254 earth stations; cellular telephone
service in four metropolitan cities
The international telephone service (ITS) is provided through 4 gateway switching
systems located in 4 metropolitan cities; Mumbai, New Delhi, Calcutta, and
Chennai. There are 9 satellite earth stations—8 Intelsat (Indian Ocean) and
1 Inmarsat (Indian Ocean Region and submarine cables to Malaysia, UAE, Singapore,
and Japan
Fully automated international subscriber dialing (ISD) service is available for 235 countries and trunk manual service is available for all countries. Around 140,000 villages are provided with telephone connections and there are over 100,000 public call offices (PCO) in urban areas.
The network has been growing at the rate of 15% to 17% per annum for 1992-1993. The demand for telecommunication services has far outstripped of the availability. There was a backlog of 2.85 million telephone connections at the beginning of 1993. Meanwhile, an excess capacity has been built up in tele-instruments production, which is roughly 3 times the actual demand.
There is, therefore, an urgent need to augment the production of switching equipment so as to eliminate the mismatch. The government has opened these sectors to private investment. Joint ventures, in collaboration with leading foreign companies and domestic companies have been permitted to manufacture electronic switches. The old strowger and cross bar exchanges will be phrased out of production and replaced by digital switching equipment.
3. Government Organizations in the Telecommunications sector
Telecom services in India continue to be the sole monopoly of the central government. Recent privatization notwithstanding, government shareholding in the 2 highly profitable telecom corporations, the Mahanagar Telephone Nigam Limited (MTNL) and the Videsh Sanchar Nigam Limited (VSNL) is around 75% in 1995.
The VSNL is responsible for providing and maintaining international switching and transmission facilities to Indian subscribers. VSNL operates 4 main gateway cities in Bombay, Calcutta, New Delhi and Madras. MTNL handles the basic telephone systems of Bombay and New Delhi. Telephone services in the rest of the country are handled by DoT.
Production facilities, which used to be the sole preserve of the public sector have also started to privatize in 1993. The Indian Telephone Industries (ITI) produces switching systems and telephone instruments.
The major international companies coming to India in this sector are telecom giants AT&T of the USA, CIT Alcatel of France, Siemens of Germany, Fujitsu of Japan, Ericsson of Sweden and Australian Telecom. Asian companies like Singapore Telecom, Telecom Malaysia and Hutchinson of Hong Kong are also becoming involved.
AT&T and Australian Telecom are vying for the prestigious network management centers to manage the long distance telecom service in India. AT&T is already providing real value products like US direct, world connect and namaskarseva for the consumer and the global business communication systems featuring products like key telephone system (KTS), video-conferencing and voice processing for the domestic upmarket. Singapore Telecom has already tied up with an Indian agent of Alcatel for cellular and paging system. Australian Telecom has offered a loan to DoT to set up network management centers. It has also joined an Indian company for cellular phone service.
In the manufacturing sector, CIT Alcatel of France enjoys a dominant position in the Indian market with its E-10 exchanges. It has also signed a pact promising to transfer its latest technology in switching systems OCB-283 to ITI free of charge. Siemens has offered DM500 million to meet DoT’s foreign exchange needs for imports. Ericsson too, has proposed to manufacture switches, transmission gear and cellular radio based stations apart from setting up a large software development center. The Japanese giant, Fujitsu, has a proposal to set up a joint venture to produce digital exchanges.
5. The Eighth Plan (1992-1997)
This plan on telecommunication services is based on a long term objective of a gradual building up of the telephone density to 60-70 phones for every 1,000 people. Currently, the density is about 10 phones per 1,000 people as compared to 20 phones per 1,000 people in developing countries and 400 per 1,000 people in developed countries. The short term objective is to raise this density to 14 phones per 1,000 people.
The Eighth plan endeavored to reduce the waiting period by installing additional switching capacity of 9.3 million lines (11 million lines including replacement) in order to provide 7.5 million new telephone connections.
In view of the country’s new growth plan and the reassessed demand, some of the targets in the eighth plan had been revised in the national telecommunications policy of 1994. The focus of the new policy is telecommunications for everyone and within reach of everyone. The target is telephones available on demand and in all villages in 1997. In the urban areas, a PCO will be provided for every 500 people. All value-added services available internationally would be introduced to raise telecommunication services to international standards well within the eighth plan and possibly by 1996.
The objective of connectivity would be achieved by providing the STD facility to all exchanges by 1 April 1997. There would be similar facility for all industrial growth centers, tourist and pilgrim centers. Besides these, all district headquarters would be linked by digital network.
Highest priority has been assigned to the development of telecommunications services in the country. Private initiatives will be used to complement government efforts. The manufacture of telecommunications equipment has been progressively delicensed with the objective of meeting the telecommunications needs of the country.
In order to achieve standards comparable to international facilities, the sub-sector of value-added services was opened up to private investors in July 1992 for electronic mail, voice mail, data, audio text, video text, video conferencing, radio paging and cellular mobile telephone services. Companies registered in India are permitted to operate under licence on a non-exclusive basis for all the services except radio paging and cellular phone service. However, a policy of selection is being followed to grant licences through a system of tendering.
The government too has allowed the private sector to participate in providing basic telecom services. Foreign equity participation up to 49%, setting up of a regulatory body and granting licences on the basis of circles, are the salient features of the guidelines for basic telecom services announced in 17 September 1994.
This set of guidelines for basic telecom services proposes a duopoly of 2 operators: one is DoT and the other is a private operator in each of the 18 telecom sectors and the MTNL of Bombay and New Delhi. This ends, for the first time in 100 years, the monopoly of DoT and thus provides a choice between 2 competing operators for telephone subscribers.
7. New Foreign Investment Policy
To attract direct foreign investment in the telecommunication sector, the government proposes to throw open voice communication (telephone services) to multinationals. It is reported that the government will make a provision of a dual rate of return on investment depending on the source of financing. In the case of the enterprises borrowing in the Indian market, a higher return has been suggested since high interest rates, excise and custom duties result in higher costs. If the investor is borrowing from the international market where money is cheaper and interest rates are lower, the rate of return should be lower.
Another major step being considered is to allow companies the freedom of fixing tariffs within the cap determined by the Telecommunications Commission. It will oversee the functioning of multinational companies and act as a correcting agency where imbalances creep into the system. A separate foreign investment policy for telecommunications has been suggested as a number of world giants are keen on investments in manufacturing facilities.
Another factor forcing the government to liberalize this sector is the lack of adequate communication facilities, which is a major hurdle in attracting foreign direct investments. A highly liberal policy is needed in the telecom sector, not only to develop the communications network but also to create the basic infrastructure for industrial development. The DoT has accepted in principle, a new policy to lease digital switching systems to upgrade the country’s telecom network. The systems will be leased out to manufacturers and will see a much greater involvement of multinationals in the operation and maintenance of the telecommunications network.
In the Year 2000 Budget, custom duties on mobile phones will be reduced. AT&T managing director Virat Bhatia said that this measure is a significant opportunity for the cellular phone industry, which could expand its current level of about 1.5 million users today to achieve greater penetration and to take the burden off land life providers.
Summary of Guidelines in respect of Provision of Basic Telecom Services by Private Sector
1. Licensing Authority:
Companies wishing to enter into the field of basic telecom services may make an application for the grant of licence to DoT.
2. Equity Participation:
Only companies registered in India will be permitted to participate in providing basic voice telephone services. In the event of a joint venture between an Indian and a foreign company, not more than 49% foreign equity will be permitted.
3. Geographical Area of Operation:
The licensing of private sector will be on a circle basis. Only one licence, in addition to DoT, will be granted to each circle. The private sector will not be licenced for the long distance telecom network (national and inter-circle long distance) in the first instance. This position will be reviewed after 5 years.
4. Regulatory Authority:
This will be a Telecom Regulatory Authority of India (TRAI). TRAI will be an autonomous body. The terms of reference will include standard setting, price regulation, ensuring technical compatibility among different service providers, revenue sharing and arrangement between different service providers, fixation of access charges and like.
5. Pilot Projects
Pilot projects are those which envisage inflow of technology and management techniques and generally involve foreign investment. Projects involving not more than 49% foreign equity will be allowed.
The pilot projects will be accepted on the areas of low telecom density but with high growth potential. The technology brought in by the pilot projects should be the latest available internationally which has not been in use in India. The party providing the basic services will be preferred.
Pilot projects are not allowed to be used as back doors for providing basic voice services. Proposals for setting up pilot projects would be scrutinized by DoT. The recommendations of DoT will be referred to the Empowered Committee on Foreign Investment for approval.
6. Tendering
The tender documents would be detailed and self-contained. While in the technical bids, clarification may be obtained if necessary, there will be no provision for negotiations in the financial bids.
7. Period Of Licence
The government will be the licensing authority. The period of licence will normally be 15 years.
8. Network and Service Obligations
A standard document prepared to spell out the network and service obligations of the licencee.
9. Penalties
In order to protect the interest of the consumers in this new situation of a large number of service providers, the service providers will be accountable for providing the prescribed level/quality of service to the consumers and other obligations as may be specified by the government, failing which they will subject to penalties as are, or may be prescribed, under the law.
More: Telecommunications Reforms
·India operates one of the largest telecommunication networks in Asia comprising over 23,527 exchanges with a capacity of 226.4 lakh lines and 191.3 lakh working connections as on 30th November, 1998. A switching capacity of 35.19 lakh lines was added during 1997-98, 13 per cent more than 1996-97. About 16 per cent of the total capacity was added in four metro cities, i.e., Delhi, Mumbai, Calcutta and Chennai during 1997-98. The annual growth rate of providing new connections has been increasing steadily. The number of new connections provided during 1997-98 were 32.59 lakh. A Trunk Automatic Exchange (TAX) capacity of 3,14,300 lines, 17,995 Route Kilometers (RKMs) of Microwave and 23,822 RKMs of Optical Fibre were added during 1997-98.
·The National Telecom Policy envisages the provision of one Public Call Office (PCO) for every 500 persons in the urban areas. As on 30.09.98, 4.63 lakh PCOs are working all over the country The present PCO-population ratio is one PCO for 529 persons of urban population on an all-India average basis. 15. According to the National Telecom Policy (NTP), 1994 , one Village Public Telephone (VPT) in every village of the country was to be provided by 1997. This target has since been rescheduled and is now envisaged to be completed by the end of the Ninth Plan. Accomplishment of this task is the responsibility of both the Department of Telecommunications (DoT) as well as the licensed private operating companies. As per the terms of the license agreement, private operating companies are to provide a minimum of 10 per cent Direct Exchange Lines (DELs) as Village Public Telephones (VPTs). Out of the total 6.07 lakh villages in the country, 3.04 lakh villages have been provided with public telephones by the end of March 1998. During 1997-98, a total of 35,750 villages were provided with telephone facilities, and in the current year, it has been proposed to provide 45,000 VPTs.
·With the deregulation of the economy since July 1991, the entire telecom equipment manufacturing industry has been delicensed and dereserved. Telecom equipment production increased to Rs.9,960 crore in 1997-98 from Rs.8,300 crore in 1996-97 and telecom exports increased to Rs. 2,840 crore in 1997-98 from Rs.1,967 crore in 1996-97. 17. With a view to supplementing the efforts of the DoT in providing basic telephone services, companies registered in India are being licensed to install, operate and maintain these services. Six companies have till date, signed the License Agreement with the Government for providing basic telephone facilities in Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Rajasthan and Punjab. Commercial services by private operators have commenced in the Madhya Pradesh and Maharashtra Circles.
·For Cellular Mobile Telephone Services, 8 licenses were issued in November, 1994 for four metro cities. All the 8 licensees have started commercial services. The total number of subscribers in the four metro cities are about 5.22 lakh as on 30.6.98. Moreover, 34 licenses have been issued to 14 companies since December 1995 for cellular mobile telephone services in 18 Territorial Telecom Circles. Services have commenced in selected cities in 17 circles with about 4.05 lakh subscribers as on 30.6.98. A number of other Value Added Services have also been franchised to various private/public Indian registered companies on a non-exclusive basis.
·The National Task Force on Information Technology and Software Development has given a number of recommendations relating to telecommunications. This includes the provision of Internet access nodes to be opened by DoT and authorized Internet Service Provider (ISPs) at all district headquarters and local charging areas by 26.01.2000. Moreover, Internet access will be made available to the nearest Internet node on local call rates, progressively from 15.08.1998.
·The new Internet Service provider (ISP) policy was announced on November 6, 1998. This incorporates all the recommendations of the National Task Force on Information Technology with no license fee for the first 5 years and a nominal license fee of Rupee 1 after 5 years; permission to set up International Gateways after obtaining security clearance; permission to Railways, State Electricity Boards and National Power Grid Corporations to lease excess/spare capacity for data transmission; access to the Internet through authorized Cable TV; and permission for the last mile linkage by Fibre Optics or Radio Communications etc. An Inter-Ministerial Committee has also been set up for monitoring of communications and according security clearance to proposals for setting up of International Gateways. After the announcement of the policy, 47 licenses have been issued.
The Telecom Regulatory Authority of India (TRAI) has contributed significantly on a number of key issues relating to the development of telecommunications and on the issues faced by private telecom operators. TRAI, in its second year of functioning, has issued two Consultation Papers on Telecom pricing, one in November, 1997 and the other in September, 1998. The TRAI is holding Open House Sessions with the consumers, service providers and other organizations to solicit their views on these papers. With the issuance of Consultation Papers on Telecom Pricing and the Quality of Services, TRAI is trying to re-balance the tariff structure in a transparent manner and to ensure that the public get a better quality of service from the service providers. Finalization of the tariff structure and the quality of service standards are expected to be completed shortly.
