In
the following paper, N Vittal, the architect of NTP '94, suggests
comprehensive policy initiatives for removing technical, legal,
and economic bumps in the road ahead to reforms in the telecom
sector. The paper was presented at Telecom Research Centre,
IIM, Ahemdabad, recently.
1.
Arena for debates
After India adopted the policy of economic liberalization in
1991, if there is one sector in which there has been a lot of
noisy debates and interplay of vested interests compared to
other sectors, it has been telecommunications. Any analysis
of the road ahead will have to look at the underlying forces
of the telecom reform process and then understand the implication
of these forces so that the road ahead can be chalked out.
2.
The four engines
As I see it, the process of telecom reform depends on interplay
of four engines. These are technology, political will, regulatory
activism, and market dynamics. In the Indian telecom reform
process, we have seen the impact of all these four engines.
We have seen that the telecom reform process was made into a
controversial election issue during the 13th Lok Sabha elections.
3.
Scope for suspicion
Anyone who studies the progress of telecom reforms must take
into account the implications of telecom not purely from the
business point of view but also from the non-business angle.
The process in India has, somehow, got linked up with the concept
of scams. Because of the lack of transparency in our administration,
every decision that is taken and especially every decision that
has financial implications, is viewed with suspicion. There
is, of course, some justification for the suspicion. The way
in which National Telecom Policy 1994 (NTP '94) was implemented
gave rise to a lot of speculation about underhand dealings.
The tender process for instance, though claimed to be transparent,
involved very questionable steps like introducing a cap on the
number of circles in which a basic telecom operator could operate.
This condition was not there in the original tender. The Regulatory
Authority was formed three years after the telecom policy was
announced and the when tender process for basic telephone operators
was well underway. The issues connected with the vendor process
were taken to the court and even the National Telecom Policy
1999 (NTP '99), has been the subject of litigation. Telecom
provides a lot of visibility and is a sector that affects majority
of the people. Hence, there are a lot of vested interests involved.
4.
The Department's interest
For chalking out the road ahead, the first step is to take into
account the vested interests in this sector. The most important
vested interest is the Department of Telecom (DoT) with its
monopoly mindset. It may be noticed that the reform process,
from 1994 onwards, has never been driven by the DoT but only
by sources outside it. Prima facie it was the Ministry of Finance
and, to some extent, the Prime Minister's Office (PMO) which
were able to persuade the DoT, even in the initial stages, in
forming, approving, and pushing the NTP '94. NTP '99 has the
stamp of PMO very strongly over it. This is obvious because
the DoT would not like to commit organizational hara kiri.
5.
A level playing field
One of the main issues that had been debated in the past but
somehow has receded in the background now is the demand for
a level playing field by the private operators in this sector.
The DoT does not pay income tax whereas the private operators
have to pay a corporate tax. When I was chairman, Telecom Commission,
the Commission wanted the Department to be corporatized into
four corporations. One of the arguments advanced against the
idea was that Rs 3,000 crore will be the corporate liability.
This amount would have been normally available under the current
system for expanding the telecom network of the DoT. It was,
therefore, perceived that if it was corporatized, DoT would
lose the resources available for improving its network.
6.
Suppressed demand
Another hidden dynamics must be also taken note of. While the
reform process was initiated, the DoT also doubled its efforts
for the growth of the telecom network-apparently with a view
to preempt the growth of market by the private sector when they
entered the sector. We do not know whether the basic assumption
underlying this is correct at all. Personally, I feel that greater
the number of telephones, the faster will be the growth of demand.
In fact, during the period before 1994 when the DoT had all
the monopoly, because of the low expectations about getting
a new telephone connection there was a lot of suppressed demand.
Wherever the DoT expanded the market, it was found that fresh
demand was generated. Perhaps this assumption can be challenged
today when in some cities like Delhi and Mumbai, the availability
of telephone has become relatively easier.
7.
An exercise in de-marketing
Another factor, which checked the growth of telecom in the monopoly
days was what the trenchant critic of telecom, TH Chowdary,
calls "an exercise in de-marketing". This was made
possible by ensuring that the increase in telephone tariff was
higher than the increase in the cost of living index. This goes
against the trend in countries like Britain where the regulatory
authorities have laid down that the telecom tariff should be
a few percentages, say 7, below the wholesale price index.
8.
DoT is not alone
The DoT is not the only player and the only vested interest.
The private sector-domestic as well as the multinationals players-are
vested interests as well. In addition, other government departments/organizations
like the Railways, Power Grid, etc., have vested interest in
the healthy growth of the telecom sector because they can supplement
their revenues by diversifying into these sectors as access
providers of infrastructure to the private sector.
9.
Hidden agendas
I wonder whether in the studies about the Indian telecom sector,
there has been any research focussed on the hidden agendas of
the vested interests in the telecom sector. After analyzing
the dynamics of such hidden agenda, policy initiatives that
can be taken to tackle these hidden agendas can be identified
and articulated. Such policy initiatives would have two angles.
One is the public interest-the customer of the Indian telecom
services getting the best service at an attractive price. If
the vested interests go against the customer, this should be
clearly brought out. The second angle would be to build a level
playing field so that there is a healthy competition and the
growth of the telecom sector is such that the market dynamics
always works in favour of the customer.
10.
No bumper profits
This brings me to another major issue about the emerging financial
scenario for the telecom sector. Telecom was a government monopoly
for 100 years. But once the de-monopolization process began,
it has been perceived that perhaps the telecom sector will witness
the type of changes that have come in the civil aviation sector.
Aviation was also regulated. But, once de-regulation came, it
became a highly competitive sector and bumper profits are not
easy to come across.
11.
Growth projections
It may be worthwhile to look into the whole issue about projecting
the growth and the relative economics of operations in the telecom
sector. It is here that the interplay of four engines I mentioned
at the beginning becomes relevant. One can make a projection
of the revenue and the likely growth of the market based on
technology at a given point of time. But technology is constantly
evolving and there is convergence taking place. As a result
of the breakthroughs in technology the cost of the telephone
operations is constantly coming down. "The Economist"
estimated that in constant dollar terms, today's rates are one
thousandth of the 1950 international telecom tariffs rates.
If we consider new developments like Internet telephony, the
cost further goes down. One estimate is that if it is $5 by
the usual voice switching for an international call, the Internet
telephony rate will be one cent! That means we are going to
see the price come down by 1/500! How can one plan a business
strategy when the technology is constantly evolving and as a
result the tariff goes down? This may upset any intelligent
revenue projection. Decision making under uncertainty has always
been a challenge for managers and students of management. The
operational research techniques and the quantitative techniques
in management were developed to tackle this problem. I wonder
whether the operational research approach to take into account
the various parameters that affect the growth of the market
and revenue for telecom operators can be adopted to come up
with models which will help to make correct business decisions
in this exciting area of telecommunication. Perhaps this can
be another area for research and development in the telecom
sector.
12.
Sacrificing profits for value
In the context of the banking sector, Thomas D Steiner and Diogo
B Teixeir in their book "Technology in Banking" point
out that technology is creating value for the customer and destroying
the profits for the banks. I wonder whether with the telecom
reform process, we will also witness this pro-customer or the
customer-friendly development of creating value for the customer
and destroying profits for the service providers as the overall
paradigm for reforms. Banking is far from being a homogenous
activity. In fact it is a collection of more than 150 specific
products/market services. Lines of business differ by customer
whether retail, corporate or other financial institutions. They
differ by distribution channel, whether by branch, by direct
salesman or by mail. They differ by product route, whether lending,
deposit gathering or payment product. What should be the overall
strategy for the bankers and financial institutions in using
Information Technology? The authors make the following five-point
suggestion:
- Link
business strategy more effectively with technological reality
- Adopt
simultaneous tight-loose policies to manage systems investments
- Treat
routine automation differently from distinctive automation
- Consider
industry system capacity when making product decisions
- Focus,
focus, focus-Get rid of those huge shared cost structures.
13.
Paradigm shift
This unbundling of services is not confined to the banking sector
alone. A similar paradigm shift can be witnessed in the telecom
sector also. Hence, a suitable and perhaps a business strategy
similar to that outlined above for the banking sector, is required
for telecom reforms also.
14.
Our global commitments
A new influencing factor for the growth of telecom in our country
is the global commitments we have entered into under the World
Trade Organization (WTO). India has already signed the Information
Technology Agreement as well as Global Telecom Agreement. What
impact will these agreements have especially in terms of the
constantly disappearing tariff barriers even for telecom equipment?
Of course, this is part of the over all trend towards increasing
competition and lowering of the margin of profits. But, perhaps
assessing the impact of individual agreements like the Global
Telecom Agreement or the Information Technology Agreement would
be useful. Especially if the WTO framework provides an opportunity
to the individual governments to follow the policies which will
help the growth of IT not only for the customer but also help
the service providers in the country to compete
globally.
15.
The e-commerce phenomenon
A totally new development is the explosive growth of e-commerce.
I have been arguing that India should declare e-commerce to
be tax-free-for a period of at least ten years up to 2010. This
will help the growth of e-commerce and in turn will assist in
the over all economic growth. The e-commerce growth will depend
on the telecom infrastructure and the rate of growth may depend
upon the cyber laws and tariff regimes that are imposed on e-commerce.
Here we find new dimensions of growth of telecom and also a
challenging area for research.
16.
Removing the bumps
With an appreciation of the issues in telecom from the policy
point of view, we can now focus attention on removing technical,
legal, and economic bumps in the road ahead. As far as removing
the technical bumps are concerned, I would suggest that as India
is already a member of the WTO, we should amend our Patent Act
so that it is in tune with the global TRIPs paradigm. This should
encourage research initiatives in India. Prof Jhunjhunwala's
work in IIT, Chennai to develop a new Wireless In Local Loop
(WILL) technology in which Analog Devices of USA and private
Indian companies were associated, and its adoption by half of
dozen countries, is an encouraging development. India must be
able to look upon itself as an area, which will develop technology
in this exciting sector and our patent regime as well as policies
should encourage it. As far as legal aspects are concerned,
I have already indicated that Government should adopt a very
liberal policy of providing a ten-year tax holiday for e-commerce.
17.
TRAI's role
Another urgent and important issue, which has a legal bearing,
is the relative position
of TRAI. TRAI itself is approaching the court to get a dispensation
about the implication of its powers. The Delhi High Court judgement
has left TRAI into a pathetic condition by reducing it to a
mere tariff setting agency and not as a powerful regulator that
will balance the scales between the well-established, powerful
DoT and its institutions like the VSNL, MTNL on one hand, the
new private operators on the other. It is high time that legally
TRAI is strengthened and its role defined so that by invoking
the provisions of Section 25 of TRAI Act, the government does
not invoke provisions regarding its primacy in policy making
to cripple TRAI's growth as an
effective regulator.
18.
Cyber laws
A whole set of legal issues will rise in the area of e-commerce.
The need for cyber laws is obvious. Already there is an Information
Technology Bill, which has been drafted by the Department of
Electronics (DoE). There should be sincere efforts that as soon
as the new government is formed, an ordinance is issued so that
the legal framework for the growth of the most explosive area
and most significant area of e-commerce is not curtailed in
India.
19.
Meeting global standards
Equally important would be the laws to strengthen consumer interests.
This can be done by the TRAI. It should carry out whatever modifications
are called for to see that telecom services in India are of
global standards.
20.
Discussion papers
Then we come to the economic issues. Among these issues, the
most critical would be the tariffs. TRAI has already initiated
action by setting down principles for tariffs and has also circulated
a paper about competition in the Domestic Long Distance (DLD)
communication and also on licence fee, terms, and conditions
for Global Mobile Personal Communications (GMPC). TRAI has set
a healthy example of coming up with discussion papers which
provide an opportunity for all interested parties to have their
say so that when the policies are evolved, the economic interests
of all concerned are taken and a fair decision is also taken.
I would suggest therefore, every area, which impinges on the
economic aspects of the telecom sector, must be subjected to
this drill. TRAI should take the initiatives to come up with
well-researched
papers for discussions. Perhaps the telecom research centre
of IIM Ahmedabad can be associated with TRAI in this effort.
21.
Ultimately, it is the customer's interest
I have placed before you some of the issues in this very important
sector of telecommunications and the implications of R&D
as an important tool in shaping effective policies for ensuring
that ultimately the Indian customer benefits because Indian
telecom services come up to global standards.