Business Policy Analysis & its Implications

The National Telecom Policy

Introduction:

1. The new economic policy adopted by the Government aims at improving

India's competitiveness in the global market and rapid growth of exports.
Another element of the new economic policy is attracting foreign direct
investment and stimulating domestic investment. Telecommunication services
of world class quality are necessary for the success of this policy. It is,
therefore, necessary to give the highest priority to the development of telecom
services in the country.

Objectives:

2. The objectives of the New Telecom Policy will be as follows :

a. The focus of the Telecom Policy shall be telecommunication for all and
telecommunication within the reach of all. This means ensuring the
availability of telephone on demand as early as possible.

b. Another objective will be to achieve universal service covering all

villages as early as possible. What is meant by the expression
universal service is the provision of access to all people for certain
basic telecom services at affordable and reasonable prices.

c. The quality of telecom services should be of world standard. Removal

of consumer complaints, dispute resolution and public interface will
receive special attention. The objective will also be to provide widest
permissible range of services to meet the customer's demand at
reasonable prices.

d. Taking into account India's size and development, it is necessary to

ensure that India emerges as a major manufacturing base and major
exporter of telecom equipment.

e. The defence and security interests of the country will be protected.

Present Status:

3. The present telephone density in India is about 0.8 per hundred persons as
against the world average of 10 per hundred persons. It is also lower than that
of many developing countries of Asia like China (1.7), Pakistan (2), Malaysia
(13) etc. There are about 8 million lines with a waiting list of about 2.5 million.
Nearly 1.4 lakh villages, out of a total of 5,76,490 villages in the country, are
 covered by telephone services. There are more than 1 lakh public call offices
in the urban areas.

Revised Targets:

4. In view of the recent growth of the economy and the reassessed demand, it is
necessary to revise the VIII Plan targets as follows:

a. Telephone should be available on demand by 1997.

b. All villages should be covered by 1997.

c. In the urban areas a PCO should be provided for every 500 persons by
1997.

d. All value-added services available internationally should be introduced

in India to raise the telecom services in India to international standard
well within the VIII Plan period, preferably by 1996.

Resources for the Revised Targets:

5. The rapid acceleration of Telecom services visualised above would require

supplementing the resources allocated to this sector in the VIII plan. The total
demand (working connections + waiting list) showed a rise of nearly 50% from
7.03 million on 1.4.1992 to 10.5 million on 1.4.1994 over a three year period.
If the demand grows at the same rate for the next three years, it would touch
about 15.8 million by 1.4.1997. The actual rate of growth is likely to be higher
as the economy is expected to grow at a faster pace. Achieving the target of
giving telephone on demand by 1997 would thus imply releasing about 10
million connections during the VIII Plan as against the existing target of 7.5
million. Release of 2.5 million additional lines alone would require extra
resources to the tune of Rs. 11,750 crores at a unit cost of Rs. 47,000 per line
at 1993-94 prices. To this must be added the requirement on account of
additional rural connections of Rs. 4,000 crores.

6. Even with the comparatively modest targets of the VIII Plan, as originally
fixed, there is a resource gap of Rs. 7,500 crores. The additional resources
required to achieve the revised targets would be well over Rs. 23,000 crores.
Clearly this is beyond the capacity of Government funding and internal
generation of resources. Private investment and association of the private
sector would be needed in a big way to bridge the resource gap. Private
initiative would be used to complement the Departmental efforts to raise
additional resources both through increased international generation and
adopting innovative means like leasing, deferred payments, BOT, BLT, BTO
etc.

Hardware:

7. With the objective of meeting the telecom needs of the country the sector of
manufacture of telecom equipment has been progressively re-licensed.
 Substantial capacity has already been created for the manufacture of the
necessary hardware within the country. The capacity for manufacture of
switching equipment, for example, exceeded 1.7 million lines/year in 1993 and
is projected to exceed 3 million line/year by 1997. The capacity for
manufacture of telephone instruments at 8.4 million units per year is far in
excess of the existing or the projected demand. Manufacturing capacities for
wireless terminal equipment, Multi Access Radio Relay (MARR) for rural
communication, optical fibre cables, underground cables etc. have also been
established to take care of the requirements of the VIII Plan. With the revision
of the targets demand would firm up and there would be an incentive to
expand the capacities to meet the extra requirement.

Value Added Services:

8. In order to achieve standards comparable to the international facilities, the

sub-sector of value-added services was opened up to private investment in
July 1992 for the following services :

a. Electronic Mail

b. Voice Mail

c. Data Services

d. Audio Text Services

e. Video Text Services

f. Video Conferencing

g. Radio Paging

h. Cellular Mobile Telephone

9. In respect of the first six of these services companies registered in India are
permitted to operate under license on non-exclusive basis. This policy would
be continued. In view of the constraints on the number of companies that can
be allowed to operate in the area of Radio Paging and Cellular Mobile
Telephone Service, however, a policy of selection is being followed in grant of
licenses through a system of tendering. This policy will also be continued and
the following criteria will be applied for selection :

a. Track record of the company;

b. Compatibility of the technology;

c. Usefulness of the technology being offered for future development;

 d. Protection of national security interests;

e. Ability to give the best quality of service to the consumer at the most
competitive cost; and

f. Attractiveness of the commercial terms to the Department of

Telecommunications.

Basic Services:

10. With a view to supplement the effort of the Department of

Telecommunications in providing telecommunication services to the people,
companies registered in India will be allowed to participate in the expansion of
the telecommunication network in the area of basic telephone services also.
These companies will be required to maintain a balance in their coverage
between urban and rural areas. Their conditions of operation will include
agreed tariff and revenue sharing arrangements. Other terms applicable to
such companies will be similar to those indicated above for value-added
services.

Pilot Projects:

11. Pilot projects will be encouraged directly by the Government in order to

access new technologies, new systems in both basic as well as value-added
services.

Technology and Strategic Aspects:

12. Telecommunication is a vital infrastructure. It is also technology intensive. It

is, therefore, necessary that the administration of the policy in the telecom
sector is such that the inflow of technology is made easy and India does not
lag behind in getting the full advantage of the emerging new technologies. An
equally important aspect is the strategic aspect of telecom, which affects the
national and public interests. It is, therefore, necessary to encourage
indigenous technology, set up a suitable funding mechanism for indigenous
R&D so that the Indian Technology can meet the national demand and also
compete globally.

Implementation:

13. In order to implement the above policy, suitable arrangements will have to be
made (a) protect and promote the interests of the consumers and (b) ensure
fair competition.

The government plans to formulate a comprehensive ‘National Telecom Policy 2011’

including the recognition of Telecom as infrastructure and as an essential service,
encouraging Green Telecom, steps to accelerate migration from IPv4 to IPv6 at the earliest,
release of IPv6 standards by Telecom Engineering Centre for implementation in the country,
etc., as per a press release by the Ministry of Communications & Information Technology.

Further, the government plans to take concrete steps towards finalisation of ‘National
Broadband Plan’ including strategy for implementation and initiation of steps for roll
out of optical fibre.

The government has taken many proactive initiatives to facilitate the rapid growth of
the Indian telecom industry.

 In the area of telecom equipment manufacturing and provision of IT-enabled

services, 100 per cent FDI is permitted
 No cap on the number of access providers in any service area. In 2008, 122
new Unified Access Service (UAS) licences were granted to 17 companies in
22 services areas of the country
 Revised subscriber based criteria for allocation of Global System of Mobile
Communication (GSM) and Code Division Multiple Access (CDMA) spectra
were issued in January 2008
 To provide infrastructure support for mobile services a scheme has been
launched to provide support for setting up and managing 7,436 infrastructure
sites spread over 500 districts in 27 states. As on December 31, 2009, about
6,956 towers had been set up under the scheme

According to the Consolidated Foreign Direct Investment (FDI) Policy document, the
FDI limit in telecom services is 74 per cent subject to the following conditions:

 This is applicable in case of Basic, Cellular, Unified Access Services,

National/ International Long Distance, V-Sat, Public Mobile Radio Trunked
Services (PMRTS), Global Mobile Personal Communications Services
(GMPCS) and other value added Services
 Both direct and indirect foreign investment in the licensee company shall be
counted for the purpose of FDI ceiling. Foreign Investment shall include
investment by Foreign Institutional Investors (FIIs), Non-resident Indians
(NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository
Receipts (ADRs), Global Depository Receipts (GDRs) and convertible
preference shares held by foreign entity. In any case, the 'Indian' shareholding
will not be less than 26 per cent
 FDI up to 49 per cent is on the automatic route and beyond that on the
government route. FDI in the licensee company/Indian promoters/investment
companies including their holding companies shall require approval of the
Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall
ceiling of 74 per cent. While approving the investment proposals, FIPB shall
take note that investment is not coming from countries of concern and/or
unfriendly entities
 The investment approval by FIPB shall envisage the conditionality that the
Company would adhere to licence Agreement
 FDI shall be subject to laws of India and not the laws of the foreign
country/countries
The Road Ahead

According to a report published by Gartner Inc in June 2009, the total mobile
services revenue in India is projected to grow at a compound annual growth rate
(CAGR) of 12.5 per cent from 2009-2013 to exceed US$ 30 billion. The India mobile
subscriber base is set to exceed 771 million connections by 2013, growing at a
CAGR of 14.3 per cent in the same period from 452 million in 2009. This growth is
poised to continue through the forecast period, and India is expected to remain the
world's second largest wireless market after China in terms of mobile connections.

The Indian mobile industry has now moved out of its hyper growth mode, but it
will continue to grow at double-digit rates for next three years as operators focus on
rural parts of the country. Growth will also be triggered by increased adoption of
value-added services, which are relevant to both rural and urban markets."

Mobile market penetration is projected to increase from 38.7 per cent in 2009 to 63.5
per cent in 2013, according to Gartner.

The much-awaited mobile number portability was launched on November 25, 2010 in
Haryana and will be available to more than 700 million subscribers from January 20,
2011 across the country. As continued efforts of the Government to increase
competition in the market and to provide wider choice to customer, Mobile Number
Portability will be an important step.

Data Source: Gartner Inc. & www.dot.gov.in