Chapter - 1 Introduction: Indian Telecom Industry The Indian telecommunications industry is one of the fastest growing in the world. According to the Telecom Regulatory Authority of India (TRAI), the number of telephone subscriber base in the country reached to 926.5 million at the end of December 2011, against 907 million as of end-September 2011.This represents a year-on-year growth of 17.69 per cent over the same quarter last year and a quarter-over-quarter growth of 2.16 per cent during the October-December 2011 quarter. Telephone subscriber base had grown 2.36 per cent in the July-September 2011 quarter.The overall tele density in India reached 76.86 as of 31 December 2011, as per data released by the Telecom Regulatory Authority of India (TRAI). The wireless user base grew 0.88 percent with an addition of 8 million subscribers, from 911.17 million in February. According to the recently released statistics, till the end of September, we had 33.312 million fixed lines in service and 873.613 million mobile connections activated by the mobile operators, which took the total to 906.925 million by the time. The government connect all revenue villages in India either through landline, mobile or WLL February 2012. “We have already connected about 96 per cent of the revenue villages. The remaining 25,000 villages will have connectivity by june 2012,” stated Mr. Sachin Pilot, Minister of State for Communications and IT. The government further proposes to provide broadband connectivity to all the panchayats in the country by 2013.
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Chapter - 1
Introduction: Indian Telecom Industry
The Indian telecommunications industry is one of the fastest growing in the world. According to
the Telecom Regulatory Authority of India (TRAI), the number of telephone subscriber base in the
country reached to 926.5 million at the end of December 2011, against 907 million as of end-
September 2011.This represents a year-on-year growth of 17.69 per cent over the same quarter last
year and a quarter-over-quarter growth of 2.16 per cent during the October-December 2011
quarter. Telephone subscriber base had grown 2.36 per cent in the July-September 2011
quarter.The overall tele density in India reached 76.86 as of 31 December 2011, as per data
released by the Telecom Regulatory Authority of India (TRAI). The wireless user base grew 0.88
percent with an addition of 8 million subscribers, from 911.17 million in February.
According to the recently released statistics, till the end of September, we had 33.312 million fixed
lines in service and 873.613 million mobile connections activated by the mobile operators, which
took the total to 906.925 million by the time.
The government connect all revenue villages in India either through landline, mobile or WLL
February 2012. “We have already connected about 96 per cent of the revenue villages. The
remaining 25,000 villages will have connectivity by june 2012,” stated Mr. Sachin Pilot, Minister
of State for Communications and IT. The government further proposes to provide broadband
connectivity to all the panchayats in the country by 2013.
The telecom market in India continues to grow at an annual rate of more than 40%. A number of
stumbling blocks have fallen and many more are expected to come tumbling down soon.
According to the Gartner Report, the Indian telecom services market will touch Rs. 696 million by
2012.
Private operators have made mobile telephony the fastest growing (over 100% p.a.) in India. Now
they are venturing into more traditional areas such as long distance and international fixed line
calling. Three main private groups – Bharti, Tata and Reliance are braving the hazards of
competing with the private sector incumbents. This is boom time for the consumers, who have
been paying among the world’s highest tariffs so far.
Licence Fees
Government of India
Ministry of Communication
Department of Telecom (Policy, Licencing & Monitoring Agency
Telecom regulatory authority of India
State-owned Operator Private Operator
Background
The Indian telecom industry is controlled by the state. The Department of Telecommunication
(DOT), reporting to the ministry of communication is the key body for policy issues and
regulation, apart from being a basic service provider in rest of country. Mahanagar Telephone
Nigam Ltd. (MTNL) is the operator in Mumbai and Delhi circles. By an act of the regulatory
agency. The key players in the sectors are,
2.1 Government Bodies:
Ministry of Communications: (MOC)
All the operator of this sector come under the preview of MOC, It is responsible for all major
policy changes, planning, supervision, spectrum control etc.
Department of Telecommunication: (DOT)
DOT was formed in 1985 when the department of posts and Telecommunication was separated
into department of posts and Telecommunication. Till 1986, it was only telecom services provider
in India. It played a role beyond services provider by acting as a policy maker, planner, developer
as well as an implemented body. In spirit of being profitable, non-corporate entity status ensured
that it did not have to pay taxes. DOT depends on Govt. for its expansion plans and funding. Its
pivotal role in the Indian telecom sector has got diluted after formation of TRAI.
Telecom Regulatory Authority of India: (TRAI)
TRAI was founded to act as an independent regulatory body different tariff packages for different
services areas, this become important, as DOT was a regulatory as well as player. Founded by an
act of parliament. The main function of the body was to finalize the toll rates and settle disputes
between players. An independent regulatory in critical as the sector witnesses the competition.
The other entities in the sector under the control of MOC are the two public sector telecom
equipment manufacturers, namely Indian Telephone Industries Ltd. (ITI) and Hindustan Tele
printers Ltd. (HTL). Both these companies are facing financial problems because of product
obsolesces, poor management and over staffing. Telecommunication consultants India Ltd. (TCIL)
another PSU was founded in 1978 to undertake consultancy services in the field of telecom.
In addition there are a number of telecom equipment manufactures in private sector. Of this jelly
field cables is the biggest segments. The Govt. through DOT and other player and enjoys an
effective monopoly. DOT orders are finalized by tender system. Given the resources crunch and
delays in finalizing orders most of these companies are facing financial problems.
Telecom Regulatory Authority of India
Abbreviation TRAI
Formation 1997
Legal statusCreated by Telecom Regulatory
Authority of India Act, 1997
Purpose/focus Independent regulator
Headquarters
Mahanagar Doorsanchar Bhawan,
Jawaharlal Nehru Marg, New Delhi
110 002
Region served India
Chairman DR. J.S. SARMA
Website http://www.trai.gov.in/
(Table 1.1)
Cellular Operators Association of India (COAI):
To establish and sustain a world-class telecom infrastructure and deliver the benefits of affordable
mobile communication services to the people of India.
The Cellular Operators Association of India (COAI) was constituted in 1995 as a registered, non -
profit, non - governmental society dedicated to the advancement of communication - in particular
of modern communication through Telecom Mobile Telephone Services.
The main objective of the COAI is to protect, promote and upgrade mobile telecom operations in
India and also to look after the common and collective interests of its members.
COAI has emerged as the official voice for the Indian telecom industry and interacts directly with.
The Policy Maker:
The Ministry of Communications & IT
The Licensor:
The Department of Telecommunications (DoT)
The Regulator:
The Telecom Regulatory Authority of India (TRAI)
The Spectrum Management Agency:
Wireless Planning & Coordination Wing (WPC)
The incumbent PTT & National Long Distance Operator:
Bharat Sanchar Nigam Ltd (BSNL)
The incumbent International Long Distance Operator:
Videsh Sanchar Nigam limited (VSNL)
Private sector participants in telecom
Apex Chamber Of Commerce:
Confederation of Indian industry (CII)
Federation of Indian Chambers of commerce & Industry (FICCI), Associated Chambers
of Commerce & Industry (ASSOCHAM)
Licensing in Telecom Industry:
The Country is divided into 23 Service Areas consisting of 19 Telecom Circle Service Areas and
4 Metro Service Areas for providing Telecom Mobile Telephone Services (CMTS).
In terms of old licensing scheme of NTP-1994, 8 licenses for Telecom Mobile Telephone Service
in the 4 metro cities of Delhi, Mumbai, Calcutta and Chennai were issued to 8 companies in
November 1994. 34 licenses for 18 Territorial Telecom Circles were also issued to 14 companies
during 1995 to 1998. MTNL and BSNL were issued licenses for operation of Telecom Mobile
Telephone Service as third operator in various parts of the country. In terms of NTP-99, 17 fresh
licenses have been issued to private companies as fourth telecom operator in September/October,
2001, one each in 4 Metro cities and 13 Telecom Circles.
Presently there are 78 licenses held by 25 Companies including MTNL & BSNL for CMTS in 23
Service Areas.
The old licensees of telecom services were permitted for migration to NTP 1999 regime of
revenue sharing which was effective from 1st August, 1999. The license fee, excluding spectrum
charges for telecom services is 12% of "Adjusted Gross Revenue" (AGR) for Metro Service
Areas and category `A' circles, 10% of AGR for category `B' Circles and 8% of AGR for
category `C' Circles.
In addition to license fees, the telecom licensees pay spectrum charges on revenue share basis of
2% of AGR for spectrum up to 4.4 MHz or 3% of AGR for spectrum up to 6.2 Mhz, as the case
may be. The charges will be 4% of AGR for spectrum beyond 6.2 Mhz, which shall be given if
the subscriber base is more than 5 lacs. This spectrum charge of 4% of AGR would also cover
allocation of further spectrum, which may become possible to allocate in future subject to
availability, to add up to a total spectrum allocation not exceeding 10 MHz + 10 MHz per
operator in a service area. Such additional allocation could be considered only after a suitable
subscriber base as may be prescribed, is reached.
In terms of NTP-99, telecom operators will be free to provide, within their area of operation, all
types of mobile services including voice and non-voice messages, data services and PCOs
utilizing any type of network equipment, including circuit and/or package switches that meet the
relevant International Telecommunication Union (ITU) /Telecom Engineering Centre (TEC)
standards.
History of Telecom Industry in India
History of Indian Telecommunications started in 1851 when the first operational land lines were
laid by the government near Calcutta (seat of British power) Telephone services was introduced
in India in 1881. In 1883 telephone services were merged with the postal system. The first wind
of reforms in telecommunications sector began to flow in 1980s when the private sector was
allowed in telecommunications equipment manufacturing. In 1985, Department of
Telecommunications (DOT) was established. In 1986, two wholly government-owned companies
were created: the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications
and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas.
Telecommunication sector in India can be divided into two segments: Fixed Service Provider
(FSPs), and Telecom Services. Fixed line services consist of basic services, national or domestic
long distance and international long distance services. Telecom services can be further divided
into two categories: Global System for Mobile Communications (GSM) and Code Division
Multiple Access (CDMA). The GSM sector is dominated by Airtel, Vodafone-Hutch, and Idea
Telecom, while the CDMA sector is dominated by Reliance and Tata Indicom.
Telecom Telephony:
The technology that gives a person the power to communicate anytime, anywhere - has spawned
an entire industry in mobile telecommunication. Mobile telephones have become an integral part
of the growth, success and efficiency of any business / economy.
The most prevalent wireless standard in the world today, is GSM. The GSM Association (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 Association was formed as a result of a European Community agreement on the need
to adopt common standards suitable for cross border European mobile communications. Starting
off primarily as a European standard, the Group Special Mobile as it was then called, soon came
to represent the Global System for Mobile Communications as it achieved the status of a world-
wide standard. GSM is today, the world's leading digital standard accounting for 68.5% of the
global digital wireless market.
The Indian Government when considering the introduction of telecom services into the country,
made a landmark decision to introduce the GSM standard, leapfrogging obsolescent technologies
/ standards.
Although telecom licenses were made technology neutral in September 1999, all the private
operators are presently offering only GSM based mobile services. The new licensees for the 4th
telecom licenses that were awarded in July 2001 too, have opted for GSM technology to offer
their mobile services.
Telecom Industry in India:
The Government of India recognizes that the provision of a world-class telecommunications
infrastructure and information is the key to rapid economic and social development of the
country. It is critical not only for the development of the Information Technology industry, but
also has widespread ramifications on the entire economy of the country. It is also anticipated that
going forward, a major part of the GDP of the country would be contributed by this sector.
Accordingly, it is of vital importance to the country that there be a comprehensive and forward
looking telecommunications policy which creates an enabling framework for development of this
industry.
New Telecom Policy 1999:
Telecommunications is now universally recognized as one of the prime movers of the modern
economy; hence it's vital importance for a developing country like India. The availability of
adequate infrastructure facilities is critical for acceleration of the economic development of any
country. In fact international studies have established that for every 1% increase in tele-density,
there is a 3% increase in the growth of GDP.
Accordingly, the Government of India has accorded the highest priority to investment and
development of the telecommunications sector.
Telecom requires very heavy investment and it was not possible for the Indian Government to
organize public funding of this sector on such a massive scale. In fact the national telecom Policy
1994, estimated a resource gap of Rs. 23,000 crores to meet the telecom targets of the eighth
five-year plan of the Government of India (1992-97).
It was for this reason to bridge the resource gap between government funding and the total
projected funds requirement and to provide the additional resources to achieve the nation's
telecom targets that the telecommunications sector was liberalized in 1992 and the Government
invited private sector participation in telecommunications.
Telecom mobile services were one of the first areas to be opened up to private competition. The
whole country was divided into the 4 metropolitan cities of and 19 telecom circles, which were
roughly analogous with the States of India.
Telecom Licenses were awarded to the private sector - first in the metropolitan cities of Delhi,
Mumbai, Kolkata and Chennai in 1994 and then in the 19-telecom circles in 1995.
The first metro telecom network started operating in August 1995 in Calcutta.
When telecom mobile services were first introduced in 1994 it was as a duopoly (that is a
maximum of two telecom mobile operators could be licensed in each telecom circle), under a
fixed license fee regime and for a license period of 10 years.
The initial response of the private sector was very encouraging. The attractiveness of the Indian
market - the low tele density, the high latent demand and a burgeoning middle class - brought in
some of the largest global telecom players, foreign institutional investors and the major Indian
industrial houses to invest in telecom, especially the Indian telecom industry.
Telecom proved to be a powerful attractor of foreign investment. The cumulative FDI inflow into
telecom since 1993 has exceeded Rs. 43,000 Million. Within telecom, the telecom industry has
attracted most of the foreign investment since 1993, accounting for almost 50% of the FDI inflow
into telecom - representing amongst the biggest investments in any one sector in India.
Annual foreign investment in telecom increased steadily from an insignificant Rs. 20.6 Million in
1993 to Rs. 17,756.4 Million in 1998.
However, the attractiveness of the Indian market did not last for very long, as by 1997-98, the
private telecom operators were confronted with a series of problems that threatened their very
viability and survival.
As a result of this, FDI inflow into telecom dropped sharply, declining by almost 90% to Rs.
2126.7 Million in 1999. This dropped further in Year 2000 - as until June 2000, only Rs. 918
Million had flown into the country.
One of the key factors responsible for the critical state of the telecom sector & consequently also
the telecom industry was that liberalization / deregulation was undertaken in an inverted manner
vis-à-vis international practices and generally accepted norms. Usually, deregulation is preceded
by tariff rebalancing, institution of a strong and independent regulator and only then is private
sector participation invited.
In India, private sector participation was invited in 1992, the Regulatory Authority was set up in
1997 and the tariff rebalancing exercise commenced in 1999 and is still far from complete.
Further, even when the regulatory authority was set up, there was considerable ambiguity on its
powers, which resulted in virtually each and every order of the Authority being challenged by the
Licensor / incumbent. The ambiguities in the jurisdiction of TRAI resulted in a limbo in the
industry.
Another important factor was the basic approach of the Government towards liberalization.
Consumer benefit was given the go-by and the telecom sector was viewed as a revenue
generator / cash cow for the Government exchequer.
NTP 94 was basically a good policy. It clearly identified that the primary objective of the policy
was to make available affordable telecom services. However, in actual policy implementation,
this key / fundamental objective was disregarded. Licenses were granted through an auction
process and the enthusiastic private sector deluded by the seemingly huge potential of the Indian
market were lured into bidding exorbitant sums of money for telecom licenses.
The huge license fees paid by the private operators resulted in a high cost structure leading to un-
affordable tariffs and lower growth of the market. By end-1998, the telecom industry was on the
verge of bankruptcy and at that time it appeared that the liberalization dream was over & the
nightmare had begun.
It was under the above circumstances that the Government undertook a review of telecom policy
& the role of the regulatory authority. The result was NTP 99, which was announced in March
1999 & the amendment of the TRAI Act in January 2000.
NTP 99 is an extremely forward-looking policy. It significantly changed the dynamics of the
Indian telecom industry as it not only replaced the high cost fixed licensing regime with a lower
cost licensing structure through revenue sharing, but also provides for greater degree of
competition and more flexibility in choice of technologies.
The amendments in the TRAI Act resulted in a considerable strengthening of the Regulator &
greater clarity on its role and powers. It also put in place a separate dispute settlement mechanism
in the form of the Telecom Dispute Settlement and Appellate Tribunal to expeditiously deal with
and resolve issues relating to the telecom sector.
Existing private telecom operators migrated to the new telecom policy regime with effect from
August 1999. There can be no doubt that migration to a more beneficial regime translated into