Prof. Ashok Jhunjhunwala Issue: India 2011
Article no.: 2
Topic: Next steps for India’s telecom
Author: Prof. Ashok Jhunjhunwala
Title: Professor
Organisation: Indian Institute of Technology Madras (IITM)
PDF size: 250KB

About author

Dr Ashok Jhunjhunwala is a Professor at IIT Madras where he also leads the Telecommunications and Computer Networks group (TeNeT) that works with industry to develop technologies relevant to India. Dr Jhunjhunwala also chairs the Rural Technology and Business Incubator at IIT Madras and the Mobile Payment Forum of India. Dr Jhunjhunwala is a Board Director of the State Bank of India, as well as of TTML, Polaris, 3i- Infotech, Sasken, Tejas, IDRBT, Tata Communications and Exicom. Dr Jhunjhunwala is member of Prime Minister’s Scientific Advisory Committee and Member of the Constitution of Scientific Advisory Council to Honourable Chief Minister of the Government of Jammu and Kashmir, Science and Technology Department. Dr Jhunjhunwala has received a great many major awards, honours and honorary degrees for leadership, outstanding contributions to research, science and technology and, as well, his humanitarian activities. He is a Fellow of World Wireless Research forum, IEEE and Indian academies including INAE, IAS, INSA and NAS. Dr Ashok Jhunjhunwala received his B.Tech degree from IIT, Kanpur, and his MS and PhD degrees from the University of Maine.

Article abstract

Indian telecom has grown significantly in the last decade and contributed greatly to the country’s social and economic growth. The government has profited from license fees, spectrum charges, universal service charges, service tax, and tax on equipment. Still, the sector needs to deliver services, especially broadband, to rural regions and to restructure both the privately held and government-controlled operators to reduce costs by unbundling the infrastructure so all service providers can use it and benefit from the lower, shared, costs.

Full Article

Over the last decade, India has done well in expanding its telecom network to every nook and corner. Even though its tariffs are the lowest in the world, innovative steps such as the hiving off of towers into a separate business brought down the infrastructure costs and enabled the operators to make profits even with ARPUs as low as Rs100 (about US$ 2.25). Low tariffs, affordable to even the poorest in the country, enabled the addition of 15 to 20 million subscribers every month, taking the total subscriber numbers to over 750 million. Very low SMS charges and even lower tariffs for bulk SMS have proved invaluable for entrepreneurs and small businesses. Various services are providing information including to farmers. Mobile money transfers and electronic payment have been facilitated and innovative applications of SMS such as fraud prevention on credit card purchases have become possible. At the same time, equipment makers consider India as their biggest market. Further, the government collects huge revenues from telecom as taxes, spectrum charges and revenue share in addition to entry fees (amounting to over 30% of total telecom revenue). The 3G and BWA spectrum auctions were highly delayed; but have finally happened and generated over Rs100,000 Crores [one crore equals ten million rupees] for the nation. Policies such as USF support for shared towers have brought telecom to our rural areas. Telecom is thus not just an engine of the Indian economy, but also a force for inclusive growth. The challenges However, not everything is okay. There are huge challenges. It is clear that the telecom sector’s contributions to the nation have happened in the midst of serious weaknesses in its governance and regulations. The result has been the recent exposure of a spate of scandals in the sector. This is threatening to pull down all that has been achieved so far. This is happening even though broadband in India has not yet taken off, and is in its infancy. It needs careful nurturing over the next several years. Further, there is too much competition amongst telecom service providers leading to tariff wars. While it may bring down tariffs temporarily, the operator’s business is fast becoming unviable. At the same time, the spectrum price in recent 3G / BWA auctions have been too high; the sky-high price was due to shortage, with eight to ten service providers bidding and only three to four winners. The unacceptable cost of losing was that their entire business might have no future. So operators ended up bidding much higher amounts than what made business-sense. One of the casualties of this may be that it could delay roll out of broadband services in rural India, as they would be less lucrative. Also, today India imports virtually all the equipment needed to provide telecom services and these importation costs are second only to India’s oil importation costs. What is ostensibly manufactured in India is really just assembled with very little added value. India makes very few telecom products and owns very little intellectual property (IPR) in this domain. Finally the State-owned telecom operators are struggling to survive, although they have huge infrastructures. Their return to health is important to India’s effort to take broadband to every corner of the country. Overcoming challenges India has to take concrete steps to overcome these challenges. The steps include: • Deploying 3G and 4G broadband – India should use its USO (universal service obligation) funds to quickly take optical fibre to each of its several hundred-thousand telecom towers. The build-up can be done by companies selected using reverse auctions. The fibre would enable 3G /4G base-stations to be deployed on these towers at relatively small cost and enable broadband to reach all over India quickly. Unlike most developed countries, India does not have adequate wireline infrastructure. Thus wireless is essential to provide broadband. Unfortunately the recent BWA auctions do not place enough spectrum in the hands of the operators to provide such service widely. India has to find four to five bands of 20MHz for fourth generation wireless technology deployment and auction it in 2011. • Viable operators – Having earned significant revenues through telecom taxes and auctions, the government should now focus on making the industry stronger and viable. Ten to twelve telecom operators cannot survive and will only pull each other down. The government should now allow sharing of spectrum amongst operators without any restriction and without looking for additional revenue. Similarly, it should allow mergers and acquisitions amongst operators at no additional costs. India needs to enable its operators to do a lot more to take affordable broadband everywhere. • Harnessing value added services – Value added services have not been leveraged enough in India. To avoid restricting use of bulk-SMS, as it did when the Ayodhya high-court judgment was due, it should regulate and register businesses which use these services; it should pass regulations to open the data pipes to new entrepreneurs and services and regulate SMS interconnect. • Promoting India – Today the value-added in telecom equipment through local manufacturing and assembly is only marginal. The value is contained mostly in designs, IPRs and ability to choose and replace components. So India needs to focus on R&D and acquiring IPR. Enhanced financial support will be required. At the same time, a fund needs to be created to encourage entrepreneurship in this field, India also needs a Telecom Development Standards Organization (TSDO) consisting of academia, industry and government and led by the former. • Improving security – IT Security will be an increasing concern for the country. Any electronic product could have malware planted in its ICs, its hardware, its drivers, in its operating system or in the applications it runs. These would be virtually undetectable. For example, a few hundred gates of malware amongst millions of gates in an IC is extremely hard to detect. Deposits of source codes do not solve the problem. The only way would be to have trusted equipment in the network. Diversity helps as one obtains equipment from different vendors; and as much as possible, one should attempt to use Indian made / designed equipment at least for critical parts of the infrastructure. • Saving state telecom operators – The state-owned operators are in trouble. Manpower costs are over 30 per cent of total expenses, whereas the same number is about ten per cent for private operators. At the same time, the revenue is stagnant. One needs to move quickly to bring these organizations back to health. There is no reason why, as most private operators have done, the state telecom operators’ towers cannot be hived off as a separate company. This new company can hire transferred state operator employees and private investment could be encouraged. All operators could share the towers, making this a profitable venture. Similarly the state-owned operator could hive off its national backbone as a separate venture, transfer some of its employees to the venture, seek private investment and enable sharing to make it profitable. To strengthen the broadband infrastructure, local loop assets can be treated similarly so they can be used by multiple operators. As many of the employees would be transferred to the new companies, the parent company -with these three strong, profitable, ventures as its subsidiaries – could compete well with private operators. Of course it will need a strong board and a competent Managing Director to execute these steps well. Summing up Indian telecom has done well in the last decade. The India’s citizens have gained a lot. Government has earned significant revenue through license fees, spectrum charges, Universal service charges, service tax, and tax on equipment. Now one needs to focus on making the industry healthy, taking broadband to its villages, promoting Indian products and the telecom manufacturing industry, as well as on building a secure infrastructure. The exposures of scandals point to serious weakness in governance and regulations. It is hoped that the current exposures would help in cleansing the system. At the same time, one hopes that the gains will not be frittered away, but consolidated instead.