The Indian Telecom Sector

The Indian Telecom Sector
India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian
telecom network is the eighth largest in the world and the second largest among emerging
economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of
telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed
economies (CRISIL, www.ibef.com).
Indian telecom sector has undergone a major process of transformation through significant policy
reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for
private sector and were later followed by National Telecom Policy (NTP) in 1994 and NTP'1999.
Historically, the telecom network in India was owned and managed by the Government
considering it to be a natural monopoly and strategic service, best under state's control. However,
in 1990's, examples of telecom revolution in many other countries, which resulted in better quality
of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting
in opening up of telecom services sector for the private sector.
Policy reforms can be broadly classified in three distinct phases
• " The Decade of 1980's saw private sector being allowed in telecommunications
equipment manufacturing. Mahanagar Telephone Nigam Limited (MTNL) and Videsh
Sanchar Nigam Limited (VSNL) were formed and a Telecom Commission was set up to
give focus to telecommunications policy formation.
• " In 1990s, telecommunications sector also benefited from the general opening up of the
economy. NTP 1994 was the first attempt to give a comprehensive roadmap for the
Indian telecommunications sector.
o Availability of telephones on demand (targeted by 1997)
o Universal service covering all villages and one PCO per 500 persons in urban
areas at the earliest (targeted to be achieved by 1997)
o Telecom services at affordable and reasonable prices
o World standard quality of services
• " NTP 1999 brought in the third generations of reforms in the Indian telecommunications
sector.
Telecommunication Services
Telecommunication services include Basic service, Cellular service, Internet Service Provider
(ISP) and Very Small Aperture Terminal (VSAT) services. Government of India (GoI) plans to
introduce a unified license for all telecommunication services in India, and has already allowed
full mobility to wireless in local loop (WLL) operators as a first step. Telecom services are
growing at an approximate rate of around 5 percent per year in terms of revenue and mere 10
% in terms of subscriber base in last five years. Partly the result is due to negative growth in
NLD market (-14% Rs 51,410 million from Rs 59,880 million) and ILD market (-13% Rs 43,460
million from Rs 50,010 million) in 2003-04. Amongst telecom services, cellular services are the
fastest growing, with CAGR of 40 percent over the past four years. Telecommunications
Regulatory Authority of India (TRAI) expects that the total number of cellular connections would
bypass the total number of fixed line connections by late 2004 and early 2005. (As on March
2004 subscriber base of cellular operators is 33 million and basic operator is 42.84 million)
During the past three years, in terms of subscriber base telecommunications services have
been growing at a CAGR of nearly 22%, owing largely to the rapid increase in cellular service
subscribers.
All these services are explained in detail:
•
Background Paper submitted to the Committee
on India: Vision 2020
Telecom Sector in India: Vision 2020
Manas Bhattacharya*, IES
(Deputy Director General (Finance), Department of Telecommunications, Ministry of

Communications & IT, Government of India)
The views exposed in this paper are that of the authors not of the Planning Commission
*
Views expressed are author’s personal.
Telecom Sector in India: Vision 2020
by
Manas Bhattacharya*, IES
(Deputy Director General (Finance), Department of Telecommunications, Ministry of

Communications & IT, Government of India)
Introduction
The purpose of this paper is to construct a vision of Indian telecom sector for the
year 2020, i.e., about two decades from now. Development being a continuous
process, the choice of the year 2020 is just an arbitrary division of time, a pre-
defined time horizon to take stock of what is likely to be achieved.
Pre-portrayal of a stage of development in future requires understanding of the

process of change, the dynamics that set law of motion. In attempting to do so,
the present paper deciphers the recent past.
Process of change is often volatile and responsive to intervention and global

circumstances impacting it. In such an inherently dynamic situation it is
convenient to assume that cross-country experiences incubate the most recent
seeds of change. This is because countries at various stages of development
encapsulate developmental experiences that occur with the passage of time.
The present paper isolates the agents of change based on international

experiences and situates India in this development continuum. The agents of
change, as observed from international perspective, have been broadly
categorized into economic structure, competition policy and technology.
Economic reforms and liberalization have driven telecom sector through several
transmission channels of which these three categories are of major significance.
The paper, as it unfolds, is divided into six sections. Section 1 gives a brief
account of the era of competition that was heralded in Indian telecom sector and
*
Views expressed are author’s personal.
the results achieved. Analysis of the results, particularly comparison with other
major countries intrigued further discussions on economic structure, synergy
between telecom and IT, competition policy and technology in sections 2,3.4 and
5 respectively. Logical extension of the arguments, as they developed, extended
to a vision for 2020 in each of these sections. The paper concludes in section 6.
The current policy configurations of India’s telecom sector have been listed in the
Appendix.
1. Reforms and Performance
India, like many other countries of the world, have adopted a gradual approach to
telecom sector reform through selective privatization and managed competition in
different segments of the telecom market. To begin with, India introduced private
competition in value-added services in 1992 followed by opening up of cellular
and basic services for local area to private competition. The Telecom Regulatory
Authority of India (TRAI) was constituted in 1997 as an independent regulator in
this sector. Competition was also introduced in national long distance (NLD) and
international long distance (ILD) telephony at the start of the current decade1.
The current policy stance affecting telecom sector in India is presented in the
Appendix. Two state-owned public sector incumbents with a large existing
subscriber base dominate the fixed line service. As on December 31, 2001, the
two Public Sector Enterprises (PSEs), BSNL and MTNL2 owned 34.73 million
Direct Exchange Lines (DELs) against 0.45 million privately owned DELs. These
two PSEs were allowed belated entry into the cellular segment in the beginning
of the present decade. Consequently, their cellular subscriber base is tiny
compared to the private operators. Out of 7.3 million cellular subscribers in the
country in June 2002, they had only 0.2 million subscribers3.
Despite asymmetry in initial market endowments between public sector

incumbents and private operators, the act of opening up of the market unleashed
dynamism that was hitherto latent in the sector. This is evident from a number of
performance indicators. In terms of overall size of main telephone lines in
operation, India ranked 14th in the world in 1995. The rank improved to 7 th
position in 2001 (Table 1).
1
Government divested 25 per cent strategic stake of Videsh Sanchar Nigam Limited (VSNL), a public
sector monopoly incumbent in ILD telephony to Tata Group in the private sector out of 52.97 per cent
equity held by the government. This was followed by opening up of ILD business to private players from
April 1, 2002, terminating VSNL monopoly two years ahead of schedule, VSNL, 16th Annual Report,
2001-2002, p.5.
2
Till 1986 telecommunication was a public utility owned by the Government of India. Mahanagar
Telephone Nigam Limited (MTNL) was created in 1986 as a PSE to take out telecommunication services
from the Government entirely in the cities of Delhi and Mumbai. It was in the same year that VSNL was
created in the ILD segment. Bharat Sanchar Nigam Limted (BSNL) was formed as a PSE on October 1,
2000 as a telecom service provider in all other places. Both these incumbents inherited the entire pre-
existing subscriber base with the Government.
3
tele.net, New Delhi, Vol.3, issue no.7, July 2002, pp. 54-55.
Table 1: Top 14 countries in the world in terms of number of main telephone
lines in operation
No. of lines Ranks (1995) No. of lines Ranks (2001)

Country in 1995 in 2001
(‘000) (‘000)
USA 159,735.2 1 190,000.0 1
Japan 62,292.0 2 76,000.0 3
Germany 42,000.0 3 52,280.0 4
China 40,705.7 4 179,034.0 2
France 32,400 5 34,032.9 9
UK 29,411.4 6 34,710.0 8
Russia 25,018.9 7 35,700.0 6
Italy 24,845.0 8 27,303.0 10
Korea, Rep. 18,600.0 9 22,724.7 11
Canada 17,567.0 10 20,319.3 12
Spain 15,095.4 11 17,427.0 14
Brazil 13,263.0 12 37,430.8 5
Turkey 13,215.7 13 18,900.9 13
India 11,978.0 14 34,732.1 7
Source: World Telecommunication Development Report 2002, ITU
Network expansion in India was accompanied by an increase in productivity of

telecom staff measured in terms of ratio of number of main telephone lines in
operation to total number of full time telecom staff (Table 2).
One way of looking at the welfare gains to subscribers is to watch the trend in
prices for telecom services, whether such prices came down in the competitive
regime. What consumer ultimately pays includes rental as well as telecom tariffs.
Because of complications involved in summarizing differential rates applicable to
peak and non-peak hours, a convenient proxy for the change in telecom prices
could be constructed in terms of observed trend in revenue earned from
telephone services at constant prices expressed as a ratio of number of main
telephone lines in operation. Table 2 shows a significant decline in this ratio since
1995 in Indian fixed line segment. It may be noted that the National Telecom
Policy was announced in May 1994. Steps were intensified to introduce private
competition in the basic and cellular services thereafter. The beginning of the
declining trend in per line revenue at constant prices coincided with the period,
which witnessed emergence of competitive pressure in the sector.
Table 2: Trend in productivity and price
Year Number of main Telephone service

telephone lines in revenue at constant
operation per full-time prices (CPI: 1995=100)
telecom staff per main telephone line
in operation
(Rs. ‘000)
1991 15.58 9.13
1992 17.65 10.25
1993 20.32 11.04
1994 23.38 10.17
1995 28.45 9.23
1996 33.90 6.12
1997 41.89 5.62
1998 50.93 4.92
1999 62.97 4.24
Source: Computed from the data published in the Year book of Statistics:
Telecommunication Services, 1991-2000, ITU
Table 3 shows the long run trend in supply and demand of DELs. The number of
DELs in operation (i.e., main line in operation) has been taken as supply whereas
demand has been computed by adding the number of subscribers in the waiting
list to the number of DELs in operation. However, it needs to be kept in mind that
the number in the waiting list, in certain cases, is unlikely to reflect potential
demand for telecom services in the economy. The market potential may be much
more than what is revealed through waiting list because the number in the
waiting list reveals demand registered in those areas where telecommunication
facilities are available and reasonable expectations exist for demand to be
fulfilled. In the areas where telecom infrastructure is not adequate, demand may
not get registered at all and remain suppressed.
Table 3: DEL: Supply and demand

(millions)
Year ending Direct Exchange Waiting List Demand

March 31 Lines
(DELs)
1981 2.15 0.45 2.6
1983 2.47 0.66 3.13
1985 2.90 0.84 3.74
1987 3.49 1.12 4.61
1989 4.17 1.42 5.59
1991 5.07 1.96 7.03
1993 6.80 2.85 9.65
1995 9.80 2.15 11.95
1997 14.54 2.89 17.43
1999 21.59 1.98 23.57
2001 32.44 2.92 35.36
Source: Indian Telecommunication Statistics 2002, Ministry of Communications,
Government of India.
The figure below shows an interesting phenomenon. Total demand tends to

exceed supply by a margin, which does not get narrowed down as supply
expands. It shows that market for fixed line is supply constrained and demand
tends to increase as supply expands. The figure also reveals that there is
significant growth in supply of DEL in the 90s, the eventful decade of sectoral
reforms. The growth momentum is sustained in the current decade with a
positive supply gap.
DEL: SUPPLY AND DEMAND

40
35
WAITING LIST,DEL AND TOTAL
30
DEMAND (million)
25
20
15
10
0
81
83
85
87
89
91
93
95
97
99
01
19
19
19
19
19
19
19
19
19
19
20
YEAR ENDING MARCH 31
Total demand
Waiting List
Del
Table 4 indicates tele-density for the countries included in Table 1 as measured

in terms of number of main lines per 100 inhabitants.
Table 4: Number of main telephone lines per 100 inhabitants
Country 1995 2001

USA 60.73 66.45
Japan 49.61 59.69
Germany 51.33 63.48
China 3.30 13.81
France 56.01 57.35
UK 50.18 57.78
Russia 16.91 24.33
Italy 43.33 47.06
Korea, Rep. 41.24 47.60
Canada 59.85 65.51
Spain 38.50 43.11
Brazil 8.51 21.69
Turkey 21.44 28.52
India 1.29 3.38
Source: World Telecommunication Development Report 2002, ITU
Above table indicates that despite phenomenal achievement in terms of network

expansion, the size of the population is responsible for India’s low tele-density4. A
comparison between Table 1 and Table 4 reveals that countries with smaller
network sizes than India are having much higher tele-densities. However, in
terms of total tele-density, i.e., the sum of fixed-lines and mobile subscribers per
100 inhabitants, India’s comparative ranking in the world improved from 160 in
1990 to 145 in 2000, an improvement by 15 positions5. Nevertheless, closing the
digital divide in terms of tele-density remains a daunting task.
The present paper estimates that in order to attain the network size of USA in
2001 India has to expand its number of operational telephone lines at a
compound annual growth rate (CAGR) of 23.44 per cent between 2002 and
2020. The corresponding growth rates to reach China and Japan’s levels are
23.06 per cent and 17.63 per cent respectively. Even that is not going to mean
much in terms of tele-densities in comparison to most of the countries cited in
Table 4. Assuming no change in India’s size of population (i.e., assuming
population size to remain at 2001 level of 1.03 billion), India’s tele-density will be
18.48 lines per 100 people even if India’s network size reaches the level of USA.
Considering the fact that India’s DEL grew at a CAGR of 19.4 per cent during
1995-2000, significant effort would be needed to step up growth rate above 23
per cent.
Understanding telecom growth prospect would require understanding of the

sources of growth --- what accounts for cross-country differences in growth
experiences. Countries do differ among themselves in respect of their economic
structure, sectoral policies and technological changes. Assuming these three to
be key drivers of growth it can be said that ‘Vision 2020’ of Indian telecom sector
4
It may be noted that tele-density being an average, does not throw light on the distribution of telephones
across various income categories. If distribution is skewed, tele-density may not be an appropriate indicator
of tele-accessibility of the poor.
5
ITU, World Telecommunication Development Report 2002, Geneva, 2002, p.56.
will be shaped in an important way by the evolving economic structure, sectoral
reforms including competition policy and technology trend.
2. Economic Structure
It has been observed that ‘growth in the number of new telephone subscribers
has far exceeded the growth in the global economy’ in the last twenty years 6.
This shows that aggregate growth alone does not determine telecom expansion
and there may be need to look at composition of growth as well. However,
influence of economic structure on telecom expansion (or for that matter on
achievable level of tele-density) does not find explicit consideration in today’s
literature on telecom economics as much as the other two factors, i.e.,
competition and technology. One plausible reason could be because of the
importance that has been attached to income gap as a factor explaining digital
divide. Moreover, income gap, by itself subsumes differences in certain structural
characteristics and therefore diverts the focus of attention from structural gap to
income gap7. Proponents of ‘income determinism’ may stop short of addressing
structural factors because of their primary concern regarding income transfer
between the developed to the developing countries as the only way to address
the problems of digital divide. Structural issues, on the other hand, are more
pertinent to the believers of ‘leapfrogging’ capabilities of the countries who are on
the wrong side of the divide8. It is for them that the present paper goes on to
prove that the effectiveness of direct promotion of telecommunications as a
complementary policy to overall macroeconomic reforms will be determined in an
important way by how structural issues in the economy are addressed.
In the first place, it is noteworthy that there are countries with per capita income
less than that of India but with higher tele-density. As for instance, Bolivia had
per capita income of US$ 2380 in 20009 compared to US$ 2390 for India.
Bolivia’s tele-density10 was 6.05 in that year against 3.20 for India. Moldova had a
tele-density of 13.33 with a per capita income of US$ 2240. Georgia, with a per
capita income of US$ 2470 had a much higher tele-density of 13.86. Though
Ecuador had a little higher per capita income of US$ 2920 compared to India,
tele-density was significantly higher at 10.00. It was also noted that these
countries had either more equitable income distribution than India (measured in
terms of percentage of population living on less than $2 a day) or had a higher
weightage of value added by the service sector in the Gross Domestic product
(GDP) or both.
6
Ibid., p.1.
7
There is a two- way relationship between telecommunications and economic development. The
relationship that operates through telecom expansion causing economic growth is known as Jipp’s Law,
after Professor A. Jipp, who was one of the first to write about it. The relationship is described in terms of a
‘Jipp Curve’, see for discussion, Ibid., p.64.
8
See for instance, Negroponte, N., ‘The Third Shall be First: The Net Leverages Latecomers in the
Developing World’, Wired Magazine, January 1998.
9
PPP income, i.e., income measured in terms of Purchasing Power Parity.
10
Number of main telephone lines in operation per 100 inhabitants.
A comparative picture of India vis-à-vis these countries in respect of the two
aforesaid characteristics are presented in Table 5.
Table 5: Structural characteristics and tele-density, 2000
Country Tele-density Per capita Percentage

Value added
(per 100 income of population
by the
inhabitants) ($ PPP) living on less
service
than $2 a day
sector in the
Gross
Domestic
product
(GDP)
(%)
Moldova 13.33 2240 38.4 53
Bolivia 6.05 2380 51.4 48
India 3.20 2390 41.4 46
Georgia 13.86 2470 Less than 2 52
Ecuador 10.00 2920 52.3 64
Source: (i) Year book of statistics, 1991-2000, ITU; (ii) World Development
Report 2002.
In order to examine the generality with which such relationships manifest in a

larger sample of countries, tele-density was regressed on percentage of
population living on less than $2 a day and per capita income over a cross-
section of 77 countries11 for the year 2000 to yield the following results:
Tele-density = 9.63 – 0.1563** (Percentage of population living on less than $2 a

day) + 0.0019**(Per capita income)
R2 = 0.82;
** : Significant at 1%.
The result shows that income distribution has a much larger coefficient than per
capita income and therefore emphasizes the fact that telecom development
strategy should have substantial equity component built into it.
To assess the significance of service sector in telecom development, tele-density

has been regressed on percentage contribution of value added by the service
sector in GDP over a cross-section of 115 countries for the year 2000. The
following result was obtained:
11
There were 77 countries, for which required data was available.
Tele-density = - 31.54 + 0.9267** (Percentage contribution of value added by the
service sector in GDP)
R2 = 0.48;
** : Significant at 1%.
The result indicates a strong association between service sector growth and
telecom development implying that future telecom expansion will depend
significantly on the proliferation of services in the economy.
As a matter of strategy, it can be said that targeted intervention through access

promotion can be potentially instrumental in delivering growth with equity. Access
promotion means expansion of telecommunication and therefore will cause
growth to occur12. Consequently, a broad based access promotion strategy would
lead to more equitable growth.
The first step towards broad based access promotion in India was initiated in the
eighties when Public Call Offices (PCOs) were given private franchises for both
domestic and long distance services. Total number of PCOs grew from 0.2
million in 1993 to 0.9 million in 2001. The Eighth Plan (1992-97) targeted at
provision of Panchayat 13phones in 360,000 villages. Thrust on Universal Service
Obligation (USO) as a part of broad based telecommunication development
strategy14 began with the National Telecom Policy of 1994 and was reinforced as
one of the objectives of the New Telecom Policy 1999 (NTP-99). The licenses for
the basic services, for which open tenders were invited in January
1995,contained an obligatory provision in the agreement for the private operators
to provide 10 per cent of the DELs as Village Public Telephone (VPT). NTP-99
targeted complete rural coverage by the end of 2002 providing Village Public
Telephones15 in all the 0.6 million villages with emphasis on ‘availability,
accessibility and affordability’16. By the end of January 2001, 0.4 million villages
have been covered. Share of rural areas in total number of DELs in the country
stood at about 22.6 per cent in January 2002, increasing from 21.4 per cent in
March 200117. The trend is suggestive of potential scope of expansion of
telecommunication in the rural sector.
12
It was empirically evident that countries having more than expected number of telephones or a higher
tele-density (given their income levels) experienced higher growth than the countries with lower than
expected number of telephones or tele-densities. See, The World Bank Group, Information and
Communication technologies: A World Bank Group Strategy, Washington D.C., 2002, p.6. If more
telephones equal growth, countries can leapfrog several percentage points growth through direct telecom
promotion.
13
Local self-government body consisting of elected representatives at village level.
14
USO is now common in many countries seeking promotion of rural telephony. The modalities differ in
matters of details.
15
VPT is a community telephone facility.
16
NTP 99 also envisaged provision of Internet access to all district headquarters by 2000.
17
Government of India, Ministry of Communications & Information Technology, Department of
Telecommunications, Annual Report, 2001-2002.
Though USO is mandatory for the basic service operators, other service
providers are also allowed to participate in it subject to technical feasibility. The
subsidy element of the USO will be financed from a fund generated through
Universal Service Levy (USL), i.e., levy of certain percentage of license fees
charged from different service providers. As a follow up of NTP 99 and
subsequent recommendations of the TRAI, The Universal Service Support Policy
(USSP) came into effect from April 1, 2002 and the Department of
Telecommunications (DOT) issued detailed guidelines for implementation18.
Apart from expansion of VPTs, the guidelines also envisaged upgradation of
VPTs to Public Telecom and Information Centers (PTICs) to provide data
transmission facilities and installation of high speed PTICs (HPTICs) in the Short
Distance Charging Areas (SDCAs) with broadband access. Allocation of subsidy
will be to the bidder quoting lowest amount of subsidy, chosen through a multi-
layered bidding process subject to a ceiling of the benchmark cost estimated by
the DOT on the basis of efficiency criteria19.
So far, the public sector incumbents have spearheaded expansion of rural

telephony with very little contribution by the private sector. By the end of
December 31, 2001, out of 0.4 million villages, the private operators covered only
718 villages and the rest was by the public sector.
Private sector presence is prolific in Public Call Offices (PCOs) and Internet
Kiosks in the cities and towns20. However, there are certain pilot projects in the
rural sector working to evolve cost effective wireless technological solutions in
partnership with local service providers. Many such projects have developed
applications based on local content and software in Indian languages and user-
friendly icons for illiterate people21.
18
Department of telecommunications of the Ministry of Communications & Information Technology is the
policy making arm of the Government of India in the area of telecom development.
19
Chilean experience is a frequently quoted success story of leveraging US$ 40 million of private funding
‘on the basis of just over US$ 2 million of public subsidy’, see for discussion, The World Bank Group,
Information and Communication technologies: A World Bank Group Strategy, Washington D.C., 2002,
p.11 and Bjorn Wellenius, Extending Telecommunications Service to Rural Areas – The Chilean
Experience, The World Bank Group, February 1997. Early pilot results showed that in output-based
contracts for rural services Peru succeeded in mobilizing private investment equivalent to double the
amount of subsidy provided, for details see Cannock Geoffrey, Telecom Subsidies, The World Bank Group,
Private Sector and Infrastructure Network, June 2001.
20
MTNL also commercially launched 25 Internet kiosks each in Delhi and Mumbai. Government of India,
Ministry of Communications & Information Technology, Department of Telecommunications, Annual
Report, 2001-2002, p. 64.
21
CorDect is one such technology. See, Noronha, Frederic, Internet for all: Indian villagers to get access at
prices they can afford, www.tenet.res.in ; also by the same author, Web kiosks for India’s villagers,
www.tenet.res.in ; ‘Communications Revolution set to transform 1000 Tamil villages’, Infomy, February
15, 2001; ‘India Online’, Nature, January 24, 2002. It has been reported that ‘In Southern India, skilled
Internet users download information about weather, agriculture and fishing and broadcast it over the radio’.
ITU, World Telecommunication Development Report 2002, Geneva, 2002, op.cit., p.34.
Telecommunications have emerged as a springboard of ICT applications with
economy-wide ramifications. There are plenty of anecdotal evidences22 to show
that telecom is improving life chances across the strata of the society tiding over
the ‘divide’. A whole range of information based industry and applications have
come up creating new sources of employment and earning with welfare
enhancing consequences for the wealthy and the poor. As a meta-technology,
ICT has caused rapid innovations to occur in all other areas of material sciences.
As a fabric of information society, ICT has improved access in the fields of
education, healthcare, governance and all aspects of business services. It has
also improved the abilities of the poor to manage risks and mitigate vulnerabilities
through provision of timely information.
Vision 2020 is a vision of information society and knowledge economy built on

the edifice of ICT. In India, the aggressive expansion of public sector
telecommunications infrastructure in hitherto uncharted territories of
geographically remote locations would unleash latent economic energies and
market forces, which will erode the very foundation of perceived lack of
profitability of rural investment among the private investors. Once this is
achieved, Vision 2020 will be a vision of wealthier and more equal society full of
creativity, innovation and competition.
3.Telecom and IT
The vision of telecommunications in 2020 is a vision of information society built

on an edifice where IT and telecommunications merge. Rapid technological
convergence has already implied a symbiotic overlap between the development
strategies of IT and telecommunications. Part of today’s IT is ‘telecom writ large’,
it flourishes on the telecom-network and in turn permits modern day
telecommunications to use sophisticated IT-software. Hardware is a common
platform for both IT and telecom.
There is a legacy vision derived from export-success of India’s software that has
given rise to optimism regarding India’s growing pre-eminence in global IT
canvas. Such a vision builds on a much larger vision of all round development of
IT that pervades wide cross-section of Indian economy and society. Deeper
analysis shows that there is need for a comprehensive IT development strategy
to ensure India’s durable presence in the global software market. As discussion
in the subsequent paragraphs will show, ‘enclave’ type development of software
with exclusive focus on export can not bring about desired benefits if such a
strategy ignores the linkages between export and the domestic market. Vision
2020, therefore, is a much larger vision.
22
See for example, Life at Work in the Information Economy, World Employment Report 2001, ILO,
Geneva; Dasgupta, S., Somik Lall and David Wheeler, Policy Reform, Economic Growth and the Digital
Divide: An Econometric Analysis, Working Paper No. 2567, World Bank, March, 28, 2001; Sood, Aditya
Dev, ‘How to Wire Rural India, Problems and Possibilities of Digital Development’, Economic and
Political Weekly, October 27, 2001.
First, it is to be appreciated that foreign exchange contribution of software export
net of import of hardware is roughly fifty per cent 23. Net foreign exchange
contribution will increase if India is able to develop a strong base of hardware.
Second, scrutiny of the structure of India’s software export vis-à-vis the emerging
dynamics of the global market reveals that India has marginal presence in the
fastest growing segment of the global IT market consisting of software packages
and software products24. India’s close competitors, on the other hand, have
achieved greater success through diversification of exports with software
packages25. There is, therefore, need for India to climb value chain with more
innovative software products in the international market. This is possible when
India is able to broad-base the development of IT with a strong and large
domestic market supporting innovation and its diffusion along with the growth of
component manufacturing base. Appropriate synergy between the domestic and
export market will be key to enduring success of Indian IT sector in overseas
market and development of state-of-the art telecom infrastructure is a
prerequisite to both.
Finally, development of human resources through IT education, training and skill

development is fundamental to the whole process.
Two important indicators of IT penetration in Indian market are Internet use and
availability of Personal Computers (PCs). There has been significant expansion
in both during the last decade (Table 6).
Table 6: Growth in availability of Personal Computers and estimated

number of Internet users
Availability of Personal
Year Estimated number of Computers
Internet users
1992 1,000 410,000
1993 2,000 560,000
1994 10,000 800,000
1995 250,000 1,200,000
1996 450,000 1,500,000
1997 700,000 2,000,000
1998 1,400,000 2,700,000
1999 2,800,000 3,300,000
2000 5,00,0000 4,600,000
23
Joseph K.J. and K.N. Harilal, ‘Structure and Growth of India’s IT Exports, Implications of an Export
Oriented Growth Strategy’, Economic and Political Weekly, August 25, 2001, p.3267.
24
Ibid., p.3265.
25
Chakraborty Chandana and C. Jayachandran, ‘Software Sector: Trends and Constraints’, Economic and
Political Weekly, August 25, 2001, p.3258.
Note: Data for 1991 on Internet users is not available. The series start from 1992
because data on both is available from this year.
Source: Yearbook of statistics, 1991-2000, ITU
Despite impressive growth in the number of Internet users and availability of

PCs, India remains on the wrong side of the divide (Table 7). Number of users of
Internet is still a negligible fraction of India’s total population. Per capita
availability of PC is also very low.
Table 7: Internet penetration and PC availability, 2001
Countries falling in Internet users per

different income 10,000 inhabitants PCs per 100
categories inhabitants
Low income countries 62.21 0.59
Of which 68.16 0.58

India
Lower middle income 264.94 2.45
countries
Upper middle income 992.66 8.24
countries
High income countries 3992.87 37.31
Source: ITU, World Telecommunication Development Report 2002
Internet kiosks, telekiosks, telecottages and cybercafes have emerged in

important roles in expanding community access to ICT popularizing IT among the
masses and promoting domestic market. However, their expansion crucially
hinges on the growth of telecommunications infrastructure. In India, a spectrum
of technologies has been unleashed to connect remote villages, which includes
Wireless in Local Loop (WLL), wireless cum wired technology developed by C-
DOT26, radio systems, switching systems of different capacities integrated with
underground cables, CorDect and medium capacity satellite systems. Besides, a
number of small-scale ICT initiatives is already at work in different parts of the
country (Box 1). It is envisaged that with the growth of telecom infrastructure
such examples would multiply and create an information society in not so distant
a future.
Box 1: Harbingers of information society
26
The Government of India promoted center for the Development of Telematics (C-DOT) in 1984 to
develop indigenous digital switches. C-DOT also designed ‘Rural Automatic Exchange’ (RAX) and
manufactured small meters, which became popular with the PCOs. See Noronha Frederic, Internet for all:
Indian villagers to get access at prices they can afford, www.tenet.res.in.
SARI: Sustainable Access in Rural India (SARI) is a joint initiative between MIT
Media Lab, Center for International Development at Harvard, IIT Chennai and the
I-Gyan Foundation. The project is located in northern Madurai district of Chennai.
It seeks to provide voice and Internet connections in 1000 villages with the use of
CorDect system. Apart from provision of a kiosk in each village, connections will
be provided in schools, colleges and primary health centers. The project also
provides for interest free loans and easy installments for purchase of computers
and training support to technical personnel. Continuous evaluation of the socio
economic impact of the project is a part of the initiative27.
n-Logue: ‘n-Logue’ is a company incubated by a group of professionals in IIT

Chennai under private initiative. The company offers wireless equipment,
multimedia computer equipped with software in Indian language and other
accessories to set up cost effective Internet kiosks in partnership with local
service providers. Such kiosks are coming up in Madhya Pradesh, Rajasthan and
Tamil Nadu28.
M.S. Swaminathan Research Foundation: This project is located in Pondicherry

of South India. Village Knowledge Centers have been established under this
project with dedicated web sites of locally relevant information. The Foundation
also disseminates knowledge and information through wireless radios to rural
communities29.
The Warana Wired Village Project: This is a collaborative project between the
central and the state government, located on the banks of river Warana in
Maharashtra. It operates distributive accounts system for the Warana sugarcane
cooperative.
The Gyandoot Project: A joint initiative of the district collector of Dhar district of
Madhya Pradesh and the District Rural Development Agency (DRDA). More than
thirty Community Information Centers (known as ‘Soochanalaya’), one for a
group of villages, have been set up to provide information on market rates of
agricultural products, land records, education, health, Panchayat related matters,
governance issues, issue of certificates and registering complaints. E-mail
facilities in Hindi are available. Majority of these Centers are own and run by the
village communities with costs borne by the Panchayats. Others are privately run
and bank financed30.
Tarahaat.com: This is a commercial project promoted by a Delhi based NGO,

‘Development Alternative’. The project provides online information centers for
27
‘Communications Revolution set to transform 1000 Tamil villages’, Infomy, February 15, 2001 cited in
www.tenet.res.in.
28
Noronha Frederic, Web kiosks for India’s villagers, www.tenet.res.in.
29
ILO, 2001, p.193.
30
Kothari, Brij, Avinash Pandey and Amita Chudgar, ‘Gyandoot: Can it be the harbinger of knowledge?’
India Infrastructure Report 2002, Governance issues for Commercialization, 3i Network, OUP 2002,
pp.198-205.
rural communities with interactive and graphic interface in some places at North
India.
Hole-in-the wall initiative: A pilot project launched by the NIIT, a software

company in urban slums by providing unmanned computers. Through continuous
video monitoring it was found that despite language difficulties boys and girls
from the neighbourhood developed access skills in web surfing and graphic
designs even without formal training.
Indiagriline: This is an online network of trading, contract management, banking,

retailing etc. promoted by EID Parry, a company dealing in food products31.
School Net India: An initiative of the Infrastructure Leasing and Financial

Services (IL&FS) to develop online multilingual content and CD-ROMs as
supplementary teaching aid in classrooms.
SEWA: Self-Employed Women’s Association (SEWA) is an NGO, which

organizes poor and self-employed women. SEWA has promoted online global
marketing of the products turned out by their members32.
Source: Sood, 2001 and other sources.
The list of anecdotes included in the Box is by no means exhaustive. With

progress of connectivity such examples will multiply bringing in its train benefits
of an information economy and society. According to one estimate, 600,000 jobs
have been created in cyberkiosks in India in addition to possible employment due
to spillover effects33.
Employment benefit of ICT occurs across wide range of skill spectrum. Apart
from growth of employment and income at firm level due to ICT induced
productivity growth in a large number of industries, a whole range of ICT enabled
activities and services has started booming. Some such examples include
operations like data entry, preparation and maintenance of database, revenue
accounting, preparation of payroll, processing of insurance claims, human
resource services, call center operations, running of customer support centers,
medical transcription, content development and animation, web site services,
software development, hardware repair and maintenance, systems engineering,
systems design and integration etc. The process of job creation and productivity
growth is expected to bring about market expansion supporting growth of
domestic hardware and software industries broadening the base of ICT
development. This, in turn, will induce R&D spontaneity enabling India to transit
from the status of an importer of sub-assemblies of IT and telecom hardware to a
higher state of development endowed with strong domestic manufacturing base
31
www.indiagriline.com
32
ILO, 2001, p.195.
33
Ibid., p.318.
of sophisticated hardware and software products booming from indigenous ideas,
innovation and comparative advantage. A modern telecommunication
infrastructure will accelerate this process through provision of high-speed
communication links. In the global IT market India will be a major player at the
higher end of value chain based on perfect synergy between the domestic and
overseas market.
As in the past, state will play an important role in this development both as a
proactive policy maker and also by taking a position in the market. Major policy
trust of the government to promote IT was through provision of Technology Park,
fiscal incentives, simplification of administrative rules and procedures, promotion
of institutional finance including venture capital and liberalization of foreign equity
participation. In the area of software, policies to encourage global presence
included market support, overseas campaign for export promotion, quality
certification, information security management and R&D support. Indian IT
companies have been allowed to issue ADR/GDR linked stock options to
employees under favourable tax treatment. Approval mechanism has been
simplified under automatic route permitting overseas business acquisition
through ADR/GDR route. The IT Action Plan on Hardware envisaged extending
Export Oriented Unit (EOU) status to hardware manufacturing units and deemed
export status to telecom manufacturers.
Traditionally, state has been the most important source of demand for IT
industry34 in India. The trend continues even today and government spending on
IT is a key driver of domestic demand for IT products. One reason is that the
government has significant market presence in many goods and services. The
other reason is that the government is consciously promoting the use of IT in
activities within its domain of activities. To undertake development of IT as a
thrust area a separate ‘Ministry of Information Technology’ was formed in
October 1999. Recently, Ministry of Communications and Ministry of IT have
been merged to form a single ‘Ministry of Communications & IT’.
Apart from encouraging use of IT in research and scientific areas, the

government has also taken major initiative to computerize work of various
ministries and departments. Ministries and departments have come up with their
websites with all the relevant details. Though computerization of many more
areas within the government are under implementation, significant results have
already been achieved in computerization of railway reservation, allocation of
Permanent Account Number (PAN) for income tax payers, processing of
passport application, conduct of public examination, custom clearance, Regional
Transport Offices, schemes under implementation by the NGOs, vigilance
information, VSAT based money orders under the Department of Post, Supreme
34
Evans, Peter B., ‘Indian Informatics in the 1980s: The Changing Character of State Involvement’, World
Development, Vol.20, No.1, January 1992, p.2.
Court, land records, Parliament questions, debates and deliberations35. Different
ministries have been advised to earmark 2 to 3 percent of the budget on IT.
Many state governments have also declared IT policies and computerized

records, certificates, registration of deeds, issue of licences, various payments
systems etc.
Computerisation is also spreading very fast in the field offices of the government,
financial and educational institutions. According to one estimate, 12,000 out of
45,000 bank branches have implemented major computerization36.
Legislative framework has been put in place with the enactment of the
Information Technology Act 2000 recognising digital signature as means of
authentication of government certificates. The act imparts legitimacy to contract
through electronic means unless otherwise agreed. Indian Copyright Act of 1957
and its amendment in 1994 outlaw software piracy.
The foundation of digital democracy has been laid to usher in an era of e-

governance, transparency and e-accountability. A recent study shows that the
number of Indians using Internet for accessing government services and
products as a proportion to total number of Internet users has increased from 22
percent last year to 31 percent this year37.
Growing legitimacy of IT based transactions in government has started catalyzing

the use of IT in private market and expanding the domain of e-business and e-
commerce reducing transaction costs significantly and increasing productivity.
In time to come, the battle against digital divide will be won and ICT will be
leveraged to benefit the poor. Apart from higher earnings associated with
productivity gains and job creation, benefits for the poor will also result from risk
mitigation and reduction in vulnerability due to timely availability of information on
weather and market, guidance on improved farm practices and elimination of
exploitation by the intermediaries. There will be general improvement in the
quality of life of the poor through more responsive governance, improved delivery
in the social sector programmes, better quality of public services and more
effective public expenditure with more efficient targeting and monitoring. E-
education and e-medicine will surmount all the access barriers to reach the
remote and isolated locations.
There has been substantial depletion in the stock of IT personnel in India through
migration into USA and Europe. There is need to replete this stock and plan for
increased availability of skilled manpower to meet the future demand. Education,
training and skill development will meet the demand for skilled manpower of the
35
These are only some examples. More details of computerization in the Central and the State
Governments are available in the web site of the Ministry of Information Technology. See www.mit.gov.in.
36
www.nasscom.org.
37
‘More Indians using Net to deal with Govt’, The Times of India, November 9, 2002, p.1.
industry and at the same time keep the cost of IT education, servicing and
maintenance within reasonable limit. Trained manpower will also be an important
source of demand for IT products and services. The Government has taken steps
to increase the teaching facilities to double the number of technology students
and sponsored training institutes like Indian Institute of Information Technology
and Management at Allahabad, Bangalore, Kolkata and Hyderabad in addition to
Indian Institute of Technology and Management at Gwaliar. Initiative has also
been launched to upgrade existing regional engineering colleges, give active
support to the polytechnics and colleges and encourage private participation in
training in the field of IT. A society38 has been formed to extend accreditation to
institutions at non-formal sector for certain courses and network services39 have
been launched to link academic and research communities.
Software in local languages is being increasingly available. Computers have also

been specially designed for use in the mass market40.
Vision 2020 is a vision of IT for the masses. All round development of digital
literacy would put Indian society in complete command over the ICT tools.
Available indications suggest that IT education is gaining popularity41. Perceived
utility of ICT as enabler of business processes would continue to enhance market
for IT education. Education will spur innovation, productivity and
entrepreneurship. A knowledge society will be formed with participation from the
rich and the poor, men and women, young and old, organized and unorganized,
government and the governed.
4. Competition Policy
Countries often differed in pattern of sequencing and the speed of liberalization.

Competition has been controlled within limit by state policy through licensing of
limited number of market players in certain segments granting thereby a period of
exclusivity to the operators. Heterogeneity of routes to sectoral reforms, as seen
from the examples of some of the Asian countries, classified into different
combination of policies and approaches to telecom reform, are presented
below42:
1. Competition in the fixed line segment with state owned incumbents:

China, India and Korea.
38
Known as DOEACC
39
ERNET
40
‘Simputer’, a pocket book sized icon based computer is one such example.
41
In a backward semi-arid sparsely populated district of Rajasthan, more than 100 computer-training
centers have been opened under the franchise of popular brand names to operate on commercial basis.
Despite total absence of reliable connectivity in the district, enrolment in these centers is high indicating
popularity of IT courses. See, Sood, 2001.
42
Taken from Fink Carsten, Mattoo Aditya and Randeep Rathindran, Liberalising Basic
Telecommunications: The Asian Experience, The World Bank, Development Research Group, Washington,
DC, November 2001.
2. Privatization of state owned incumbents but deferred competition through
exclusivity granted to private investors: Hong Kong, Indonesia, Malaysia,
Pakistan and Singapore.
3. Simultaneous introduction of privatization and competition: Japan and Sri
Lanka.
4. Opening up of local market to competition first: Hong Kong, India and
Singapore.
5. Opening up of competition in the international services first: Korea,
Malaysia and the Philippines.
6. Introduction of second domestic long distance carrier first: China
7. The sector ministry exercises regulatory functions: China, Indonesia,
Japan, Korea, Malaysia, Taiwan and Thailand.
8. Separate regulator with the responsibility for interconnection lying with the
dominant operator while regulator is responsible for arbitration of disputes:
Hong Kong, Pakistan and Philippines.
In most countries, restricting the number of licensees or imposing geographic

limitations has limited competition. In India, for instance, competition in cellular
telephony was allowed in a duopoly mode. This was gradually increased to
licensing of four operators in each of the four metros and thirteen circles. Basic
service in India is still limited to one private operator competing with state owned
incumbents in the circles. Though private sector has been licensed and they are
laying infrastructure, metros are still in the grip of public sector monopoly and it
will take a while before private competition takes place. Differences in modes of
privatization have been observed in other countries. In Thailand, private entry
was allowed through Build Operate and Transfer (BOT) mode while the network
was controlled by the state. In Vietnam, network was publicly managed with
foreign operators participating in provision of training, equipment and supervision
through Business Cooperation Contracts (BCCs). China did not allow private
entry in the telecom sector and limited competition between state-owned entities
of the ministries. Many countries in Asia restricted foreign equity participation.
For example, China, India, Indonesia, Korea, Malaysia, the Philippines and
Thailand limited foreign equity below fifty per cent43.
It is interesting to note that competing technological standards have also limited

competitions. Countries are divided in their technical options for mobile networks.
While Europe predominantly opted for Global System for Mobile communications
(GSM) technology and USA for Code Division Multiple Access (CDMA), within
Asia, China, India, Indonesia and Malaysia have opted for GSM in cellular mobile
network, whereas Hong Kong, Korea, the Philippines, Singapore and Thailand
have opted for CDMA44.
However, several countries are now opting for more than one standards. For
example, in USA, ‘Companies like AT&T and Cingular are increasingly moving to
43
44
Ibid., p.6. India has opted for CDMA in WLL.
GSM’45. ‘China is going with some CDMA as well.’ 46 India is using CDMA in
Wireless in Local Loop (WLL). Multiple technological standards fragment market
rendering base stations purchased from one company unworkable with switches
bought from another company potentially limiting the scope of exploitation of
economies of scale that could accrue in a multi-vendor environment47.
The way multiple technological standards may confuse regulatory stance leading
to market failures can be seen from the recent experiences of several vendors
while trying to launch 3G in Europe. European Union has mandated a single
technological standard called ‘Wideband CDMA’ (W-CDMA) for 3G coverage.
Some of the companies that sought to launch 3G services in September 2002
(deadline stipulated in the licenses for the launch of services) faced the
difficulties that networks and handsets of different vendors could not work with
each other. ‘CDMA2000’, another standard for 3G, which is working successfully
in Asia and USA could not be adopted in Europe because European operators
did not have freedom to use ‘CDMA2000’ as per their licensing restrictions48.
Which competition policies worked better than others? Literature cites certain
developmental experiences to draw conclusions from ‘before and after’ and ‘with
or without’ evaluations. The purpose here is to cite these references. In the
absence of more detailed information, examination of the validity of such
conclusions is not intended here.
Competition with privatization
World over, there is an observable trend of growing number of state owned

telecom incumbents being privatized. In 2000, from among the member countries
of the ITU, those with fully or partially privatized incumbents outnumbered
countries with fully state-owned operators49. It has been observed that ‘countries
with a privately owned incumbent operator account for 85 per cent of the world
market by revenue. Those with fully state-owned operators, in mobile as well as
fixed lines, account for just two per cent.’50
It has been suggested that privatization with competition works better than
privatization without competition. For example, Chile started privatization in 1988
but did not limit competition through grant of exclusivity period or licensing
obligations. Argentina, on the other hand, privatized in 1990, but granted seven-
year exclusivity period, which was subsequently extended by three years.
Moreover, Argentina imposed licensing obligation in terms of stipulated growth
rate of 6.5 per cent. In the decade following privatization, Chile far exceeded
45
Interview with Ian Goetz, published in tele.net, Vol. No.3, issue no. 4, April 2002, p.32.
46
Ibid., op.cit., p.31.
47
Ibid., p.31.
48
3G telecoms: Let Europe’s operators free, The Economist, September 28th – October 4th 2002, p.15.
49
50
Ibid., p.2.
Argentina in terms of network growth. Moreover, starting with half of the tele-
density, Chile surpassed Argentina in ten years’ time51.
The issue of granting a ‘period of shared exclusivity’ versus ‘allowing more

extensive market entry’ has been discussed in the literature. Experience of UK
has been cited in this context. Telecom expansion was reportedly much more
rapid in the United Kingdom (i) after the expiry of exclusivity period from 1982-90,
that was granted to Mercury, the second operator and (ii) after cable TV
operators were permitted to offer tele-services52. Therefore, it was concluded that
open competition was better than duopoly. Both USA and Canada lost in terms of
their mobile tele-density-rankings in the world in the 90s. Two reasons which
have been cited for this are: (i) persistence with regional duopoly for too long,
and (ii) slow transition from analog to digital systems53.
Notwithstanding the merits of the above conclusions whatsoever, it can be

argued that privatisation of existing state-owned incumbent operator is not the
only way to promote private investment. Opening up of new services not
preoccupied by state monopoly can attract private investors, provided regulatory
policies do not inhibit growth of private markets in such areas. Growth of private
mobile operators in India is a case in point. However, it is necessary for the
regulatory authority to ensure that state incumbent does not inhibit growth of
competition54. Operationalisation of these ideas is not without hazards. A conflict
of common occurrence relates to interconnection issues. Interconnection
between state-owned fixed line incumbent network and private mobile network
has been a bone of contention in many countries. ‘…incumbent
telecommunication operator, which often holds a monopoly…can set the price,
typically at a high multiple of the actual cost’55.
Independent regulator?
Sound regulation is a pre-requisite to healthy competition. Therefore, issue of

competition cannot be divorced from the issue of regulation. The autonomy that a
regulator enjoys from government control has often been given primacy over
many other factors in determining a regulator’s ability to discharge regulatory role
in an impartial manner. In reality, however, it is difficult to perceive independent
regulation as synonymous with impartial regulation. There are examples of
51
Ibid., p.42.
52
Ibid., p.45.
53
Ibid., pp.54-55.
54
Dasgupta, et.al. find econometric evidence to support that ‘difference in competition policies have much
greater impact on Internet intensity than differences in income’. Here competition is measured in terms of
World Bank’s rating index, which captures to what extent state inhibits a competitive private sector. The
results suggest positive impact of competition. The study also finds favourable impact of competition on
mobile penetration. See, Dasgupta, S., Somik Lall and David Wheeler, Policy Reform, Economic Growth
and the Digital Divide: An Econometric Analysis, Working Paper No. 2567, World Bank, March, 28, 2001.
55
ITU, World Telecommunication Development Report 2002, Geneva, 2002, op. cit., p. 29.
effective regulation under regulatory functions being performed by the
government departments. Similarly, there are instances of ‘independent
regulators that have been captured by market players’56.
What about non-sector specific regulation? New Zealand experimented with non-
sector specific regulation relying on Competition Commission of the country. This
led to protracted litigations and disputes on interconnection and network access
issues slowing down the progress of the sector. Finally, New Zealand enacted
‘Telecommunication Act’ in December 2000 and created a Telecommunication
Commission within the Competition Commission57.
In India, TRAI Act was amended in January 2000, to remove some of the
shortcomings observed earlier. The legislation aimed at, inter alia, protection of
interests of service providers and consumers of telecom sector. With this
amendment, recommendatory functions were separated from enforcement
functions. A separate Telecom Disputes Settlement and Appellate Tribunal
(TDSAT) was set up with both original and appellate jurisdiction. It became
mandatory for the central government to seek prior recommendations of the
TRAI before introduction of new services. TRAI’s power to issue directions was
restricted to only its enforcement functions. Direct appeal to the Supreme Court
of India against an order of TRAI was provided for. Thus, neutrality of Indian
telecom regulatory regime was ensured through reliance on multiple agencies for
conflict resolution58. TRAI had a proven record of maintaining neutrality. It had
challenged several decisions of the Government of India59.
In tune with the international development and evolution of technology, The

Communication Convergence Bill 2001 was introduced in the Parliament and is
under consideration of the Standing Committee of Parliament on Telecom and IT.
‘The Bill aims at promoting, facilitating and developing, in an orderly manner, the
carriage and content of communications (including broadcasting,
telecommunications and multimedia), to facilitate development of a national
infrastructure for an information based society, and to enable access thereto. It
also seeks to provide a choice of services to the people with a view to promoting
plurality of news, views and information’60. Thus, regulatory regime in 2020 will
be overarching, based on convergence, which apart from paving the way to a
full-grown information society will enhance growth and productivity of
telecommunications and IT through exploitation of economies of scope and
coverage.
56
57
Ibid., p.50.
58
Galal Ahmed and Bharat Nauriyal, Regulation of Telecom in Developing Countries: Outcomes,
Incentives and Commitment, The World Bank, August 1995.
59
See for such instances, Sanctity of Contract and Rule of Law in Indian Power, Telecom and
Infrastructure Sectors, Conference document presented by Independent Power Producers Association of
India, 12-13 September, 2001, New Delhi, pp. 175-177.
60
Government of India, Ministry of Communications & Information Technology, Department of
Telecommunications, Annual Report, 2001-2002.
Competition without privatization
Interestingly, there are other models of competition without privatization. China

Telecom, one of the world’s major Public Telecommunication Operators (PTOs)
is still fully state-owned. Both China and Vietnam followed similar policies of
competition without privatization. Competition has been allowed between
ministries of the governments. Participation of foreign investors has been allowed
through joint ventures. Both these countries have been very high achievers in
terms of progress of telecom sector61. ‘The key underlying factor is the will of the
state to invest in, and prioritize, telecommunication development’.62
There have been instances of repeated market failures arising out of impudent
investment decisions of the private operators. In Norway, license to provide 3G
mobile services purchased for US$ 22 million was returned unused. Investment
worth several billion dollars were sunk and lost in the Iridium Global Mobile
Personal Communications by Satellite (GMPCS) network project. Global
Crossing went bankrupt with debts over US$ 12 billion for a project of
construction of 160,000 km fiber optic network63. One view is that too many
competitors deciding ‘to build enormous networks for which there was little
demand’ were responsible for such crashes64. Market failures of such
magnitudes create backlash in the industry and can potentially risk a global
crisis. Such failures, if not avoided, would prove too costly in terms of lost
investment in a country like India. A calibrated approach through managed
competition holds assurances for the investors of a reasonable time period for
consolidation and therefore, seems to be a wiser strategy to follow.
Despite differences in competition regimes across the countries, the global trend
is towards growing privatization and competition. India, with her commitment to
reforms is already a part of this process. From the perspective of business
organisation, as the global experience suggests, this process is likely to undergo
an alternate cycle of differentiation and convergence. Convergent nature of
technology may, by itself dictate mergers and acquisitions between companies in
certain cases. Network operators and service providers will have to merge with
content developers to add value to their services. This is likely to create
temporary oligopoly in the market till competition intensifies with the emergence
of more firms offering multiple services65. India in 2020 will see competition
61
62
63
Ibid., p.59.
64
The great telecoms crash, The Economist, July 20th – 26th 2002, p.11.
65
There can be horizontal mergers like mergers between telecom operators and cable operators. Similarly,
there can be vertical mergers between mobile telecom operators and content providers. Mergers and
acquisitions can also occur with the aim of reaping the benefits of economies of scale. In Indian telecom
sector, there are instances of mergers between operators in contiguous license territories. It has been
indicated that in 2001, only 7 groups were controlling nearly 90 per cent of the market shares in terms of
among big firms offering innovative value-added services to capture market
through creation of new digital needs and priorities. Regulatory environment will
mature to allow maximum flexibility and freedoms to encourage innovation and
expansion, consistent with this process of evolution.
5. Technology trend
Broadly speaking, technologies of mobile telecommunications and Internet are

going to set the contours of further technological progress in the current decade
and the next. The most recent initiative aims at convergence of voice and data
received from multiple sources, both web based and real time video streams, in
mobile handheld devices. Global satellite systems, mobile handsets and calling
cards have made virtual presence possible almost everywhere and anywhere
overcoming the barriers of distance, topography and remoteness.
There has been phenomenal growth in mobile subscribers in the world in the
nineties, increasing from 11 million in 1990 to 941 million by the end of 2001. In
1991, less than one per cent of the world population had a mobile phone. The
proportion has grown to the vicinity of one phone per every six people by the end
of 2001. Similarly, one-third of the total number of countries of the world had
cellular network in 1991. The ratio rose to over 90 per cent by end-2001 66.
Considering that the fixed telephone lines numbered just over a billion in this
year, it is likely that mobile phones would surpass fixed line in 2002. It is
interesting to observe that China has surpassed USA to become the largest
mobile market of the world. In Africa, mobile subscribers outnumber fixed line
subscribers in more than half the countries67. Mobile telephony has emerged as
the major growth driver in this sector. But for expansion in mobile network, there
would have been hardly any growth in telecommunications in many countries. In
developed countries, mobile phones have complemented fixed lines whereas in
many developing countries with low-level fixed line penetration, mobile has
already surpassed fixed lines68 filling up supply gaps created due to inadequate
growth in the latter. It has been observed that ‘the ability of a country to grow its
mobile network to the point where it overtakes the fixed-line network is not a
cellular subscribers against 20 players, who were awarded licenses in 1995-96. See for details, Garg,
Lokesh and Venu Madhav, Mergers and Acquisitions in the Indian Telecom Sector, India Infrastructure
Report 2002: Governance Issues for Commercialisation, 3i Network, Oxford, 2002. A number of examples
on U.S. market can be found in Balaji, N., The Indian Telecom Sector: Basic Telecom & Cellular Services,
Indian Institute of Management, Lucknow, available at file://c:\windows\temp\Indian telecom experience -
IIML study.htm. In the context of recent telecom crash in the world market a view has been expressed that
such crisis may ‘cause the pendulum to swing back too far in favour of the former monopolies. In the short
term, they are likely to attract investment, to pick up the assets of bankrupt rivals, and to lead the way in
consolidating the industry. This will provide some welcome stability. But it would be wrong to grant the
former monopolies any regulatory concessions now that would protect them from competitors in future.’
The great telecoms crash, The Economist, July 20th – 26th 2002, op. cit., p.11. Hence, mergers and
acquisitions are also likely occur in the process of market consolidation.
66
67
Ibid., p.6.
68
Ibid., p.7.
function of its wealth…the crossover point can come as low as a fixed teledensity
of 0.4 (for instance, in Malwai) to as high as 75 (the case of Luxembourg) and at
any point in between’69.
There are three important economic implications of mobile explosion for the
developing countries. First, by offering a viable techno-economic alternative it is
helping in improving telecom penetration bypassing shortages of fixed lines.
Consequently, it is bringing along with it all concomitant economic benefits of
enhanced telecom accessibility. Second, it is promoting a better entrepreneurial
culture and supporting employment generation through proliferation of kiosks70.
Third, there has been a shift in investment burden from state to private sector
and the consumers71.
Cellular mobile telephones subscribers in India increased from 77 thousand in

1995 to 3.6 million in 2000. By March 2002, it has grown to 6.4 million. Cellular
subscribers in proportion to total number of telephone subscribers (basic plus
cellular) has increased from 0.6 percent in 1995 to 14.6 percent in 2002. This is
still lower than the average of 24.6 percent achieved by the low-income countries
in 2001. The corresponding ratio for lower middle-income countries is 41.8
percent, 52.8 percent for upper middle-income countries and 50.2 percent for
high-income countries. India is yet to experience mobile explosion of the scale
other countries have seen. One would expect a rapid growth in mobile telephony
in coming decades. India has also achieved significant quality upgradation of its
network in the 90s. Digital lines in proportion to total number of main telephone
lines have increased from 87 per cent in 1995 to 99.8 percent in 1999.
Like mobile, the last decade witnessed phenomenal growth in Internet usage. In
2001, 95 per cent of the countries were connected to Internet compared to 15 per
cent in 1990. There are about half a billion Internet users in the world in 2001with
subscribers numbering an estimated 230 million72. It is also interesting to note
that in 1995 Internet users in developed countries were seven times more than
the number of Internet users in the developing countries. In 2001, this gap has
narrowed down to less than four times.
Initial stance of technology supporting expansion of Internet dictated revenue

model based on convergence between telecom and Internet. Internet is
accessed predominantly through dial up in old telephone lines. This has resulted
in unequal distribution of benefits between the dotcom operators and the telecom
operators. It has been observed that while dotcom operators ‘are failing to make
money on the Internet, telecom operators are. The reason is that they control the
pipes over which Internet traffic runs’73. ‘Incumbent telecom operators tend to be
69
ibid., op. cit., p.65.
70
Ibid., p.15.
71
Mobile telecom expansion does not need to wait for state to lay copper lines. While private service
providers lay the base station, consumers purchase mobile stations, i.e., handsets. Ibid., p.15.
72
Ibid., p.7.
73
Ibid., p.7.
among the largest Internet Service Providers (ISPs) in their countries’74. There
are three important implications of this development. First, it inhibits growth of
content development as an independent specialized activity because revenue-
share of the content developers depends on the first claim on revenue by the
infrastructure providers. Second, technical capabilities of telephone lines
constrain development of Internet infrastructure and conditions speed of
download. Third, developing countries are faced with major bottlenecks in the
spread of Internet due to shortage of telephone lines and high telephone
charges. Technological answers to these problems have already emerged in the
forms of Integrated Services Digital Networks (ISDN), wireless solutions and
upgraded cable television networks enabling high-speed Internet access without
clogging telephone lines. Use of VSAT technology for Internet connectivity can
also greatly enhance the speed of data transmission75. In the present decade and
the next, one would hope to see faster expansion and consolidation of these
technologies ushering in Internet revolution. Broadband access technologies,
which include Digital Subscriber Lines (DSL) and cable modem, permit faster
download and graphic-intensive Internet applications. However, diffusion of this
technology is so far minimal, particularly in the developing countries. Commercial
exploitation of Internet crucially hinges on the spread of broadband technology.
The issue that confronts developing world is how to create demand for
broadband applications at the first instance. At the early stage, government can
play an important role to promote broadband usage in e-education, e-
governance, e-medicine to stimulate its demand76.
Another convergent trend that has emerged is the use of Internet as carriers of
voice. Consequently, ‘increasing share of voice traffic shifted to the Internet, to
be carried as Voice over IP (VoIP)’77.
At the uppermost end of the convergent technology spectrum have already

emerged Third Generation (3G) mobile devices with the capability of access to
mobile data and voice78. More than US$ 100 billion have been spent by the
industry since 2000 to acquire 3G license and spectrum. However, a full-grown
market is yet to develop to assure investors’ return. Technical and commercial
consolidation is expected to take quite some time. By 2020, one would expect 3G
to be within reach of wider section of Indian population.
The pace at which 3G is going to proliferate in India will depend upon, inter alia,
the market demand for higher bandwidth data. There is a view that perhaps the
74
Ibid., p.8.
75
VSAT stands for ‘Very Small Aparture Terminals’, which ‘are miniature earth stations, used for
transmission of data, video, or voice via satellite’. The Nepalese Government has allowed ISPs to use
VSATs for establishing their own connectivity leading to remarkable gain in speed from 320 kbps to over 5
mbps within six months. Ibid., p.30.
76
Ibid., p.31.
77
78
Data-like applications on mobile devices have already started taking off in developed and developing
countries. Ibid., p.9.
present demand for high speed data (greater than 64 kbps) can be met cost
effectively with General Packet Radio Service (GPRS). While pent up demand for
emerging data-needs can be met by using 2G systems like Short Message
Service (SMS), GPRS etc., the drive for 3G in Indian market can come from
‘corporate roaming traffic via international visitors’79.
Substantial work needs to be done in developing 3G relevant contents so as to

expand its market. Initiative has already been launched in these areas. For
example, Sonera (formerly Telecom Finland) has already launched information
portal for mobile phones including Internet localisation services80. Future work in
this area will be in the form of adding more value to the new services.
Advanced plans are necessary to develop vibrant industries for 3G applications.

This may call for investments. A synchronized growth of user industry and 3G
technologies would ensure that pay-off period in investment is minimized.
Developing knowledge based industry to provide mobile applications would
reduce uncertainties regarding return from private investment in 3G technologies.
As a preparatory groundwork to usher in 3G, it is essential to demarcate areas

where massive harmonization efforts would be needed. This would entail
upgrading hardware and software for high bandwidth multimedia services.
Harmonization would also be needed between the two emerging varieties of
CDMA, i.e., wideband CDMA that also supports fixed network and CDMA –
2000. Since it is likely that both these solutions would ultimately support fixed
and mobile applications, a marriage of the two would prevent technological
fragmentation of the market.
There is need to develop deeper understanding of the evolution of new end-

users in the market for the mobile multimedia services. Multimedia service
providers will emerge as important shareholders in the network value chain.
Countries should envision new partners, new entities, and new stakeholders in
the business models. Multimedia portals will be important components of such
business models.
There is need for further work to match regulatory perspectives emerging as a

part of the convergence regime with the requirements of 3G. Another important
area of work will involve further thought over efficient billing model ---- a transition
from time dependent billing model to content dependent billing81.
The revenue model in the telecommunications sector is going to change

significantly in times to come. In many cases PTOs have started offering free
Internet to augment revenue from telephone lines82. In the Philippines, a global
79
Interview with Ian Goetz, published in tele.net, Vol. No.3, issue no. 4, April 2002, pp.30 - 31.
80
Such services give information like ‘which gas stations are nearby’. Finland is a pioneer in cellular
telephony. ITU, World Telecommunication Development Report 2002, Geneva, 2002, p.19.
81
For detailed discussions see various reports of UMTS Forum, London.
82
leader in SMS use in mobile handsets, revenue from SMS contributed a growing
share of mobile revenue. SMS proved to be much cheaper than voice call 83.
6. Conclusions
LDCs are experiencing fastest growth in telecom network. In the mid-90s, growth
in total telephone subscribers per 100 inhabitants of the LDCs surpassed that of
the developed countries. In 2001, LDCs surpassed emerging countries achieving
the distinction of fastest among the three84. Given the relationship between
telecom expansion and growth, there is hope for narrowing down of digital-divide,
provided, LDCs are able to sustain growth momentum in the long run. The vision
is no doubt optimistic. It has been cited that some twenty years ago Tokyo had
more telephones than the whole of African continent whereas today Africa has
more than twice the number of main telephone lines than that of Tokyo85. It is but
natural that markets in high-income countries saturate while expansion in
developing countries continues unabated.
One notable break with the past is that with opening up of the developing
economies and widespread sectoral reforms, catching up process has become
faster. Developing countries with liberal policies have much better opportunity to
leapfrog than before. Mobile experience of the low-income countries bears
testimony to this process. India is a participant in this global process. There is
tremendous appetite to absorb new technology. At the higher end of the market,
India will mimic the most sophisticated telecom technology of the world and face
all types of uncertainties that are associated with any new technology anywhere
in the world. It will take time for the market for new technologies to consolidate.
‘Market maturing’ will be a continuous process at some of the segments of
telecom sector. This holds good even today. Today’s market does not guarantee
‘reliable revenue stream’ to investors in new technology like VoIP, bradband and
3G since they lack an existing client base86. Side by side, a process of diffusion
will continue unhindered in respect of established technology in the mass market.
What will be the telecom scenario in India in 2020?
To look forward, from now on, the growth momentum in the expansion of fixed
line network is likely to be sustained. This is the current phase of expansion
developing countries are passing through. In 2000, three out of four fixed lines
were installed in developing countries. China alone installed more fixed lines in
2000 (35 million) than the entire developed world in 1999 and 200087.
83
Ibid., p.10.
84
ITU classification of LDCs, emerging countries and developed countries has been referred to. Ibid., p.17.
85
Ibid., p.17.
86
Ibid., p.59.
87
Ibid., p. 68.
Once fixed line market is matured, mobile will crossover fixed line market. India is
still much below the crossover point even by the standard of the low-income
countries. A mobile revolution is in the offing in India.
The next points of crossover will be between data and voice88, and between
mobile and fixed-line Internet89. This is going to take some time because this is
yet to occur even in high-income countries. The process of technical
consolidation and system integration of different competing standards in a single
platform will by itself take some time. The process of commercial consolidation
will start thereafter.
In order to guess the time frame over which such technological and commercial
cycles may run their courses in future it may be of interest to look at the past
experiences. Going by the history, commercialisation of cellular mobile
telecommunication services began in late seventies, when Japan took the lead in
1979. Many developed countries have reached saturation point only now though
developing countries are far from it. Similarly, market for Internet in the
developing countries is yet to mature though the service commenced in late
1960s, when USA took the lead in 1969. As rightly observed, ‘But for both these
innovations, the full extent of their impact on businesses and consumers is
probably still to come. E-commerce, for instance, is still in relative infancy and is
expected to boom in coming years as “old economy” firms re-orient their
business processes around it. Similarly, the true potential of a mobile phone, as
an integrated communications, entertainment and positioning device, is only
beginning to be realized’90.
If past trend were any guide, it would be reasonable to hope that by 2020 India
would complete transition into digital switching and transmission, VoIP,
broadband and 3G. Though there would be always a small niche market in India,
which would catch up with the cutting age of the technology, consolidation and
expansion of evolving technologies across the length and the breadth of the
country will follow with a lag.
Future vision of telecom is a vision of IT. Telecom will be the springboard of

future expansion of IT heralding in an information society. ICT will spread among
the masses and will spur innovation, entrepreneurship and growth. An expanding
domestic market will deepen the synergy between the domestic and the export
market and strengthen India’s presence in the high-value segment of the global
trade and investment. ICT benefits will spread among all, the rich and the poor,
88
Increasing demand for data should not lead to a conclusion that voice services will not attract innovation
any longer. It has been held that in a miniature handheld device, information can be received only in the
form of voice. Lot of developments is in the offing in the area of voice recognition, integration between
voice and text and vice versa. See, Interview with Ian Goetz, published in tele.net, Vol. No.3, issue no. 4,
April 2002, p. 32.
89
This point has already been reached in Japan. ITU, World Telecommunication Development Report 2002,
Geneva, 2002, p.73.
90
the young and the old, the men and the women, the organized and the
unorganized and the government and the governed.
Appendix
Indian Telecom Sector: Recent Policies
1. All the villages shall be covered by telecom facility by the end of 2002.
2. The Communication Convergence Bill 2001introduced in the Parliament
on August 31, 2001 is presently before the Standing Committee of
Parliament on Telecom and IT.
3. National Long Distance Service (NLD) is opened for unrestricted entry.
4. The International Long Distance Services (ILDS) have been opened to
competition.
5. The basic services are open to competition.
6. In addition to the existing three, fourth cellular operator, one each in four
metros and thirteen circles, has been permitted. The cellular operators
have been permitted to provide 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
certain required standards.
7. Policies allowing private participation have been announced as per the
New Telecom Policy (NTP), 1999 in several new services, which include
Global Mobile Personal Communication by Satellite (GMPCS) Service,
digital Public Mobile Radio Trunked Service (PMRTS), Voice Mail/
Audiotex/ Unified Messaging Service.
8. Wireless in Local Loop (WLL) has been introduced for providing telephone
connections in urban, semi-urban and rural areas promptly.
9. Two telecom PSUs, VSNL and HTL have been disinvested.
10. Steps are being taken to fulfill Universal Service Obligation (USO), its
funding and administration.
11. A decision to permit Mobile Community Phone Service has been
announced.
12. Multiple Fixed Service Providers (FSPs) licensing guidelines were
announced.
13. Internet Service Providers (ISPs) have been allowed to set up
International Internet Gateways, both Satellite and Landing stations for
submarine optical fiber cables.
14. Two categories of infrastructure providers have been allowed to provide
end-to-end bandwidth and dark fiber, right of way, towers, duct space etc.
15. Guidelines have been issued by the Government to open up Internet
telephony (IP).
Investment Policy Framework
1. Foreign Direct Investment of up to 100 percent permitted for the following:

- Manufacturing of telecom equipment
- Internet service (not providing international gateways)
- Infrastructure providers (Category I)
- E-mail service
- Voice mail service
- Call Centers and IT enabled services

- Internet service (providing international gateways)
- Infrastructure providers (Category II)
- Radio paging services

- National long distance service
- Basic telephone service
- Cellular mobile service
- Other value added service
4. Additional foreign investment through holding/investment company
5. Automatic approval for technology fee up to US$ 2 million, royalty up to 5

percent for domestic sales and 8 percent for exports in telecom manufacturing
(higher amount through specific approvals)
6. Full repatriability of dividend income and capital invested in the telecom sector
7. Fiscal incentives and concessions for the telecom sector:

- Amortization of license fee
- Tax holiday
- Rebate on subscription to shares/debentures
- Scope for tax exemption on financing through venture capital
- Import duty rates reduced for various telecom equipment
Source: (i) Annual Report, 2001-2002 and (ii) Indian Telecommunication

Statistics 2002 (Policy Framework, Status and Trends), both published by the
Department of Telecommunications, Ministry of Communications & IT,
Government of India.
A large population, low telephony penetration levels, and a rise in consumers' income and
spending owing to strong economic growth have helped make India the fastest-growing
telecom market in the world. The first and largest operator is the state-owned incumbent
BSNL, which is also the 7th largest telecom company in the world in terms of its number
of subscribers.[1] BSNL was created by corporatization of the erstwhile DTS (Department
of Telecommunication Services), a government unit responsible for provision of
telephony services. Subsequently, after the telecommunication policies were revised to
allow private operators, companies such as Bharti Telecom, Tata Indicom, Vodafone,
MTNL, Idea,Vodafone and BPL have entered the space. major operators in India.
However, rural India still lacks strong infrastructure.
In 2007, an article by Businessweek magazine reported that India's mobile phone market
is the fastest growing in the world, with companies adding some 6 million new customers
a month.[citation needed]
The total number of telephones in the country crossed the 300 million mark on June 18
2008[2]. The overall tele-density has increased to 36.98% in March 2009[3].[4] In the
wireless segment, 15.87 million subscribers have been added in March 2009. The total
wireless subscribers (GSM, CDMA & WLL (F)) base is more than 391.76 million now.
The wireline segment subscriber base stood at 38.22 million with a decline of 0.13
million in October 2008.[5]
[edit] History
Telecom in the real sense means transfer of information between two distant points in
space. The popular meaning of telecom always involves electrical signals and nowadays
people exclude postal or any other raw telecommunication methods from its meaning.
Therefore, the history of Indian telecom can be started with the introduction of telegraph.
[edit] Introduction of telegraph
The postal and telecom sectors had a slow and uneasy start in India. In 1850, the first
experimental electric telegraph Line was started between Kolkata and Diamond Harbor.
In 1851, it was opened for the British East India Company. The Posts and Telegraphs
department occupied a small corner of the Public Works Department,[6] at that time.
Construction of 4,000 miles (6,400 km) of telegraph lines connecting Kolkata (Calcutta)
and Peshawar in the north via Agra, Mumbai (Bombay) through Sindwa Ghats, and
Chennai in the south, as well as Ootacamund and Bangalore was started in November
1853. Dr. William O'Shaughnessy, who pioneered telegraph and telephone in India,
belonged to the Public Works Department. He tried his level best for the development of
telecom through out this period. A separate department was opened in 1854 when
telegraph facilities were opened to the public.
[edit] Introduction of the telephone
In 1880, two telephone companies namely The Oriental Telephone Company Ltd. and
The Anglo-Indian Telephone Company Ltd. approached the Government of India to
establish telephone exchanges in India. The permission was refused on the grounds that
the establishment of telephones was a Government monopoly and that the Government
itself would undertake the work. By 1881, the Government changed its earlier decision
and a licence was granted to the Oriental Telephone Company Limited of England for
opening telephone exchanges at Kolkata, Mumbai, Chennai (Madras) and Ahmedabad.
January 28, 1882, is a Red Letter Day in the history of telephone in India. On this day
Major E. Baring, Member of the Governor General of India's Council declared open the
Telephone Exchange in Kolkata, Chennai and Mumbai. The exchange at Kolkata named
"Central Exchange" was opened at third floor of the building at 7, Council House Street.
The Central Telephone Exchange had 93 number of subscribers. Bombay also witnessed
the opening of Telephone Exchange in 1882.
[edit] Further developments
• 1902 - First wireless telegraph station established between Saugor Islands and
Sandheads.
• 1907 - First Central Battery of telephones introduced in Kanpur.
• 1913-1914 - First Automatic Exchange installed in Shimla.
• July 23, 1927 - Radio-telegraph system between the UK and India, with beam
stations at Khadki and Daund, inaugurated by Lord Irwin by exchanging greetings
with the King of England.
• 1933 - Radiotelephone system inaugurated between the UK and India.
• 1953 - 12 channel carrier system introduced.
• 1960 - First subscriber trunk dialing route commissioned between Kanpur and
Lucknow.
• 1975 - First PCM system commissioned between Mumbai City and Andheri
telephone exchanges.
• 1976 - First digital microwave junction introduced.
• 1979 - First optical fibre system for local junction commissioned at Pune.
• 1980 - First satellite earth station for domestic communications established at
Secunderabad, A.P..
• 1983 - First analog Stored Program Control exchange for trunk lines
commissioned at Mumbai.
• 1984 - C-DOT established for indigenous development and production of digital
exchanges.
• 1985 - First mobile telephone service started on non-commercial basis in Delhi.
While all the major cities and towns in the country were linked with telephones during
the British period, the total number of telephones in 1948 was only around 80,000. Even
after independence, growth was extremely slow. The telephone was a status symbol
rather than being an instrument of utility. The number of telephones grew leisurely to
980,000 in 1971, 2.15 million in 1981 and 5.07 million in 1991, the year economic
reforms were initiated in the country.
While certain innovative steps were taken from time to time, as for example introduction
of the telex service in Mumbai in 1953 and commissioning of the first [subscriber trunk
dialing] route between Delhi and Kanpur in 1960, the first waves of change were set
going by Sam Pitroda in the eighties.[7] He brought in a whiff of fresh air. The real
transformation in scenario came with the announcement of the National Telecom Policy
in 1994.[8]
[edit] India, emerging as a major player
In 1975, the Department of Telecom (DoT) was separated from P&T. DoT was
responsible for telecom services in entire country until 1985 when Mahanagar Telephone
Nigam Limited (MTNL) was carved out of DoT to run the telecom services of Delhi and
Mumbai. In 1990s the telecom sector was opened up by the Government for private
investment as a part of Liberalisation-Privatization-Globalization policy. Therefore, it
became necessary to separate the Government's policy wing from its operations wing.
The Government of India corporatised the operations wing of DoT on October 01, 2000
and named it as Bharat Sanchar Nigam Limited (BSNL). Many private operators, such as
Reliance India Mobile, Tata Telecom, Vodafone, BPL, Bharti, Idea etc., successfully
entered the high potential Indian telecom market.
[edit] Liberalisation of telcommunications in India
The Indian government was composed of many factions (parties) which had different
ideologies. Some of them were willing to throw open the market to foreign players (the
centrists) and others wanted the government to regulate infrastructure and restrict the
involvement of foreign players. Due to this political background it was very difficult to
bring about liberalization in telecommunications. When a bill was in parliament a
majority vote had to be passed, and such a majority was difficult to obtain, given to the
number of parties having different ideologies.
Liberalization started in 1981 when Prime Minister Indira Gandhi signed contracts with
Alcatel CIT of France to merge with the state owned Telecom Company (ITI), in an
effort to set up 5,000,000 lines per year. But soon the policy was let down because of
opposition from leaders of the opposite political party. She invited Sam Pitroda a US
based NRI to set up a Center for Development of Telematics(C-DOT), however the plan
failed due to political reasons. During this period, after the assassination of Indira
Gandhi, under the leadership of Rajiv Gandhi, many public sector organizations were set
up like the Department of Telecommunications (DoT) , VSNL and MTNL. Many
technological developments took place in this regime but still foreign players were not
allowed to participate in the telecommunications business.[9]
The demand for telephones was ever increasing. It was during this period that the P.N
Rao led government introduced the national telecommunications policy [NTP] in 1994
which brought changes in the following areas: ownership, service and regulation of
telecommunications infrastructure. They were also successful in establishing joint
ventures between state owned telecom companies and international players. But still
complete ownership of facilities was restricted only to the government owned
organizations. Foreign firms were eligible to 49% of the total stake. The multi-nationals
were just involved in technology transfer, and not policy making.[9]
During this period, the World Bank and ITU had advised the Indian Government to
liberalize long distance services in order to release the monopoly of the state owned DoT
and VSNL; and to enable competition in the long distance carrier business which would
help reduce tariff's and better the economy of the country. The Rao run government
instead liberalized the local services, taking the opposite political parties into confidence
and assuring foreign involvement in the long distance business after 5 years. The country
was divided into 20 telecommunication circles for basic telephony and 18 circles for
mobile services. These circles were divided into category A, B and C depending on the
value of the revenue in each circle. The government threw open the bids to one private
company per circle along with government owned DoT per circle. For cellular service
two service providers were allowed per circle and a 15 years license was given to each
provider. During all these improvements, the government did face oppositions from ITI,
DoT, MTNL, VSNL and other labor unions, but they managed to keep away from all the
hurdles.[9]
After 1995 the government set up TRAI (Telecom Regulatory Authority of India) which
reduced the interference of Government in deciding tariffs and policy making. The DoT
opposed this. The political powers changed in 1999 and the new government under the
leadership of A.B Vajpayee was more pro-reforms and introduced better liberalization
policies. They split DoT in two- one policy maker and the other service provider (DTS)
which was later renamed as BSNL. The proposal of raising the stake of foreign investors
from 49% to 74% was rejected by the opposite political party and leftist thinkers.
Domestic business groups wanted the government to privatize VSNL. Finally in April
2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it
open for sale to private enterprises. TATA finally took 25% stake in VSNL.[9]
This was a gateway to many foreign investors to get entry into the Indian Telecom
Markets. After March 2000, the government became more liberal in making policies and
issuing licenses to private operators. The government further reduced license fees for
cellular service providers and increased the allowable stake to 74% for foreign
companies. Because of all these factors, the service fees finally reduced and the call costs
were cut greatly enabling every common middle class family in India to afford a cell
phone.
[edit] Growth of mobile technology
India has become one of the fastest-growing mobile markets in the world.[10] The mobile
services were commercially launched in August 1995 in India. In the initial 5–6 years the
average monthly subscribers additions were around 0.05 to 0.1 million only and the total
mobile subscribers base in December 2002 stood at 10.5 millions. However, after the
number of proactive initiatives taken by regulator and licensor, the monthly mobile
subscriber additions increased to around 2 million per month in the year 2003-04 and
2004-05.
Although mobile telephones followed the New Telecom Policy 1994, growth was tardy
in the early years because of the high price of hand sets as well as the high tariff structure
of mobile telephones. The New Telecom Policy in 1999, the industry heralded several
pro consumer initiatives. Mobile subscriber additions started picking up. The number of
mobile phones added throughout the country in 2003 was 16 million, followed by 22
million in 2004, 32 million in 2005 and 65 million in 2006. The only country with more
mobile phones than India with 246 million mobile phones is China – 408 million. [11]
India has opted for the use of both the GSM (global system for mobile communications)
and CDMA (code-division multiple access) technologies in the mobile sector. In addition
to landline and mobile phones, some of the companies also provide the WLL service.
The mobile tariffs in India have also become lowest in the world. A new mobile
connection can be activated with a monthly commitment of US$0.15 only. In 2005 alone
32 million handsets were sold in India. The data reveals the real potential for growth of
the Indian mobile market.[12]
In March 2008 the total GSM and CDMA mobile subscriber base in the country was 375
million, which represented a nearly 50% growth when compared with previous year.[13]
In April 2008 the Indian Department of Telecom (DoT) has directed all mobile phone
service users to disconnect the usage of unbranded Chinese mobile phones that do not
have International Mobile Equipment Identity (IMEI) numbers, because they pose a
serious security risk to the country. Mobile network operators therefore planned to
suspend the usage of around 30 million mobile phones (about 8 % of all mobiles in the
country) by April 30.[14]
[edit] Revenue and growth
The total revenue in the telecom service sector was Rs. 86,720 crore in 2005-06 as
against Rs. 71, 674 crore in 2004-2005, registering a growth of 21%. The total investment
in the telecom services sector reached Rs. 200,660 crore in 2005-06, up from Rs. 178,831
crore in the previous fiscal.[15]
Telecommunication is the lifeline of the rapidly growing Information Technology

industry. Internet subscriber base has risen to 6.94 million in 2005- 2006. Out of this 1.35
million were broadband connections.[16] More than a billion people use the internet
globally.
Under the Bharat Nirman Programme, the Government of India will ensure that 66,822
revenue villages in the country, which have not yet been provided with a Village Public
Telephone (VPT), will be connected. However doubts have been raised about what it
would mean for the poor in the country.[17]
It is difficult to ascertain fully the employment potential of the telecom sector but the
enormity of the opportunities can be gauged from the fact that there were 3.7 million
Public Call Offices in December 2005[18] up from 2.3 million in December 2004.
The value added services (VAS) market within the mobile industry in India has the
potential to grow from $500 million in 2006 to a whopping $10 billion by 2009.[19]
[edit] Sectors
[edit] Telephone
Until recently, only the PSU's BSNL and MTNL were allowed to provide Basic Phone
Service through copper wires in India. MTNL is operating in Delhi and Mumbai only and
all other parts are covered by BSNL. However private operators have now entered the
fray, although their focus is largely on the cellular business which is growing rapidly.
Telephony Subscribers (Wireless and Landline): 452.91 million (May 2009)
Cellphones: 415.25 million (May 2009)[5][20]
Land Lines: 37.75 million (Jan 2009)
Yearly Cellphone Addition: 113.26 million (2007)[21]
Monthly Cellphone Addition: 15.41 million (Jan 2009)
Teledensity: 38.88% (May 2009)
Projected teledensity: 626 million, 46% of population by 2010. [22]
Broadband connection: 6.22 million (March 2009) "Present scenerio" In the fixed line
arena, BSNL and MTNL are the incumbents in their respective areas of operation and
continue to enjoy the dominant service provider status in the domain of fixed line
services. For example BSNL controls 79% of fixed line share in the country.
On the other hand, in the mobile telephony space, Airtel controls 21.4% subscriber base
followed by Reliance with 20.3%, BSNL with 18.6%, Vodafone with 14.7% subscriber
base (as per June 2005 data).[23][24]
Following list shows the GSM subscriber figure till Jan 2009
1 Bharti Airtel 88382758 33.04%

2 Vodafone Essar 63340024 23.68%
3 BSNL 42673357 15.95%
4 IDEA 40016153 14.96%
5 Aircel 16761397 6.27%
6 Reliance Telecom 10353841 3.87%
8 MTNL 4003807 1.50%
9 BPL 2007303 0.75%
All India 267538640
Telephone system: The Mobile telecommunications system in India is the second largest
in the world and it was thrown open to private players in the 1990s. The country is
divided into multiple zones, called circles (roughly along state boundaries). Government
and several private players run local and long distance telephone services. Competition
has caused prices to drop and calls across India are one of the cheapest in the world.[25]
The rates are supposed to go down further with new measures to be taken by the
Information Ministry.[26]
Landlines: Landline service in India is primarily run by BSNL/MTNL and Reliance

Infocomm though there are several other private players too, such as Touchtel and Tata
Teleservices. Landlines are facing stiff competition from mobile telephones. The
competition has forced the landline services to become more efficient. The landline
network quality has improved and landline connections are now usually available on
demand, even in high density urban areas.
Mobile Cellular: The mobile service has seen phenomenal growth since 2000. In
September 2004, the number of mobile phone connections have crossed fixed-line
connections. Currently there are an estimated 201.29 million mobile phone users in India
compared to 39.73 million fixed line subscribers. India primarily follows the GSM
mobile system, in the 900 MHz band. Recent operators also operate in the 1800 MHz
band. The dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular and
BSNL/MTNL. There are many smaller players, with operations in only a few states.
International roaming agreements exist between most operators and many foreign
carriers.
Dialling System: On landlines, intra circle calls are considered local calls while inter
circle are considered long distance calls. Currently Government is working to integrate
the whole country in one telecom circle. For long distance calls, you dial the area code
prefixed with a zero (e.g. For calling Delhi, you would dial 011-XXXX XXXX). For
international calls, you would dial "00" and the country code+area code+number. The
country code for India is 91.
Call Rates Slashed: Communication rates in India fell sharply after the year 2000 when
infrastructure improvements and entry of many major players made Indian Telecom a
highly competitive sector.
There is a conversion process underway to make all numbers in India 10 digits long.
[edit] Internet
The number of broadband connections in india have seen a continous growth since the
beginning of 2006. At the end of August 2008, total broadband connections in the
country have reached 4.73 million. However the definition of broadband is pretty
constrained in India compared to other countries. A 256 kbit/s always on connection is
the definition of broadband in India compared to 2 Mbit/s in other countries. However
most ISPs,especially the Government managed companies are now offering speeds up to
16 Mbit/s. [27] [2]
BSNL, Sify, MTNL, STPI, Airtel, Netcom, Reliance Communications and Hathway are
some of the major ISPs in India. TRAI has defined broadband as 256 kbit/s or higher.
However, many ISPs advertise their service as broadband but don't offer the suggested
speeds. Broadband in India is more expensive as compared to Western Europe/United
Kingdom and United States.
After economic liberalization in 1992, many private ISPs have entered the market, many
with their own local loop and gateway infrastructures. The telecom services market is
regulated by TRAI. ADSL providers include:
• Tata Communications Ltd. (VSNL)

• MTNL/BSNL
• Bharti Telecom (Airtel, Bharti Televentures)
• Reliance Infocomm
Because of the increase in ISPs and the quality of service Qos, It became cheaper to call
India from around the world. Many Indians today, studying or living all around the
world, are using calling cards to India to speak with their families back home. It used to
be much more expensive prior to 2002.
Airtel and BSNL have launched 8 Mbit/s & Reliance Communication offers 10 Mb/s
broadband internet services in selected areas recently . For home users , the maximum
speed for unlimited downloads is 1 Mbit/s , available for USD 60 (roughly , with taxes)
Internet Users: 60,000,000 (September 2007) Source: Internet World Stats
Broadband Subscribers: Broadband in India is defined as 256 kbit/s and above by the
government regulator. Total subscribers were 2.3 million (April 2007) Source: TRAI
Internet Users: Number of Internet users in India is the 4th largest in the world. Internet
population is expected to grow to 100 million users by 2007.[28]
Though the number of internet users is high, the penetration level is still lower than most
countries across the globe.
Internet Service Providers (ISPs) & Hosts: 86,571 (2004) Source: CIA World
FactBook
Country code (Top-level domain): IN
See also: List of ISPs in India

See also: Internet censorship in India
[edit] Broadcasting
Radio broadcast stations: AM 153, FM 91, shortwave 68 (1998)
Radios: 116 million (1997)
Television terrestrial broadcast stations: 562 (of which 82 stations have 1 kW or

greater power and 480 stations have less than 1 kW of power) (1997)
Televisions: 110 million (2006)
In India, only the government owned Doordarshan (Door = Distant = Tele, Darshan ==
Vision) is allowed to broadcast terrestrial television signals. It initially had one major
National channel (DD National) and a Metro channel in some of the larger cities (also
known as DD Metro).
Satellite/Cable television took off during the first Gulf War with CNN. There are no
regulations against ownership of satellite dish antennas, or operation of cable television
systems, which led to an explosion of viewership and channels, led by the Star TV group
and Zee TV. Initially restricted to music and entertainment channels, viewership grew,
giving rise to several channels in regional languages and many in the national language,
Hindi. The main news channels available were CNN and BBC World. In the late 1990s,
many current affairs and news channels sprouted, becoming immensely popular because
of the alternative viewpoint they offered compared to Doordarshan. Some of the notable
ones are Aaj Tak (means Till Today, run by the India Today group) and Star News,
initially run by the NDTV group and their lead anchor, Prannoy Roy (NDTV now has its
own channels, NDTV 24x7, NDTV Profit,NDTV India and NDTV Imagine).New Delhi
TeleVision.
Here is a reasonably comprehensive List of Indian television stations.

[edit] Next generation networks
In the Next Generation Networks, multiple access networks can connect customers to a
core network based on IP technology. These access networks include fibre optics or
coaxial cable networks connected to fixed locations or customers connected through wi-fi
as well as to 3G networks connected to mobile users. As a result, in the future, it would
be impossible to identify whether the next generation network is a fixed or mobile
network and the wireless access broadband would be used both for fixed and mobile
services. It would then be futile to differentiate between fixed and mobile networks –
both fixed and mobile users will access services through a single core network.
Indian telecom networks are not so intensive as developed country’s telecom networks
and India's teledensity is low only in rural areas. 670,000 route kilometers (419,000
miles) of optical fibres has been laid in India by the major operators, even in remote areas
and the process continues. BSNL alone, has laid optical fibre to 30,000 Telephone
Exchanges out of their 36 Exchanges. Keeping in mind the viability of providing services
in rural areas, an attractive solution appears to be one which offers multiple service
facility at low costs. A rural network based on the extensive optical fibre network, using
Internet Protocol and offering a variety of services and the availability of open platforms
for service development, viz. the Next Generation Network, appears to be an attractive
proposition. Fibre network can be easily converted to Next Generation network and then
used for delivering multiple services at cheap cost.
[edit] International

The Indian Telecom Sector

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The Indian Telecom Sector

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The Indian Telecom Sector

Policy reforms can be broadly classified in three distinct phases

All these services are explained in detail:

on India: Vision 2020

Telecom Sector in India: Vision 2020

Manas Bhattacharya*, IES

(Deputy Director General (Finance), Department of Telecommunications, Ministry of

Manas Bhattacharya*, IES

(Deputy Director General (Finance), Department of Telecommunications, Ministry of

Pre-portrayal of a stage of development in future requires understanding of the

Process of change is often volatile and responsive to intervention and global

The present paper isolates the agents of change based on international

1. Reforms and Performance

Despite asymmetry in initial market endowments between public sector

No. of lines Ranks (1995) No. of lines Ranks (2001)

Network expansion in India was accompanied by an increase in productivity of

Table 2: Trend in productivity and price

Year Number of main Telephone service

Table 3: DEL: Supply and demand

Year ending Direct Exchange Waiting List Demand

The figure below shows an interesting phenomenon. Total demand tends to

DEL: SUPPLY AND DEMAND

YEAR ENDING MARCH 31

Table 4 indicates tele-density for the countries included in Table 1 as measured

Table 4: Number of main telephone lines per 100 inhabitants

Country 1995 2001

Above table indicates that despite phenomenal achievement in terms of network

Understanding telecom growth prospect would require understanding of the

Table 5: Structural characteristics and tele-density, 2000

Country Tele-density Per capita Percentage

In order to examine the generality with which such relationships manifest in a

Tele-density = 9.63 – 0.1563** (Percentage of population living on less than $2 a

To assess the significance of service sector in telecom development, tele-density

As a matter of strategy, it can be said that targeted intervention through access

So far, the public sector incumbents have spearheaded expansion of rural

Vision 2020 is a vision of information society and knowledge economy built on

The vision of telecommunications in 2020 is a vision of information society built

Finally, development of human resources through IT education, training and skill

Table 6: Growth in availability of Personal Computers and estimated

Despite impressive growth in the number of Internet users and availability of

Table 7: Internet penetration and PC availability, 2001

Countries falling in Internet users per

Of which 68.16 0.58

Internet kiosks, telekiosks, telecottages and cybercafes have emerged in

Box 1: Harbingers of information society

n-Logue: ‘n-Logue’ is a company incubated by a group of professionals in IIT

M.S. Swaminathan Research Foundation: This project is located in Pondicherry

Tarahaat.com: This is a commercial project promoted by a Delhi based NGO,

Hole-in-the wall initiative: A pilot project launched by the NIIT, a software

Indiagriline: This is an online network of trading, contract management, banking,

School Net India: An initiative of the Infrastructure Leasing and Financial

SEWA: Self-Employed Women’s Association (SEWA) is an NGO, which

Source: Sood, 2001 and other sources.

The list of anecdotes included in the Box is by no means exhaustive. With

Apart from encouraging use of IT in research and scientific areas, the

Many state governments have also declared IT policies and computerized

The foundation of digital democracy has been laid to usher in an era of e-

Growing legitimacy of IT based transactions in government has started catalyzing

Software in local languages is being increasingly available. Computers have also

Countries often differed in pattern of sequencing and the speed of liberalization.

1. Competition in the fixed line segment with state owned incumbents:

In most countries, restricting the number of licensees or imposing geographic

It is interesting to note that competing technological standards have also limited