Professional Documents
Culture Documents
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Only six of the service areas were picked up by private operators, leaving 15
other circles under the monopoly regime due to the high bidding amounts,
uncertain market potential and certain legal issues.
Table 1: Waiting list and faults under monopoly regime in India (ITU, 2003)
Year
1985
976,155
382.08
1990
1,960,997
222.00
1995
1997
1999
2000
2001
2,277,000
2,706,000
3,681,000
2,917,000
1,649,000
195.60
208.80
186.00
153.50
150.00
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operating in these states for quite some time. While the government operator
continues to take responsibility for improving rural tele-density, contributing
11 million rural DELs, contributions from private operators stand at just about
3,400 DELs (TRAI, 2003b). Hence market competition and the entry of
private operators have not fulfilled the objective of universal access in India,
especially in rural and remote parts of the country.
Two solutions are emerging to address the problems evoked above: one
is a solution based on wireless local loop technology and the other is a
policy solution based on a Universal Service Obligation (USO) fund. We
describe the status of the implementation of these solutions and the
progress made with them below.
Technology convergence
Traditionally basic services were provided using the copper-based wired
local loop connecting the subscriber to the end office of the Public Switched
Telephone Network (PSTN). In India, the cost of the wired local loop is
estimated to be between Rs. 15,000 to Rs. 25,000 and is touted as one of
the main hurdles to implementing cost-effective local loop access, especially
in rural and remote areas. An indigenous cost-effective Wireless Local Loop
(WLL) technology called corDECT, an enhancement of Digital Enhanced
Cordless Telephony (DECT), has been developed by one of the premier
technology institutes in India (JHUNJHUNWALA, 2000). Apart from reducing
the per line cost to Rs. 12,000 Rs. 15,000, corDECT has been recognized
as the most cost-effective technology for providing both voice and internet
connectivity in developing countries by the United Nations Development
Programme (Business Line,2001). corDECT was adopted by some telcos
including the former monopoly operator in India to provide connectivity in
certain rural areas of the country.
In the year 2000, BTOs approached the government with a proposal
suggesting that they could provide local access loop at much lower cost
using Code Division Multiple Access (CDMA) technology. CDMA, developed
as a competing technology to Global Systems for Mobile (GSM) for providing
cellular services by QualComm in the USA, has found acceptance in
emerging markets. BTOs argued that its quick deployment along with high
spectral efficiency and per line costs of less than Rs. 10,000 made CDMA a
far better alternative than wired access loop for certain areas of the country.
276
The technology, which is mainly being developed for cellular services, also
offers subscriber mobility.
In January 2001, India's industry policy maker, the Department of
Telecommunications (DoT), released guidelines for offering licenses to
BTOs wishing to offer limited mobility. According to the guidelines: "A Basic
Service Operator shall be allowed to provide mobility to its subscribers with
Wireless Access Systems limited within the local area i.e. Short Distance
Charging Area (SDCA) in which the subscriber is registered (also known as
Wireless Local Loop with Mobility (WLL(M)). While deploying such systems,
the operator has to follow the numbering plan of the relevant Short Distance
Charging Area (SDCA) and should not be able to authenticate and work with
this subscriber terminal equipment in SDCAs where it is not registered. The
system should also be engineered so as to ensure that the handover of
subscriber does not take place from one SDCA to another SDCA while
communicating" (DoT, 2001). Subsequent to the above announcement,
BTOs have started deploying CDMA 2000 1X technology, which can provide
voice as well as high speed data connectivity. With these offerings the basic
service becomes very similar to the services being provided by cellular
operators. The subscriber base of wireless local loop services has already
exceeded 2 million in the country. The number of wireless subscribers
including cellular subscribers in certain metropolitan areas is almost equal to
wireline subscribers. It is expected that wireless subscribers will cross the
wireline subscribers in India by 2007 (ET, 2003a).
In view of the above developments resulting from technological
convergence, the telecom regulator TRAI has issued a discussion paper on
unified licensing for both basic and cellular services, to bring in competition
and reduced prices for the consumers (TRAI, 2003c). This may make it
possible to avoid the duplication of infrastructure and to build efficiencies
through the synergy of both basic and cellular networks in the country.
277
revenue potential remains low. Table 2 gives the annual household income
in rural areas of the country (BERRY & SHUKLA, 2003) and affordable telecom
expenditure, assuming that the rural households can spend a maximum of
6% of their income on telecom related services (JHUNJHUNWALA, 2000). The
existing average annual rentals fixed by the regulator TRAI for rural DELs is
about USD 28, which over 50% of households can afford. However, TRAI
has estimated that cost based monthly rental is more than USD 100 (TRAI,
2003a), and hence affordable by only less than 4% of rural households.
Thus to bring the standard price of basic services with in everyone's
reach, especially in rural areas, and to provide incentives for private BTOs to
fulfill their licensing obligations in covering rural areas, NTP99 envisaged
charging a Universal Service Levy (USL), at a prescribed percentage of the
revenue (5% currently) earned by the operators holding different types of
licenses as a contribution towards the Universal Service Obligation (USO)
fund. Basic service providers who fulfill their USO for rural and remote areas
will be reimbursed the net cost of providing the universal service from the
funds collected by way of USL. The USO fund is now worth over USD 350
million and the government is in the process of providing statutory status to
the USO fund for effective distribution amongst BTOs (ET, 2003b).
Table 2: Income and affordability of telecom services in rural India
Annual household income
(USD)
% of households
>1920
1440 - 1920
960 - 1440
480 960
360 480
240 360
<240
>115
86 115
58 - 86
29 58
22 - 29
15 22
<15
1.5
2
7
24
21
18.5
26
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279
and availability to the customer and of lower costs to the firm with fewer
acceptable defects and with proper maintenance possibilities (SICE et al.,
2000). PARASURAMAN et al. (1988) suggests that customers do not perceive
quality as a one-dimensional concept. They stress that customers
assessment of quality include perception of multiple factors. Models
examining product differentiation in a quality conscious oligopoly market
have been developed by SHAKED & SUTTON (1981) and GABSZEWICZ et al.,
(1981).
ZEITHAML & BITNER (2000) illustrate that service quality is a part of overall
customer satisfaction and has the following six dimensions: reliability (ability
to perform the promised service dependably and accurately),
responsiveness (willingness to help customers and provide prompt service),
assurance (knowledge and courtesy of employees and their ability to inspire
trust and confidence), empathy (caring, individual attention to customers)
and tangibles (physical facilities, equipments). While some of the above
such as reliability and tangibles can be objectively measured,
responsiveness, assurance and empathy depend on customers' perceptions
and can be subjective. Since perceptions are always considered relative to
expectations and expectations are dynamic and ever changing, evaluation of
quality shifts over time even in the same cultural, economic and social
environment. What is considered as quality or satisfactory to customers
today may be different tomorrow.
280
Telecom service
quality
Parameters
Price
Security, reliability,
availability,
maintainability,
competence
Compete
On price
On infrastructure
strength
Competitive
behavior
Competition over
price can not sustain
for long; competitors
will settle and
stabilize at the price
near to cost plus
Available in open
market
Based on customers'
experience
Based on customers'
perception
Quicker in the
beginning when
prices are high;
slows down
considerably when
the price settles
down at cost plus
Firm reduces price;
revenue per
subscriber reduces;
subscription
increases; final
outcome depends
on price elasticity of
demand
Efforts required to
further improve the
quality increase with
the level of quality.
However, resources
required at disposal to
improve the quality
increase with quality
leadership, as the
quality leader gets
more subscribers and
hence more revenue
Availability of
comparative
information
Time taken to
improve
Improvement
process
Responsiveness,
communication, Credibility,
metering & billing
credibility, curtsey,
assurance, empathy,
understanding customer
needs
On customer relationship
management
theories to the three facets of quality. As noted in the above table, in cases
of price competition, firms will try to offer lower prices than their competitors
in order to be price leaders and to gain a low price advantage in the market.
However, competition over prices will not continue for a long and both the
competitors will settle down near the cost plus reasonable markup level. The
competitive behavior of operators will be different for telecom service quality
and customer service quality. In the case of telecom service quality, the
realization of quality difference, both by operators and customers is a timeconsuming process. Furthermore, as the risks associated with capital
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282
No.
1
2
3
4
5
7
8
Objective parameters
Service
areas with
more than
one operator
Percentage
of operators
performing
above
benchmark
Percentage of Service
Areas where the
incumbent is
performing above
benchmark
<7
16.67%
0.00%
>87%
41.67%
5.56%
<12 hrs
0.00%
11.11%
<1.5%
16.67%
22.22%
90%,
a) Junction
between local
exchange
(2/1000)
b) Outgoing
Junc. from TAX
to Local
(5/1000)
c) Incoming
junc. from local
to TAX (5/1000)
8.33%
0.00%
50.00%
38.89%
41.67%
38.89%
8.33%
33.33%
>60%
16.67%
5.56%
<0.15%
41.67%
44.44%
Benchmark per
quarter
283
No.
1
2
3
4
5
6
7
Subjective parameters
Satisfaction with
service provisioning
Satisfaction with
Maintainability
Satisfaction with
network performance,
reliability, and
availability
Satisfaction with help
services
Satisfaction with billing
Satisfaction with
supplementary
services
Overall Satisfaction
Service areas
with more than
one operator
Percentage of
operators
performing above
benchmark
Percentage of Service
Areas where the
incumbent is
performing above
benchmark
>90%
18.18%
0.00%
>90%
0.00%
0.00%
>90%
9.09%
0.00%
>85%
>85%
45.45%
72.73%
20.00%
33.33%
>85%
>85%
72.72%
45.45%
46.67%
20.00%
Benchmark
per quarter
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285
To get an integrated view of the model, we start with the main variable Total Subscriber Base i.e. subscribers to the basic telecommunication
services in a circle/area, which represents growth in telecommunication
services. Potential subscribers are the households willing and capable of
subscribing to basic telecom services. An increase in the number of
households increases the number of potential subscribers. The relation has
been represented with the positive causal linkage. As potential subscribers
subscribe to the service there is a natural depletion of the potential
subscriber base. This bi-directional relationship forms a loop with negative
polarity i.e. a negative feedback loop. As the economic development of the
service area increases, the disposable income of the households increases
and hence more will subscribe to the telecom service. A reverse causality
also exists between economic development and telecommunication
penetration levels (HARDY, 1980). As the telecom subscriber base increases,
it boosts the economic development of the area. This bi-directional
relationship forms a positive feedback loop.
An increase in the number of subscribers causes a decline in the
customer services offered, leading to a decrease in customer service quality.
However, the customer service obtained by the subscriber is determined by
the best of the service offered by the firms in the market place. To attain a
competitive advantage, service providers will strive to improve their service
performance to keep pace with the increase in the subscriber base, by
improving customer interfaces, relationship management and metering and
billing standards. This bi-directional relationship forms the negative feedback
loop. Similarly, with increases in the subscriber base and hence a
corresponding increase in the amount of information traffic and the
frequency of requests for connection establishment, telecom service quality
deteriorates due to a congestion effect. However, as with customer service
quality, service providers will increase telecom service quality by setting up
more switching infrastructure and enhancing the quality of access loops and
trunks, which will, in turn, lead to growth in the subscriber base.
The price of services also plays an important role in determining the
growth of services especially in developing countries like India, where price
elasticity of demand for telecommunication services is very high. Increases
in rental and subscription charges shows its negative effect on subscriber
levels in the service area. However, as service providers gain experience
and pick up more and more subscribers, the prices for services in general
should decrease due to the effects of economies of scale. This bi-directional
relationship is represented by the positive feedback loop.
286
287
especially growth in the subscriber base for basic telecom services. The
following section presents a simulation exercise we carried out with the
above model and its validity.
288
5000000
Subscribers
4000000
3000000
2000000
1000000
Month
Simulated Subscribers of
Incumbent
5000000
Subscribers
4000000
3000000
2000000
1000000
Month
289
Figure 4: Simulated and actual subscriber base of the competitor (Tata Teleservices)
Subscribers of C ompetitor
300000
Subscribers
Simulated Subscribers of
C ompetitor
200000
100000
Sep-99
Jan-00
M ay-0 0
Sep-00
Jan-0 1
M ay-01
Sep-01
Jan-0 2
M ay-02
Sep -02
Month
Another important lesson from this growth model is that the incumbent
has a very large subscriber base and will continue to dominate the basic
telecom services in India. Service area specific licensing does not provide
sufficient scale economies for smaller operators to provide basic services
against the large government operator. Only private operators who have
nation-wide presence will be able to attain even financial closures of their
projects. Currently in India only one such private operator has got near
nation-wide basic telecom license, and even this service provider is finding it
tough to attract the limited potential subscriber base in the country.
Moreover, the government operator having over more than 40 million
subscribers could arm-twist the new entrants on interconnection issues. If
the government really wants to introduce sustainable competition, it may
have to resort to unified licensing as opposed to sector-specific licensing.
Recently the Indian government and the regulator have announced the
possibility of introducing unified licensing (TRAI, 2003c). Communications
Convergence Bill (CCBill, 2003), which is yet to be enacted in Indian
parliament, has also proposed a new unified licensing scheme to provide a
sustainable and competitive telecom environment in India.
Thus this model can be used to study the impact of variation of model
parameters on the growth of basic telecommunication services, market
share of both the operators in the service area. The same can be used as
policy debate and decision support tool for all the stakeholders (the
regulator, the incumbent, and the new entrants) to establish and oversee a
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Appendix
Map of the basic telecom service areas in India
Note: The metro areas of Mumbai, Kolkata and Chennai are part of Maharashtra, West Bengal
(W.B.) and Tamil Nadu circles respectively.