Home India 2004 From tortoise to hare: the transformation of Indian telecom

From tortoise to hare: the transformation of Indian telecom

by david.nunes
Dr Arun MehtaIssue:India 2004
Article no.:4
Topic:From tortoise to hare: the transformation of Indian telecom
Author:Dr Arun Mehta
Title:Chief Technical Officer
Organisation:Net Radiophony India
PDF size:72KB

About author

Dr Arun Mehta is currently the Chief Technical Officer of Net Radiophony, India; a Director of Kaleidoscope Private Limited a film and TV production company and the President of the Society for Telecommunications Empowerment (STEM), which seeks to bring the benefits of modern telecommunications to the poor. Dr Mehta, an electrical engineer and computer scientist is also a high profile social activist, an ex-President of the Indian Section of Amnesty International and was the co-host of a weekly IT news programme. The multi-talented Dr Mehta, a consultant to firms and organisations, large and small, for many years is the author of eLocutor, a system to meet the communication needs of Professor Stephen Hawking. Arun Meta studied and taught in India the US and Germany. Dr Mehta earned his Doctorate from Ruhr University, Germany, a MS in Computer Science from the State University of New York and a Bachelor of Technology in Electrical Engineering (First Class with Distinction) from IIT Delhi. He speaks Hindi, English, German, and French.

Article abstract

Government controlled Department of Telecommunications or DOT was India’s primary supplier of phone services and its telecom regulator. When India opened its market, private companies had little choice in the technologies they could use; DOT could use anything. New entrants paid high licence fees; DOT paid none. To level the field and attract investors, a regulatory agency–TRAI–was established, but court battles, and DOT’s resistance, defeated its efforts. A special court now handles telecom disputes and the sector is growing.

Full Article

At the start of the 1990s, telecommunications was a government monopoly. The Department of Telecommunications (DOT) was the sole supplier of phone connections in the country, except in Delhi and Mumbai, where MTNL, also totally government controlled, was the supplier. International communications was the preserve of VSNL, also a government-owned entity. Together, they constituted what might be called the DOT family. In a country with a population of almost a billion, there were just 5.1 million phone lines in 1990 – roughly one for every 200 people. The DOT made telecom policy, implemented it, and acted as the regulator. A phone was considered a luxury, so those who used theirs a lot were charged at a higher rate. Around this time, the Indian state neared bankruptcy, and was even forced to sell some of its gold reserves to stay afloat. Rapid liberalisation and the dismantling of state monopolies was not just a path to faster economic growth, but also of quickly refilling the state coffers. In 1994, the National Telecom Policy was announced, which allowed the private sector to bid for licenses in different states. The DOT, an entity directly threatened by this, was put in charge of formulating and implementing this policy. The policy did not address key questions essential for the private sector to function in this area, including those of rights of way to lay cables, and spectrum allocation for wireless communications. The over enthusiasm of the private sector for what it saw as boundless possibilities for growth in a telecommunications-starved country led it to bid absurdly high sums for licenses. The combination was a sure recipe for disaster. By 1999, it was clear that the licence fee regime was not working and an alternative had to be found. The problems with changing the terms of the licence arrangement midstream were several: besides questions regarding the propriety of providing relief to large and rich multinationals, there was also the question of the reaction of losing parties in the licence bidding, who could legitimately feel aggrieved for being punished for having bid responsibly. In an admission that the DOT could not be relied upon to come up with workable policy, a taskforce called the Group on Telecom (GoT) was set up to formulate a new telecom policy. A complicated scheme for migration to a revenue-sharing arrangement was announced, under which the telecom companies had to still pay a share of their overdue licence fees. Apart from blunders in the licensing process, telecom growth in the country was hampered by the authoritarian attitude of the DOT with regard to choice of technology. While private companies had almost no choice in what technologies they might adopt, the DOT family had complete freedom in technology selection. It was only in 1999 that these e-mail service providers were grudgingly allowed to migrate to TCP-IP. The same guidelines imposed a starting licence fee of Rs. 25 to 50 lakhs per annum on e-mail service providers. Bulletin Board Service (BBS) operators, typically run by students who allowed users to dial into their computers and leave messages for each other, were asked to pay an amazing Rs. 15 lakhs per year for permission to run a free service! VSNL paid no licence fees for a service that offered far more than just e-mail. Similarly, cellular operators were forced to use GSM technology, although cheaper alternatives might have been far more popular in a poor country. When MTNL started to offer mobile telephony, it was not bound by this restriction, and chose Code Division Multiple Access (CDMA) technology. A wireless local loop system called corDECT, which reduced the cost of connecting a new subscriber to the telephone network from Rs. 35,000 in urban areas and Rs. 75,000 in rural areas to a figure close to Rs. 10,000 could not be used. While only one per cent of the population could afford conventional technology without cross subsidies, the cheaper corDect technology could have been within reach of 15-20 per cent of the country’s population. Yet, DOT dragged its feet in providing wireless and other clearances. Another grievous technology choice made by the government was the ban on Internet telephony, another means of low-cost telecom access. VSNL even blocked access to Internet sites offering information on the technology. Internet telephony and corDECT technology were both eminently suited to a new paradigm for telecommunications. Instead, similar to the Internet model, a large number of small to medium players could connect to national and international optic-fibre backbones, but the DOT recipe for privatisation only allowed large players, since each needed to be in a position to cater to a circle, typically an entire state. Besides the high licence fees, private operators faced other problems. It took them many months to get spectrum clearance to use wireless. Spectrum allocation was (and still is) a terrible mess in the country; the available spectrum had been parcelled out to several government departments and ministries, each of which managed the spectrum in its own domain. Anyone wanting clearance to use wireless also needed clearance from dozens of government departments. This forced each department to manage the spectrum in their bands, which they were not equipped to handle. In other countries, information pertaining to all broadcasting antennae is fed into a single computer program. Anyone wishing to use wireless provides information pertaining to the antenna, direction, height, power, frequency, etc., which is also fed into the computer program, which then clearly indicates whether or not this new antenna would interfere with existing equipment. While departments made wasteful use of spectrum, by far the worst culprits were the defence services. All over the world, defence services do occupy large segments of spectrum. To bring this in check, the NATO countries have uniformly adopted the so-called ‘NATO Band’. that allows equipment from different countries to inter-operate. India purchases equipment both, from NATO and non-NATO countries, and therefore uses far more spectrum than other countries. Other government departments are also blocking more spectrum than needed because of past indiscriminate purchases of non-standard equipment. This approach cost the government the substantial revenues it could be earning from spectrum fees. If wireless was hard to use, laying cables was no simple task for the private operator either: “The National Highways Authority of India (NHAI) demanded it be paid Rs. 75,000 per km if the cables were being laid along the nation highways… the DOT pays only reinstatement charges…a fraction of this… in each case, the operators had two choices – petition the government and wait out the delays, or just bribe the authorities.” It was hoped that the formation of the Telecom Regulatory Authority of India (TRAI) in 1997 would increase the confidence level of the private operators. TRAI was established to regulate, oversee and promote competition and growth in telecom. The substantial investment needed for growth, about 50 billion dollars in the next five years, is beyond the government’s or DOT’s fiscal capacity and has to come mostly from private and foreign sources. These investors need to be assured of a level playing field and a pro-competitive regime. Hence, the need for a credible and strong independent regulator, to enable new entrants to compete against a giant government owned incumbent that owns the existing network. The Telecom Regulatory Authority was established, as well, to prevent anti-competitive behaviour such as cross-subsidies, establish terms for non-discriminatory interconnection, administer universal service obligations, and transparently administer licensing, radio frequency allocations, rights of way and telephone numbering plans. However, this body was tainted from the start: not only was it rather weak in the powers conferred on it by the TRAI Act, it was also largely staffed by officers on short-term deputation from the DOT family – the very organisations it was meant to oversee. Yet, so blatant was DOT’s intention to rule the roost, that TRAI very quickly got into a turf battle with the DOT and MTNL. It stopped a DOT bid to cash in the bank guarantees of six cellular operators who had not paid licence fees, and in 1998, it prevented MTNL from entering the cellular market and ruled DOT’s Internet policy invalid. The government operators took the matters to the Delhi High Court, which ruled later that year that the regulator did not have jurisdiction over the DOT’s licensing powers, and threw open private entry into Internet services. The government attempted to clarify the TRAI’s function, but after the High Court judgement, the TRAI was left with a single thankless task, setting tariffs. Here too, it met controversy every step of the way. It had court battles with MTNL on tariff issues pertaining to its mobile phone service, and when it tried to reduce the subsidy that long-distance services were providing to local traffic, the DOT used various political stratagems to block it. Finally, in 2000, the government disbanded the TRAI and appointed a new body in its place, which it divested of judicial powers. These were handed over to a telecom disputes settlement and appellate tribunal. This was followed by a spate of improvements in the competitive environment. National and international long distance services were opened up to competition in 2002, and the license conditions for basic services improved. The Tatas and Reliance came in with major investment after this, based on CDMA technology. There was a bitter dispute with cellular telephony providers, who felt that basic services providers were able to offer more or less an equivalent service, at far better licence conditions and lengthy litigation followed. Finally, towards the end of 2003, a unified licence was introduced, and the dispute finally laid to rest. As a consequence, “From a single operator and the lowest tele-density in the world we now have multiple operators, several technologies, at least 30 pre and post-paid tariff packages, not less than 300 models of handsets… cellular tariffs dropped by over 90 per cent since May 1999, a feat unparalleled by any other sector or industry.” India had 14.17 million mobile phone subscribers at the end of May 2003, 102.8 per cent more than at the end of the same month in 2002. The number of mobile phone users is expected to surge to 120 million by 2008, making the sector one of the hottest markets for global telecom majors facing low demand in Western countries.

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