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Revolution in India's Telecommunications Industry

Revolution in India's Telecommunications Industry

Revolution in India

Reviews

country. The analysts and policy-makers always tend to use a naive statisticteledensity or the number of telephones per 100 people. This has grown from less

Revolution in India’s

Telecommunications Industry

than one telephone per 100 people in 1991 to about 16 in 2006. In addition, the waiting

India’s Telecommunications Industry, History, Analysis, Diagnosis

by Askok V Desai; Sage Publications, New Delhi, 2006; pp 294, Rs 395.

SUNIL MANI

T
he process of economic liberalisation set into motion since 1991 has led to an improved economic performance for the country as a whole with the usual caveats on the distribution of income across regions and size classes. This overall good performance is reflected in many subsectors of the economy and the telecommunications sector is no exception. The book under review attempts to present a comprehensive analysis of the contemporary history of this sector, the institutional changes that have occurred in the provision of telecommunication services and in the regulatory regime and concludes by putting forward an alternative set of proposals for redefining the government’s role in guiding the conduct of this industry. Considering the importance of the industry as a facilitating factor in integrating India’s economy with the rest of the world, the book is a welcome addition to the small but growing literature on the Indian telecommunications industry.

The telecommunications industry has two major facets: first the manufacture of telecommunications equipment and second, the distribution of telecommunications services. The book is almost entirely concerned only with the latter aspect of distribution of telecom services. It is primarily occupied with distilling out the so-called “drama” that went into the privatisation of telecom services in general and mobile services in particular and the government’s attempt to create and then sustain an independent regulatory agency. The book discusses these issues in five chapters spread over 290 pages. Approximately one half of the book is taken up by four appendices dealing with a brief history of telecommunications, business houses in telecommunications, ownership and financing of private telecommunications and foreign companies in the telecommunications services industry in the country plus a list of references and a well-prepared index.

Although not central to the main arguments contained in the book, I have some difficulty with some of these bulky appendices especially the one dealing with a brief history of telecommunications in the world in general and not in India. I fail to see the usefulness of such additional material especially when the history neither includes the development of this vital infrastructure industry in India nor progresses beyond 1959 to include some of the major technological breakthroughs in the world telecom industry. This includes the growth and emergence of digital electronics technologies in the case of fixed line and mobile telephony, which has virtually sounded the death knell to the fixed line technology itself.

However, these unnecessary excursions into history which Desai forces the reader to undertake does not detract one in understanding the main message of the book which is forcefully and elegantly argued out in the first 160 pages. I think it is important to understand these arguments and place them in the context of the socalled revolution that is taking place in the access to telecom services in the country. In fact, Desai has done a marvellous job of initiating an informed conversation about public policy-making in general and with reference to a hi-tech industry such as telecommunications in particular.

I organise the review in the following manner. First I present the main arguments of the book and then confront these arguments with some additional quantitative data and logical arguments to better appreciate Desai’s own position.

Growth of Telecommunications

The main arguments of the book are about the growth of telecom services in the list for telephone connections in most areas has been virtually wiped out and the waiting time itself has shown some dramatic reductions. But Desai does not get impressed with this so-called revolution in supply. He forces the reader to confront this superior overall quantitative performance with distribution of telecom services in urban and rural areas. In fact, this divide popularly referred to as the digital divide (Figure 1) has not shown any significant reductions but has actually shown some slight increases. So any kind of development in technology that does not benefit the vast majority of our citizens does not call for celebration but for concerted policy action so that everyone benefits from this revolution.

The precise change in the crafting of the industry that must be undertaken so that the benefits of the revolution percolates down to every rural citizen in the country is thus the main preoccupation of this book. This is because Desai feels that “a village telephone is not of much use unless it enables villagers to talk to friends and relatives – mostly people in the same or in neighbouring villages” (p 20). Although the caution that Desai sounds may appear appealing to a serious analyst, I feel he is a bit too conservative in his scepticism of the success in increasing teledensity. An increase in teledensity is required for effecting a more equitable distribution.

In addition, the digital divide is yet another manifestation of the fundamental weakness of our economic growth in general, which benefits only a few. Surely Desai does not argue that an improvement in economic growth in the first instance is not bad for the country to begin with. However, what is required is concomitant distributional policies so that the fruits of the growth, including more telephones, can be equitably shared across both urban and rural spaces. But the government’s attempt to provide rural connections has been lackadaisical and Desai rightly refers to the government’s avowed policy of providing a telephone connection in every village as a “fixed and movable target”.

Economic and Political Weekly February 17, 2007

There are two distinct aspects of the book that warrants a closer review. The first is the more factual presentation of the revolution in telecom. The second is a new proposal that Desai offers to alter the present structure of the distribution of telecom services in the country, including a new and more clearly articulated role for the independent regulator.

Telecom Revolution in India

The provision of telecom and internet infrastructure is an area where major strides have been achieved. Industrywide, India has seen a compounded annual growth rate in the subscriber base of about 30 per cent over the past eight years. The increase has come mainly from mobile communications, where the corresponding compound average annual growth rate is 106 per cent per annum. With around 136 million subscribers at present, it is adding about six million a month. In keeping with the euphoric expectations, India’s communications ministry has set a target of 250 million telephone connections – 200 million of them mobile – by the end of 2007. There are, however, sceptics. They argue that cities in India are already close to mobile-phone saturation and that, without big deregulation of the rural market and investment in infrastructure there, it will be impossible to maintain the rapid growth. This increase in the number of subscribers also, as seen earlier, led to an increase in teledensities. But this increase in teledensity did not, as Desai has argued, have uniformity across the country. There are considerable spatial variations.

Despite the phenomenal increases in teledensities, the urban-rural divide continues to be high. In short, the so-called revolution in telecom is largely an urban phenomenon. The increase in the number of subscribers, and indeed in teledensity, has been contributed by three factors, two of which are supply-side and the third a demand-side one. The two supply-side factors are the increase in relative investments in telecommunications [Mani 2007 forthcoming] and the increased competition from the new private sector providers although the competition is much higher in mobile communications than in fixed line services. The demand-side factor is significant reductions in the price of telecom services and especially mobile communications. India currently has one of the cheapest mobile communication services anywhere in the world.

A major omission in the Desai book is the virtual omission of any discussion of internet provision. A look at the index of the book produces just three entries on the term “internet”. Given the fact that the telecommunications technology is increasingly going to be based on internet protocols, it is important that some space be devoted to a discussion of the diffusion of internet technology in India.1 The history of the internet service provision in India could be traced back to 1995 when the stateowned Videsh Sanchar Nigam (VSNL) launched its internet services in the country. Until 1998, VSNL was the sole provider of internet services in the country. In November 1998, the government ended VSNL’s monopoly and allowed provisioning of internet services by private operators. The terms and conditions of the internet service provider’s (ISP’s) licence were unusually liberal with no licence fee and allowed unlimited number of providers. The ISPs could set their own tariffs and even their own international gateways. The department of telecommunications (DoT) issues three types of licences – category ‘A’ for all-India operations; category ‘B’ for metros and state-level circles, and category ‘C’ for medium and small cities (short distance charging areas). Despite such a liberal policy, the growth of internet subscribers has not followed the same pattern as the number of telephone connections (Table 1), although the number of internet users has been rising relatively faster.2 The former may be due to the concentrated nature of the market for internet service provision, imperfections in the access technologies (most of these are dial-up or narrow band connections), the small installation base of personal computers, non-transparent pricing mechanisms, etc. Most of these rigidities are being removed one by one; the most recent one has been the announcement of the policy on broadband.

The broadband policy has envisaged some ambitious targets. According to these targets, the country should have had three million broadband subscribers by the end of 2005 and at any time the number of broadband subscribers should at least be one-half of the total number of internet subscribers. Needless to add, it is too early to judge whether these targets will indeed be met excepting to state that the actual situation in 2005 was far short of the targets for the year. However, with the continued relaxation of the conditions governing the use of broadband and significant reductions in its price by one of the leading broadband internet service providers, the extent of broadband subscribers in the country is bound to increase. Another important impetus for the diffusion of broadband especially among the rural population has come from the central government’s recently announced guidelines on the establishment of common service centres (CSCs) – broadband-enabled computer kiosks that will offer a range of government-to-citizen and business-to-customer services, besides providing sheer access to the internet.3 An increase in the number of internet users and that too based on faster access technologies such as the broadband is a necessary condition for increased use of infocommunications services such as E-governance and E-business.

Voice over Internet Telephony

Voice over internet telephony (VOIP) is a major technological revolution (sometimes meriting the term “disruptive”) and a true telecommunications service as it combines both the traditional telecommunications industry and the modern internet industry. In essence it takes into account the positive aspects of both technologies and allows the consumer to enjoy considerable savings in time and money. Consequently since 1995, a number of countries have permitted VOIP as a technology option to the classical public switched telecom network (PSTN) as well as internet telephony so as to provide a cheaper alternative to classical PSTN calls. In India, the ISPs were allowed to offer internet telephony services (ITS) with effect from April 1, 2002.4 With the choice availability of toll quality (PSTN) and non-toll quality options, the internet telephony has thrown open long distance telephony (LST) to especially those sections of the country, which could not afford the same earlier. Further, the internet telephony is proving to be a key driver for local entrepreneurs to set up community information centres/ cyber-kiosks/internet dhabas, etc, even in small towns and villages.

In short, a significant break in the trend has occurred in the provision of physical infrastructure as the telecommunications industry is concerned. Teledensities have increased and considerable technological improvements in the various services offered have taken place reflecting the world frontier in such technologies. The digital access index (DAI) introduced for the first time by the international telecommunications union (2003) is an inclusive index that measures the overall ability of individuals in a country to access and use

Economic and Political Weekly February 17, 2007 telecommunications and information and communications technology (ICT) in general. It is composed of five parts: infrastructure, affordability, knowledge, quality and usage. A single index value is computed for each of the five DAI categories and the values range from 0 to 1: the closer it is to 1 the better it is. Of the 178 countries for which the DAI is computed China ranks 84th while India is at 119. However, with the increase in teledensity (which enters the calculation of the infrastructure variable) and improvements in both quality and affordability, both India and China are expected to better their respective scores.

The production of telecommunications equipment and services is again another dimension that is completely ignored by Desai, but for some cursory references to one of the leading public sector telecom equipment manufacturers. At the outset, there are severe data problems to adequately measure the size of the telecom equipment sector. Based on the data published in the annual reports of the department of telecommunications, it can be seen that the rate of growth of domestic production of telecommunications equipment have fluctuated rather violently during the period when major investments in the physical infrastructure have been made. This implies that much of the equipment needs were met through imports and this is corroborated by the growing negative trade balance on telecom equipment.

However, an area of the telecommunications industry where the country is doing well is in research and development (R&D) outsourcing. It is the technology sector – IT and telecom – which has the best results to show in outsourced R&D. India’s leading technology companies – Tata Consultancy Services (TCS), Wipro, Infosys, HCL Technologies – and emerging companies like Ittiam and Sasken are beginning to build sustainable contract R&D businesses. Wipro, India’s secondlargest IT company, claims to be the largest “true” third-party R&D services provider in the world, with revenues of more than $ 270 million. Within the technology sector, semiconductor design or design of chips is an area where multinationals came to India a long time ago, and it remains a growth area for R&D outsourcing. India has 70 to 100 very large-scale integration (VLSI) companies, with more than 5,000 engineers providing semiconductor design services. Many big semiconductor companies, including Texas Instruments, National Semiconductors, Intel, Analog Devices, ST Microelectronics, Cadence, Synopsys and Motorola have established research facilities in India, some of them in the early 1990s. Indian IT companies such as Wipro and TCS have considerable numbers of engineers working in the areas of VLSI design and embedded systems.

Alternate Proposal

Desai is not enchanted with the present structure of the industry. He feels that many of the controversies and inefficiencies of the industry are embedded in its very structure. So he proposes an alternate postulation. This new proposal is based on the argument “that government must make sure that a call originating in any eligible network can be carried to a subscriber of any other network, create a technological framework that allows interconnection of a large number of competing operators as well as their easy entry and exit, and enforce uniform minimum quality standards”. At the heart of this alternate proposal is the creation of an additional network that is largely wholesale to be called the National Interconnection Authority (NIA).

The NIA would offer interconnection to local operators everywhere in the country and provide a backbone to which every other national operator must connect at multiple points, so that all subscribers in the country are connected through it. The NIA is a public utility funded by the government. BSNL, the current monopoly incumbent, cannot be given this role. The NIA should offer its services to all telephone networks at cost plus reasonable return. He goes on to elaborating the specific functions of this new creature and in sum, the NIA will be a network operator although with some market power. However, it is assumed that this market power will enable it to charge fair interconnection charges. Competition among the numerous local operators will bring down call charges to the minimum competitive level. Competition will force local operators to experiment with technological, managerial and marketing innovations.

According to Desai, it is these innovations that will drive down the cost of telecommunications services, and raise the penetration of telephones in India’s poor and price-sensitive market. The NIA proposal is thus a novel and effective solution inasmuch as it crafts the structure of the distribution segment in such a way that bridging the digital divide between rural and urban areas becomes organic. This proposal, although refreshing, has been rehearsed elsewhere. Remember the Railtrack5 in the context of rail privatisation in the UK. The NIA, unfortunately, has some striking resemblance to the Railtrack, in which case it may not make any new investments or innovations and may in fact even impede the growth of telecommunications. Also the practical issue of successfully imposing a new structure that is radically different from an existing one too is a distant possibility.

However, Desai has opened our eyes to a new set of proposals, which is helpful for starting a serious conversation on the issue of telecommunications reform to which most citizens are not made a party in view of the complexity of the issues. Desai’s style of writing which is lucid but logically nuanced is extremely helpful in this direction – making his own ideas accessible to a non-specialist audience as well.

EPW

Email: Mani@cds.ac.in

Notes

1 There is an excellent recent discussion of this by Chandrasekhar (2006). He argues that we do not even have reliable estimates of the number of internet users in the country.

2 One has to bear in mind the caveats to this quantification raised by Chandrasekhar (2006). He refers to at least five different estimates of the number of internet users in the country ranging from the high estimate of 60 million to the low estimate of 13 million.

3 In fact, the government is positioning the CSCsnot merely as information kiosks but as a change agent – that would promote rural entrepreneurship, build rural capacities and livelihoods, enable community participation and collective action for social change – through a bottom-up model with focus on the rural citizen. See the details of the guidelines governing the implementation of this strategy, http://www.mit.gov.in/cscguidelines. pdf (accessed on November 21, 2006).

4 Internet service provider policy of 1998 prohibited telephony on Internet. The New Telecom Policy of 1999 envisaged opening upof internet telephony and the government has decided to permit ISPs to process and carry voice signals (restricted internet telephony service) with effect from April 1, 2002, subject to the broad guidelines. For the details see, http://www.dot.gov.in/ispt/isptindex.htm.

5 Railtrack was a group of companies that owned the tracks, signals, tunnels, bridges, level crossings and all but a handful of the stations of the British railway system from its formation in April 1994 until 2002.

References

Chandrasekhar, C P (2006): ‘India Is Online but Most Indians Are Not’, Macroscan, September 25, http://www.macroscan.com/cur/sep06/cur260906India_Online.htm.

Mani, Sunil (2007 forthcoming): Innovation Capability in Developing Countries: A Studyof Telecommunications Industry, Cheltenham, UK and Northampton, Edward Elgar, Mass, US.

Economic and Political Weekly February 17, 2007

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