The rickshaw and the cell
phone By Siddharth Srivastava
NEW DELHI - The communication services
industry is a sector that has grown by leaps and
bounds since India embarked on the path of
economic reforms. The consumer is the real
beneficiary.
In one more bonanza for
customers, state-owned telecom companies Bharat
Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone
Nigam Ltd (MTNL) recently announced a maximum
tariff of Rs1 (about 2 US
cents) per minute for calls anywhere in the
country, under the much-publicized OneIndia plan,
effective from this Wednesday, March 1. Domestic
long-distance charges are currently at Rs2.40 a
minute for land lines and about Rs3 for mobile
phones.
The communications revolution in
India continues to unfold with remarkable speed. A
rickshaw-puller on his cellular phone - perhaps a
call from his wife or even a client with children
to be picked up - in the midst of rural abjectness
is not an uncommon sight; cyber-cafes, phone
booths, and satellite TV in the middle of nowhere
are no longer surprise in today's India. Over the
past decade, the reach and access of land-line and
cellular phones, the Internet, radio, and
satellite television have all improved
dramatically, with certain sub-sectors, such as
cellular telephony, expanding even more rapidly.
Statistics reflect the end-user changes.
India's communications-services industry is one of
the fastest-expanding in the world, clocking
annual growth figures of more than 20% over the
past four years, providing a unique opportunity
for domestic and international investors alike.
While the industry has achieved the $9 billion
mark in revenues, the cellular industry crossed
$1.5 billion in the 2003-04 fiscal year. According
to an Ernst & Young study, the telecom
subscriber base is expected to reach 203 million
by 2007 and revenues are expected to triple to $23
billion to $25 billion by next year compared with
$9 billion in 2002.
The Indian
telecommunications network is already the
fifth-largest in the world, the second-largest
among the emerging economies of Asia, and growing
at nearly 100% per annum. Tele-density, which was
languishing at 2% in 1999, has shown an impressive
jump to 7% in 2003 (still a quarter that of China)
and is set to increase to 20% in the next five
years, beating the government target by three
years. Yet more than 900 million Indians, out of
more than a billion, still do not have access to a
telephone. Though unfortunate, this fact also
shows the growth opportunity for telecom services
in the country.
Meanwhile, the Internet is
accessible at cyber-cafes that dot the cities and
semi-urban towns. Railway reservations, weather
information, online investing, banking, bill
payments and a host of e-commerce services are
increasingly being accessed online.
Television is already pervasive across the
country. According to a survey conducted by the
National Council of Applied Economic Research
(NCAER), penetration of TV in rural areas is
expected to grow almost fourfold from 48 TV sets
per thousand of population in 1988-89 to 185 TV
sets per thousand in 2006-07, with the growth in
urban areas increasing from 304 to 723 per
thousand. Anil Ambani, the head of Reliance,
India's private-sector behemoth, has noted that
more Indians have access to television than tap
water. Terrestrial transmission covers almost 90%
of the subcontinent, beaming more than 150
channels, while digital terrestrial transmission
(DTT) functions in the large cities.
All
major cities in India have at least one FM radio
station operating. The radio broadcast policy
panel, set up to suggest new norms for FM radio,
has recommended allowing increased foreign direct
investment (FDI), from the present 20% to 26%.
There are more than 25 private FM radio channels
across the country in addition to the
government-owned All India Radio.
The
telecom industry boom has been driven largely by
cellular telephony, although the growth of
land-line phones and Internet connections is also
increasing. More than 90% of the phones added last
year were mobiles, with the mobile share of all
telephone connections now more than 50% (60
million) of total connections (more than 110
million). Private players contributed more than
88% of the lines added during the period. The
growth in fixed-line, however, has been much
lower, merely 3% in 2005 (because of high
infrastructure costs), though the number has
crossed 50 million.
However, monthly
additions of cell phones have grown exponentially,
from 50,000 in 1997 to 1.4 million in 2003 and a
record 4.5 million in December 2005 (because of
the launch of services that guarantee a number for
life for just over $20), equaling the monthly
addition level of China. India is considered to be
a market primed for rapid expansion, as less than
40% of the country's total area is covered by
mobile networks, and fewer than eight in every 100
Indians use mobiles, compared with China's 30%.
The upside potential is therefore immense.
Sunil Mittal, chairman of Bharti
Enterprises, one of the major basic and cellular
operators in the country, said: "Given the current
pace of growth, particularly in the rural and
[semi-rural] areas, we see the possibility of
India moving to a subscriber base of about 200
million in a couple of years. For instance, we
have doubled the subscriber base in one year if
you look at the total base of [the] last seven
years. We expect this trend to continue."
Indeed, the high growth of cellular-led
communications services in India has been a
conscious, even if belated, effort. It has been a
combination of factors that have resulted in such
growth, though there is still a way to go and
several policy parameters to be sorted out by the
government as well as the private players.
Intense competition among the four main
private groups - Bharti, Hutch, Tata and Reliance
- and the government-owned BSNL and MTNL has
brought about a significant drop in tariffs with
an almost 74% drop in cell-phone charges, 70% in
international long-distance calls and 60% drop in
national long-distance charges, with consumers
reaping the benefits. There has been a crash in
the tariffs and handset prices by almost 70% over
the past four to five years, coupled with easy
financing schemes and bundling of handsets with
connections by operators. Reliance and Bharti have
emerged as the largest cellular service providers,
while BSNL and MTNL dominate the fixed-line
segment.
"The Indian telecom sector, which
had about 20 players, has now six major players.
We expect to see further consolidation, possibly
through big mergers," said Mittal.
The
government has played a key enabling role by
deregulating and liberalizing the industry,
ushering in competition and paving the way for
growth. Regulatory problems leading to protracted
disputes have been addressed with the setting up
of the independent Telecom Regulatory Authority of
India (TRAI) and Telecom Dispute Settlement and
Appellate Tribunal (TDSAT) handling all conflicts
within the industry. The information-technology
(IT) and telecom ministries have been merged to
speed up reforms, and the Communications
Convergence Bill, enabling the common regulation
of the Internet, broadcasting and telecoms, is in
place.
The government has raised FDI
levels to 74% from 49% in the telecom sector,
despite resistance from its key coalition
partners, the left parties. The Foreign Investment
Promotion Board has allowed the world's leading
mobile operator, Vodafone Group, to purchase a 10%
stake in Indian private telecom major Bharti
Tele-Ventures Ltd for $1.5 billion.
"The
government is committed to FDI in the telecom
sector despite the opposition," said
Communications and IT Minister Dayanidhi Maran.
"The country needs investments in infrastructure,
and countries around the world have allowed 100%
FDI in telecom."
Maran said this month
that FDI in the IT and telecom sector is expected
to go up by more than 100% in 2006, to more than
$4.5 billion. "A number of policy measures have
been taken in the recent past, including
procedural simplification and rationalization
measures. These policy measures and [the] buoyant
IT and telecommunication industry [are] likely to
result in doubling of FDI in 2006."
Cellular growth has also been triggered by
the introduction of a unified licensing regime for
both CDMA (code division multiple access) and GSM
(global system for mobile communication) players,
while unlimited competition has been allowed in
the basic sector. This has allowed all phone
companies to become mobile operators by offering
cellular and land-line/wireless local loop
limited-mobility (WLL-M, touted as the "poor man's
cellular") services under a single authorization,
ending service-specific licensing. With full
unification, operators will be able to offer any
service using any technology.
Customs
duties on hardware and mobile handsets have been
reduced from 14% to 5%, a move that has prompted
China's largest handset manufacturer, Bird, to
launch in India.
There is no restriction
on the number of Internet companies, and more than
200 companies are operational. Internet telephony
has been allowed officially since April 1, 2002.
E-commerce, Internet leased lines, integrated
service digital networks (ISDN), virtual private
networks (VPN), and other services are driving the
growth of the Internet services market.
Maran said, "State-owned telecom companies
BSNL and MTNL will soon initiate the spread of
broadband in a big way across the country through
digital subscriber link [DSL] and asynchronous
digital subscriber link [ADSL] infrastructure.
Both the companies are working out the details of
the broadband initiative, which will be launched
in December." However, he said that "broadband
will not take off in the country unless the prices
are brought down drastically, as Internet and
broadband connectivity charges are still high".
TRAI has been made the regulator for cable
TV services and broadcast. The Conditional Access
System (CAS) has been deferred indefinitely
because of increased consumer costs and the focus
is on direct-to-home (DTH) services. Currently two
DTH services are in operation, of which the
service operated by government-owned Doordarshan
(DD) offers channels with some free-to-air news
channels. The second service called Dish TV, run
by Zee TV, offers mainly Zee channels. Tata-Sky
Ltd, which is scheduled for launch by the middle
of the year, is expected to offer a composite
bouquet of popular channels from almost all
leading broadcasters.
India's
communications business still has a long way to go
and many more barriers to cross. To achieve the
20% tele-density goal, India needs incremental
investments of $10 billion to $15 billion over the
next five years. Issues regarding foreign equity
holding continue to hamper the fundraising ability
of the sector. While unified access licenses have
been allowed, the government has not allowed the
merger of basic and cellular licenses, reducing
the flexibility of small basic operators. There is
limited spectrum availability, and Indian
operators pay many times more than Chinese for the
right to use one-third of the same resources.
India's other high-growth sector, IT, is
an industry that has followed the path of
export-led growth, with more than 80% of business
being generated overseas and a small population of
software engineers benefiting much more than the
general public. Such a "digital divide" or "urban
phenomenon" does not exist in the communications
business, where the major players seek to reach
out to the remotest parts of India, looking for
local distribution channels and agents to do the
job. The sector therefore has a major local impact
in spite of its global focus.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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