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The Indian Telecom Sector
A decade ago, India was at the bottom of the pyramid in the world telecom market. But the last decade has seen the Indian telecom sector achieving the fastest growth in the world and today we are the second largest telecom market in the world. At the start of the last decade, India had a subscriber base of just 28.53 million. By 2010, this figure had grown by leaps and bounds to 621.28 million. As on January 31st 2011, India had about 771.18 million wireless subscribers and 34.94 million wired subscribers. This growth story of the telecom sector can be attributed to the favorable policies implemented by the government of India since the liberalization of the economy in 1991. Up till the 8th five year plan, telecom was never an important sector in government planning. In the 8th five year plan (1992-97), the outlook for telecom was 11.90% of the total plan budget. Before opening up of the sector, there were only three incumbents, DoT(Department of telecom), MTNL and VSNL. DoT was a pan India (except Mumbai and Delhi) service provider as well as the policy making authority. MTNL was present in Mumbai and Delhi and VSNL provided international telephony. Given its size and reach, the DoT was a very big rival for any private start up to compete with. Hence to provide the private players a level playing field the DoT was broken up into two independent units, the Department of Telecom services (DTS) and the policy making unit, the DoT. The DTS was later incorporated as BSNL in the year 2000. In order to attract the private and international players to the sector, the government formulated the ‘National Telecom Policy 1994’ (NTP 94). The policy set out some targets like ensuring availability of telephone on demand by as early as possible. With this policy, the groundwork was laid for the entry of private players. VAS and cellular services were opened for private participation, so was telecom equipment manufacturing. Although the NTP 94 facilitated the entry of private players the innumerable problems surrounding the design of auctions and licensing conditions meant that there was no basic service provision by private players till 1997. A new regulatory body, TRAI was established in 1997 by passing an ordinance. Thereby the regulatory responsibility was transferred from the DoT to the TRAI. The DoT became only a policy making body. ‘New Telecom policy 1999’ (NTP 99) was formulated to resolve the contentious issues in the previous policy. This new policy gave a boost to the private participation by liberalizing the license conditions. National & International Long Distance service was opened to the private sector. Further impetus was given to telecom equipment manufacturing. It was after NTP 99 that the private participation and the whole sector began to take flight. In 2000 the government passed an amendment to the TRAI act and formed the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) to take over all adjudicatory issues and disputes from the TRAI. 2004 saw the government take another major policy initiative in the form of the ‘Broadband Policy’. Internet penetration in India was at a dismal low of 5.45 million in 2004 out which broadband had a share of .05 million subscribers. The government had set itself an overtly ambitious target of 20 million broadband subscribers by 2010; however in 2010 the broadband figure stood at 10.7 million only. 2010 was been a big year for the sector. 3G spectrum auctions were finally executed. All licenses for all 22 circles were sold. There was intense bidding by all players involved. The government fetched a total of Rs. 67,719 crores from the auction, which was double of what it had expected. Another significant stride was taken with the pan India launch of Mobile Number Portability on 20th Jan 2011. 2010 also saw Bharti AirTel acquiring Zain’s African assets in the biggest M&A deal in Indian Telecom sector. AirTel had been looking out at overseas acquisition since a long time. Its earlier attempt to take over the African company MTN had been unsuccessful. The $10.7 billion deal made AirTel the 7th largest telecom company in the world. One of the major concerns regarding the sector is the high number of players. As of today, we have 15 cellular service providers in the country. Increased competition and price wars has eroded the margins of the companies. The Average Revenue Per User (ARPU) a performance measure for telecom companies, has been declining since last few years. With the arrival of new players in the last 2 years, this trend has become more profound. 2010 was also the year of the 2G scam. This is the biggest scam to hit the sector to date. The effects of the scam are far reaching including the likelihood of repealing of licenses granted to new entrants. What the sector requires is new reforms by the government. Government needs to clear the air on the issue of consolidation. Markets can’t support the current number of players and consolidation is inevitable. Government should declare policies in this regard so that companies can look at consolidating as soon as possible. Government wants companies to increase rural penetration. But given the problem of low density the returns to be generated are low. It would help if the government reduces a few key taxes. The Union Budget 2011 did not announce any such move and thus left the sector disappointed. Broadband is still lagging far behind. The government needs to provide that much required thrust to this sector. Exciting things like 3G, Broadband wireless access (BWA), and Mobile Number Portability (MNP) are happening in the sector and we have a lot to look forward to. Rural penetration will provide the next big opportunity. One can only hope that the government takes a call on some very important policy matters so as to accelerate the growth of the sector.
Editor's note: Most articles submitted to Chillibreeze go through a selection process. Only 30 percent of submitted articles are accepted for publication on the Chillibreeze.com featured article list. All accepted articles are edited and proofread for glaring errors of punctuation and grammar. Sentence structure is changed in certain cases and sometimes, entire sections are rewritten. If you notice any errors that have slipped through the cracks, do let us know! (Email us at info at chillibreeze dot com). Chillibreeze's disclaimer: This is a contributed article and was published on Chillibreeze in May, 2011. The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article. The relevance of the facts and figures cited (if any) could change after a period of time.
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