Telecom Politics

Regulatory Reforms

The third phase of the reforms began with NTP99 replacing NTP94 taking into account technological developments and to tackle the implementation issues faced during the NTP94. Some of the objectives of NTP99 were to (Department of Telecommunications [DOT], 2002)

* "Make available affordable and effective communication facilities to citizens"

* "Increase the teledensity to 7 by 2005 and 15 by 2010"

* "Improve teledensity in villages from 0.4 per thousand to 4 in 2010"

* "Achieve efficiency and transparency in spectrum management"

* "Enable Indian telecom players to become truly global players"

* "Strengthen R&D efforts in the country and provide an impetus to build world class manufacturing facilities in the country"

In order to achieve these objectives, the following provisions were made (DOT, 2002)

* Licence fee to be paid as a percentage of revenue share

* Basic and cellular operators permitted to set up their own long distance services in the licensed service area

* Limited mobility (wireless in the local loop) for basic telephony services allowed

* 49% foreign equity allowed in mobile telephony (this presently stands at 74%)

However, rapid growth in telecom sector required flexibility in controls, easy access to authorities and quicker response from the Government. It was thus found important to separate the regulatory arm from the service arm. To meet this objective, Government initiated corporatization of major telecom bodies and DOT created the autonomous Telecom Regulatory Authority of India to provide an effective regulatory framework to the industry. The important powers and actions of TRAI were (Vittal, 1997)

* Arbitration in disputes among service providers, although this was later assigned to the Telecom Disputes Settlement And Appellate Tribunal in 2000 (TDSAT, n.d.)

* Promoting competition and efficiency

* Providing regulations governing revenue-sharing

* Setting guidelines for inter-connections between service providers

Impact of Reforms on the Cellular Services Industry

Value Added Services

Value Added Services were the first to be opened up to private players by the Telecom Commission of 1991, and they broadly covered such mobile communication services as radio paging. Service providers welcomed the move and bid for licences, but the lack of transparency in the award of licences caused a lot of legal tussles which were finally resolved with the result that radio paging covered all the states in the Union by 1995 (Athreya, 1996). As of now, the mobile VAS market - consisting of ringtones, text and voice services - is expected to grow to ten times its present size by 2010, facilitated by the existence of a growing class of young upwardly mobile individuals and the increasing availability of cheap handsets (SSKI, 2005).

Regulated Tariffs and Consequent Growth in Subscriber Base

NTP99 signaled a shift from licence fees to revenue-sharing, facilitating increased private sector participation and higher competition. In the same year, TRAI permitted the entry of private players into the Wireless in Local Loop (CDMA) segment, to which cellular operators responded by reducing tariffs further. This led to rapid growth in the mobile subscriber base, which grew to 13 million by March 2003 (Exhibit 1).

The tariffs include interconnection charges and Access Deficit Charges (ADC), which are payable to the operator on whose network the call terminates. In response to the TRAI directive on interconnection, mobile operators revised their tariff structures downwards as a result of lower interconnection charges that were stipulated. In an effort to make mobile services more affordable, TRAI reduced ADC in January 2005 and these led to further reduction in tariffs.

Tariff regulation by the TRAI has ensured that service operators maintain telephone services at an affordable level resulting in continuously declining Average Revenue Per User (ARPU) (Exhibit 2). It is however noted that despite the very heavy taxation, our tariffs are amongst the lowest in the world (TRAI, 2005b), ostensibly as a result of efficiency brought about by competition.

Mergers

NTP99 allowed multiple players in the same service circle. The ensuing competition ensured that only those operators who could provide services efficiently could survive. Several operators responded by undertaking strategic mergers in order to serve contiguous circles. For example, Birla-AT&T and Tata Teleservices joined forces to form Idea Cellular and the resulting economies of scale allowed them to charge lower tariffs to subscribers (Jain, 2000).

Impact on financial markets

With the easing of restrictions on financing in the telecom sector, the industry saw the entry of foreign players. The government's mandate requiring foreign financial support and technical expertise for providing cellular services subsequently encouraged foreign investors to set up holding companies in the country and increase their stakes in local firms. Moreover, investors saw that the reforms promised rapid growth and provided easy finance to private operators (Jain, 1999). The relationship between financial markets and cellular service providers was reciprocal. The flexible credit terms permitted rapid expansion, which led to increased revenues and which in turn provided profitable returns to investors.

The Fixed Services Industry

A discussion on the outcomes in the cellular services industry would be incomplete without a comment on the effect on fixed services as a close substitute. This industry was opened up to unrestricted competition in 1999. When fixed operators were permitted to provide WLL services, cellular operators clamoured that the full mobility that users could enjoy on a WLL phone was detrimental to their investments. Finally, with the issuance of the Universal Access Service Licence (UASL) provision in 2003, fixed service licensees could provide both types of services by paying additional fees (CrisInfac, 2005).