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21 Points for the 21st Century

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VoicenData Bureau
New Update

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.

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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.




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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.




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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.




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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:




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  • 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.




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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.






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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.

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