The growth in teledensity, subscriber base, and average minutes of usage are some of the key indicators of success in year 2003, note telecom experts. The end of the contentious WLL issue was another major milestone. Telecom specialists list the achievements of the past year and forecast what the sector can expect during the coming months...

What, according to you, were the significant achievements during 2003 and what were the reasons for these?

N. Balaganesh
The significant developments were in indoor WLAN delicensing (which took place in 2002 but market explosion started in 2003), unified licences for telecom operators, etc.

Sanjay Mehta
The year 2003 will go down as a landmark year for the telecom sector. It is particularly important as in this year we were able to put all major litigation behind us. The regulatory environment appears to be stabilizing. In less than nine years, we have moved from a highly regulated environment to the most dynamic competitive scenario where all services have unlimited competition. This regulatory situation is now comparable to the most advanced nations of the world. As a result, we have reached 7 per cent teledensity in 2003, which was otherwise targeted for 2005. An average addition of 1.7 million cellular subscribers month on month in 2003 was over 15 times higher than the average monthly growth in mobile subscribers in the preceding eight years. We have clearly reached the inflection point in 2003, which will set the stage for achieving 20 per cent teledensity by 2007-08.

Mohit Saraf
Recent data on the telecom industry indicates that the telecom sector has significantly surpassed all the targets set for it and that on many fronts, such as teledensity, subscriber base, average minutes of usage and rollout of village public telephones and PCOs, there has been a significant upswing. The rapid and successful rollout of telecom infrastructure by private players, which has been the basis on which the sector has gone from strength to strength, should most certainly rank as one of the important achievements in the year 2003.

While many factors can be used to explain this strong performance, two paradigmatic changes deserve to be strongly highlighted. The first is the successful, though not smooth, change in policy evolution to a technology-neutral unified licence regime. Though the move towards unified licensing is far from complete it is undoubtedly on the right track. This move has defused a potentially paralyzing litigious situation. It has also clearly established that going forward there will be a technology-neutral policy. Introduction of the unified licence regime has resolved controversial issues such as grant of additional cellular licences as well as issues relating to a level playing field for service providers with different categories of licences.

A complementary step, which has strengthened the sector in 2003, has been the clarification in licensing norms, promoting consolidation. The new licensing norms facilitated the ongoing consolidation process since it enabled companies to carry out conventional mergers. Companies have now been allowed to split their licences into separate business entities and sell them. Transfer of licences was also made possible in a number of cases, as for instance to a merged company created on the merging of the licence holders.

A subsidiary contributory factor to the upbeat outlook has been the “feel good” factor in the buoyant Indian economy of the past few months. This has contributed to the market responding positively to the offerings of private players and thus re-inforcing the boost provided by policy.

Mahesh Uppal
The biggest achievement of 2003 was the end to litigation between different types of (fixed and mobile) service providers. This has been debilitating for the sector and the development must be welcomed. This forward move has been possible following the unification of different types of access licences.

The growth in wireless subscribers has been stupendous. Mobile service is affordable to many who are by no means rich. The sector should be justifiably proud of this.

What were the failures, if any?

N. Balaganesh
The failure mainly was slow service expansion in the rural areas by fixed line operators.

Sanjay Mehta
I cannot think of any significant failures. We have begun on the right note and now we should continue building on it. We have the right platform now and we need to ensure that we do not fail.

Mohit Saraf
The glaring failure in 2003 has been the inability to raise the FDI limit in the sector. This has been sharply reflected in the fact that FDI inflows in telecom fell steeply in 2003 as compared to the previous year. In August 2002, a steering committee of the Planning commission had recommended that the FDI limit be increased to 74 per cent. The GoM on Telecom constituted in 2003 also reached a similar conclusion. However, in spite of these positive reports, the government failed to approve the recommended increase in FDI limit. This will seriously inhibit the ability of domestic players to fund the capital expenditure required to improve service quality and expand the customer base.

Mahesh Uppal
The biggest failure is the compromise made in the unorthodox process leading to the unification of licences The methodology used to arrive at the ‘final settlement” lacks serious analysis or rigour. Dispute resolution rather than sound economic regulation and its effective enforcement seem to have driven it.

Also, dirt-cheap mobile services have meant service quality is receiving less attention. Unlike most advanced economics, India’s mobile growth has not taken place on top of an existing ubiquitous fixed line network reaching most of the country. The unified licence makes wireless mobile very attractive for investors. The new licence has, arguably, reduced the incentive to invest in fixed line infrastructure, which is still the dominant method, worldwide, of access in rural areas and of access to any data service including the internet. This may have a long-term negative impact on broadband rollout. The unified licence has considerably reduced the obligation to connect rural areas by bringing it in line with the obligation earlier imposed on the cellular operators. The burden of providing universal service on BSNL will not be higher since, being government owned, it is frequently under political pressure to connect rural areas. The USO Fund may not be able to compensate BSNL enough.

How would you rate the government’s reform initiatives during the year 2003?

N. Balaganesh
I would rate the government’s initiatives last year as nine out of 10.

Sanjay Mehta
Unified licence is the most crucial initiative taken by the government as this has put an end to major litigation between cellular and basic service operators and has cleared the decks for more investment to grow bigger to achieve a teledensity of 20 per cent by 2007-08. In this context, the government’s initiatives are remarkable as they demonstrated their courage in taking path-breaking policy decisions.

Mohit Saraf
The government has performed well in terms of ensuring that the policy initiatives move in the right direction. This, in spite of an initial abortive attempt at implementation of a technology-specific policy. The government must be applauded for its supportive role in encouraging all the players to migrate to a technology-neutral regime. The year 2003 should indeed go down as the year when the government initiated the process of fulfilling the promises and the premises of the NTP, 1999.

The recent steps taken by the government in terms of reducing the customs duty and facilitating the growth of broadband will also provide a strong foundation for the growth of the sector. Duty reduction, in particular, will help the service providers to increase their bandwidth and thus provide better service to consumers.

Mahesh Uppal
The government’s initiatives in 2003 can best be described as unorthodox. I think it should be credited for the dogged attempts to rid the sector of so much litigation and controversy. I think, beyond this, the success of the unified licence is yet to be demonstrated.

We need big investments in the sector, especially in improving access in rural areas, which need the network as much for social connectivity as for economic growth. This will be the real test for the government initiatives.

What are the unfinished issues on the policy front?

Sanjay Mehta
The IUC regime is still evolving. The government has to lay out a long-term plan with respect to IUC. Now that the infrastructure is fast expanding, the regulator should spell out he time-frame for implementing a reselling regime in order to further expand the market. The mergers and acquisition issues pertaining to intra-circle consolidation should be cleared soon to boost the sector. The hike in the foreign investment limit to 74 per cent has still not been formalized.

Mohit Saraf
The finalization of a truly unified licence regime is the single major unfinished issue on the policy front. It is time that the government injected flesh and blood into the skeleton of the unified licence regime. A well-thought-out unified licence regime would confer greater flexibility to operators, thus promoting greater consumer choice and better service quality. It would also help the government avoid getting ensnared into debilitating disputes with the service providers.

Another important area that is yet to see closure is the issue of increasing the FDI limit in the sector. A positive decision on this front would undoubtedly give a boost to the sector as a whole.

Mahesh Uppal
The real issue is still a viable policy framework to promote investment in areas that are still unconnected to the network. The USO Fund will have limited efficacy unless some changes are made in the licensing framework so that smaller players can participate. Currently those willing to invest in rural areas or whose who have innovative solutions for smaller areas – say a district, tehsil, or village cluster – are hindered by policy and licensing. Current rules still require them to either get licences for a full telecom circle or be a franchisee of an operator already serving the circle. This is insufficient incentive for entrepreneurs.

A coherent framework for radio spectrum pricing is clearly required in view of the massive focus on wireless technologies. A clear separation between commercial and non-commercial use, especially in expanding access to the unconnected, must be a priority. A clear policy is required for promising wireless technologies like Wifi.

A coherent policy regime for rural access, which is friendly towards investors and innovators, is a real need. A similar workable framework for growth of broadband, with which TRAI is also currently engaged, must be put in place so that the current stagnation in internet growth can end. A comprehensive initiative is required to deal with growth of services.

What are your expectations from the year 2004?

N. Balaganesh
Consolidation of mobile service operators and reduction in mobile service/data tariffs.

Sanjay Mehta
The telecom industry should leapfrog from 1.7 million subscribers to 2.5 million subscribers per month narrowing the gap with China. I expect consolidation in the industry to continue. 2004 will see five-six survivors, of which three-four will be the dominant players controlling over 80 per cent of the market. This is consistent with global trends.

On the regulatory front, all pending regulatory and policy decisions as discussed above should be cleared without any further delay. Also, the regulatory processes should be further strengthened so as to increase stakeholder confidence. India should continuously benchmark itself with the best regulatory practices brought out by the ITU from time to time.

The regulator now has to ensure that it continuously functions in a manner that supports the growth momentum. It should play the role of a referee, whose decisions are well respected by all stakeholders in the telecom industry.

Mohit Saraf
Once the issue of unified licensing is settled to the satisfaction of all the players and with the completion of the consolidation process in the industry, the focus in 2004 would shift to compliance with quality of service norms by service providers. It is expected that with relatively greater stability in the policy framework the regulator will now be free to concentrate on the actual implementation of these quality of service standards so that consumer satisfaction is maximized. A related concern of the regulator should be to ensure that the licence providers do not unfairly discriminate between customers and provide quality service uniformly to all customers.

Other important areas that the regulator could be expected to focus on to enhance the end-user experience would be addressing issues in relation to number portability and spectrum allocation and management.

Mahesh Uppal
Besides the points made above, one hopes that competition and lower prices, which are currently available to most mobile users, are available to all types of services and all classes of users, and that quality improves.