Shri Pradip Baijal, of the Indian Administrative Service, is the Chairman of the Telecom Regulatory Authority of India (TRAI), a statutory body that regulates the telecom, broadcasting and cable TV sectors. Before joining TRAI, he was the first Secretary, Ministry of Disinvestment in the Government of India where he laid down the entire gamut of rules and regulations for privatization; he privatized about one company every month during his tenure. In an earlier assignment in the Ministry of Power, he assisted the Central Government in laying down the framework for power sector reforms. Shri Pradip Baijal has published a very large number of papers on privatization, liberalization, power and telecom regulation issues. Shri Pradip Baijal is a Mechanical Engineering graduate from I.I.T., Roorkee. He attended a one-year fellowship in Oxford University studying the Privatization of Public Enterprises.
Indian telecommunications penetration is rapidly growing. Mobile services boast the world’s highest growth rates. Regulatory measures have encouraged competition, drastically lowered rates, and created broadly based conditions for growth. Nevertheless, rural penetration, Internet and broadband usage are low and growing slowly. India’s urban telephony experience shows that new technologies, competition, and pricing in line with the buying power of the masses can fuel explosive growth. India’s economic growth will depend upon widespread access to telecommunications – upon access to the global economy.
During the entire 50 year post independence period of 1948 to 1998, teledensity grew a total of 2%. During the last two years teledensity grew 2% each year. Present trends point to annual teledensity growth rates of 3 to 5% in the coming year. In early 2003, mobile subscribers increased by 200 thousand per month. Today, 5 million new subscribers are added monthly. India now has the highest rate of mobile subscriber growth in the world – equivalent to China in its best years. This, and India’s ever-growing 6% cable TV density, its growing DTH market, its 200 or so broadcast channels, and an expanding FM radio market, show that India’s information society has arrived. Still, there are huge gaps in India’s Internet, broadband and rural telephony coverage that present a huge dilemma for the government, its regulator and its policy makers. Telecommunications in India have traditionally meant only voice telephony. The idea that telecommunications also includes Internet/ Broadband/Data (Information) has gradually gained acceptance. Today, there is a common Ministry for Communications and Information Technology. The idea that telecommunications should also encompass TV and broadcasting was first espoused in a formal manner through the Convergence Bill in 2001, which, however, did not get passed. Nevertheless, limited carriage convergence has been enforced through a government notification issued in early 2004 under the TRAI Act, 1997. In this article, telecommunications is defined in the broadest possible sense to include person to person voice services, communications through Internet/broadband as well as communications through various forms of TV and broadcasting. Networks do not grow unless they acquire a critical mass of users or devices. This was abundantly seen in the fax machine and Internet markets. These technologies existed only in research laboratories for about 30 years, until they were commercialized and achieved critical mass. Our voice telephony networks in urban areas, with a 35% teledensity, have achieved critical mass. This is still not the case in rural areas where the teledensity is only 2%. Residential Internet usage, at 3%, has not yet reached critical mass nor, at 0.5%, has broadband/ data/information, despite the huge demand, particularly in the information, communication and entertainment starved rural areas. The existing broadband kiosks in rural areas have very high usage and are used for multiple purposes – for information about crops, prices, health, diseases, land records, passport, education and even banking. A visit to one of India’s pioneer broadband kiosks would convince even the severest skeptics of the huge demand that exists for such services in rural areas. The urban voice telephony market has shown that growth rates accelerate when the right technologies are introduced (mobile), when competition in the market is high and when the prices match the buying power of the masses. Several regulatory initiatives led to the explosive growth of voice telephony in urban areas: – Unified Access (technology-neutral access) – enabling co-existence of GSM/CDMA networks and true technology agnostic competition between all service providers, fixed and mobile. – CPP (only calling party pays) – leading to reduction in tariffs and a consumer-friendly payment regime. – Tariff forbearance (market driven) severe competition has led to a fall in mobile tariffs to fixed-line levels. Lower tariffs put mobiles within the reach of the working class and led to a huge growth in subscribers. As a result of the increased volumes, the networks remained viable despite the steep fall in average revenue per user or ARPU. – Cost-based Interconnection Usage Charge (IUC) – based upon a ‘work done’ principle, encouraged competition from other areas of the network. – Fixing of termination charges based upon very strict cost analysis led to very low rates and encouraged severe competition in call origination, leading to very low tariffs. – Repeated reductions in license fees for infrastructure providers – Category-II and all telecom operators, including long distance operators, by the government. – Fixing of ceiling tariffs for International and Domestic Leased Circuits based on cost – resulting in the drastic reduction in broadband tariffs. – Recommendations for opening up of equal access to Submarine Cable Landing Stations, introduction of Rural Service Providers (niche operators), resale in International Private Leased Circuits (IPLC) ‘Class License’/‘Authorization’ based Unified Licensing, Spectrum Allocation and Pricing, Rural Penetration through Infrastructure Sharing, Unbundling of Local Loop by TRAI and part acceptance of some of these recommendations by the government. The regulatory actions taken in the past have led to the following salient features of the Indian ICT landscape: – Mobile tariffs (US $0.025 per minute) and ARPUs (US $8/ month) are the lowest in the world. – Telephony growth of more than 5 million/month (mobile 4.8 million/ month), the highest in the world today. – Rural teledensity is still below 2%, since USO (Universal Service Obligation) fund usage is only permitted for very expensive fixed lines and not the expansion of mobile networks. Without competition, then, rural telephony is still being driven by the government/ public sector. – Mobile networks cover only 35% of the country’s population since mobile players are reluctant to expand into the remaining regions due to the higher risk/lower profit business case for such areas. – Reduction in broadband tariff from $15/month for 100 KBPS to $2/month – an initiative by the public sector incumbent operating company resulting from the regulator’s substantial lowering of the tariff ceiling. – Residential broadband penetration is still below 0.1%; there is high demand but the incumbent operator has been unable to meet it. The incumbent has also resisted efforts to unbundle the local loop thereby hindering the ability of other operators to set up such networks quickly. – Over-capacity of international bandwidth and domestic bandwidth – both mostly unutilized – indicates a tremendous potential for growth of traffic on existing networks if competition in services could be initiated using these networks. – Light-handed regulation and licensing for the Internet, broadband and cable TV, enables existing telecom operators to convert their networks to converged networks even without the promulgation of a convergence law. – Technology neutrality for all services – Wireless Local Loop/mobile/fixed – leads to technology agnostic aggressive competition. – Highest regulatory levies: licence fees (revenue share); service taxes; ADC (access deficit charge); spectrum charges (~30% of revenue). Despite its high levies, India has some of the lowest tariffs in the world – an indication of the very high competition in the communications market. The successful example of urban voice telephony can be used to kick start growth in other areas. We need to recognize that technologies are changing very fast, so to be successful the licensing/regulatory regime should not be affected by technological change. After attending a seminar on voice over Internet in 2003, I asked the CEO of a private telecom firm his reaction to the disruptive effects of the Internet Telephony on his business case. He quickly dismissed the technology as unstable, delivering only intermittent voice, and hence no cause for worry for established telecom operators. Yet today, thanks to technological advances, voice over Internet based networks is providing stable and high quality voice. Mobile technology, WiFi, WiMax, and TV over telecom networks were similarly dismissed as unstable and unviable a few years back. Yet experience shows that the new communications technologies tend to improve rapidly – multiply and quickly become viable and competitive. As a result, regulators and governments must run to keep pace with the technological changes – and to enable the networks that will give subscribers the superior services these technologies bring. There is no guarantee that all the present technologies will not be taken over by much more cost-effective technologies in the future. One trend is clear, technologies are increasingly turning digital. This facilitates ever greater network convergence and the delivery of a wide variety of services that formerly required separate networks over the same network. The future, it seems, belongs to the digital next-generation IP-based networks. IP networks are being rapidly set up in both developing and developed countries. In the United Kingdom, a country with a fully developed communication network, the traditional circuit switch based PSTN network is being replaced by open-architecture IP-based networks. With IP, service providers can quickly deliver all kinds of existing and new services by just plugging on to the network – no network modifications are needed. India is a country with only 12% voice telephony teledensity, a huge demand for broadband, increasing demand for entertainment and multi-sources news on TV networks and huge, unutilized, existing capacity on international and domestic bandwidths. The case, then, in India for a Convergence Law or authorization based automatic – low cost and technology agnostic - licensing is quite strong. We have called licensing such as this Unified Licensing in our recommendations to the government. A Unified Licensing regime would also lead to more efficient multiple usage of spectrum by operators. It would let operators and technology specialists rationalize their planning – their network strategies and architecture – without being dependent upon regulatory/ government approval for each technological change. The government has been examining such proposals and an early decision is needed regarding structural changes in the licensing policies or law. Of course, these changes throw up big problems for the business cases of existing networks and operators, but, unless a convergence law or ‘authorization’ based unified licensing regime is introduced, continuous changes in licence conditions and regulations will be needed to accommodate the emergence of new services, new technologies and the ever growing class of new service providers. These changes, though, will lead to more viable, and numerous, value added services at affordable prices so that even the underprivileged will be able to take part in the information society. Wide scale access to the information society and the global economy will help build local economies throughout the developing regions of the world. Our experience in voice telephony has shown that simple changes can stimulate rapid growth of subscriber numbers. Using this experience to boost the growth of integrated services will not only bring great benefits to our people, but will also improve the service providers’ business models, making them less vulnerable to the inevitable fall in tariffs.