AUSPI: Good Days Ahead

In the past six years, the growth of the telecom sector in India
has been phenomenal. With more than 212 mn subscriber, we have the third largest
subscriber base in the world. We have progressed from a very credible growth of
5 mn subscriber additions per month at the beginning of 2006 to a stupendous
addition of about 6.5 mn subscribers per month for the past 5 months. In fact,
telecom operators are adding little under three new connections per second. It
gives me a great pride to note that we are experiencing the fastest growth in
the world and now the growth of telecom sector in India has surpassed that of
China.

The members of the Association of Unified Telecom Service
Providers of India (AUSPI) are among the major contributors towards the growth
of telecom industry in India.

India's CDMA operators have been rolling-out services faster
than any other market in the world and exceeding an average of 1.7 mn net
subscriber additions per month. In 2006, CDMA operators more than doubled their
subscriber base. With nearly 50 mn subscribers, India's CDMA customer base
exceeds that of South Korea and now India is at the second place behind the US.
India's two leading CDMA operators are among the top 10 CDMA operators
worldwide. With a teledensity of only 18% and a large underserved rural
population, the rapid growth of our member service providers in India is
expected to continue for many years.

Affordable Services

The success in telecom sector has come as we have been able to deliver the
service at affordable rates. The advent of CDMA based mobile operators have
brought down tariffs to an extent that they are now amongst the lowest in the
world. The CDMA operators have received pat on the back from the regulator which
has stated that CDMA mobile operators admittedly have contributed to the
enhanced level of competition in mobile telephony in a big way. In 1999 tariffs
in India were around 30-40 cents per minute with barely 1.3 mn mobile
subscribers in the country but now at a price of around 1 cent per minute, the
market has grown to around 182 mn within barely seven years.

CDMA operators had been instrumental in bringing down the
tariffs through launch of many innovative products including 'Lifetime
Validity' plans. These schemes are immensely popular in the market and are one
of the driving forces responsible for the explosive growth of mobile
subscribers. Our operators have also made roaming services affordable and even
introduced home location call rates while roaming on number of tariff plans.

Now most international telecom regimes look at our country in
amazement and wonder how we sustain our business model with such low tariff
rates.

The traditional handset cost of around Rs 3,000 for entry level
has continued to remain a major barrier for the majority of potential mobile
users. Emerging markets like India require much lower cost handsets to tap the
huge demand from lower socio economic market segment. CDMA operators have
introduced ultra low cost monochrome and colour phones.

Taking the Rural Route

Telecommunication access to rural India is going to be one of the most
important developments since the green revolution. The government has taken a
unique initiative for faster rollout of services in rural areas. Under this
scheme, the government will extend a one time subsidy to operators from the
Universal Service Obligation (USO) Fund to set up shared towers/cell sites and
active network deployment in rural and remote areas.

The government also took a novel step for increasing the rural
teledensity in far-flung areas of the country and connecting the unconnected.

Access to the Internet for the masses must be provided quickly
to take on the benefits of information technology. Spread of mobile phones is
the most sensible and effective response to the digital divide. Most handsets
provided by CDMA operators are Internet enabled devices. Our member service
providers are playing a key role in supporting the government's vision of
providing Internet services in to rural parts of India.

Innovative Services

AUSPI members have introduced many innovative services for its subscribers. For
example, they have introduced true global roaming with their "One Number
One World" service that offers Indian consumers seamless roaming across
CDMA and GSM networks worldwide with a single phone number. This service is
unmatched by any other wireless operator in India. The wireless Internet
services provided by our member service providers are also the most preferred
solutions to obtain seamless and high-speed Internet connectivity throughout
India.

Roadblocks

The tariffs for the telecom services are the lowest in the world despite the
fact that the regulatory levies and taxation on Indian telecom service providers
are the highest. Problems faced by the telecom service providers relate to the
excessive regulatory levies and taxes being imposed on them and the need to
establish level playing field in respect of regulatory practices on
interconnection, spectrum, and universal service obligation.

Availability of adequate spectrum is a critical requirement of
this sector since a wireless communication is not possible without it. In order
to fuel further growth, it is imperative that additional spectrum be allocated
to operators. The spectrum requirement is going to increase with increased usage
of data services. Allocation is needed on the basis of technology neutral and
non-discriminatory manner. The present allocation (only upto 5+5 MHz) to CDMA
operators is not sufficient. The equity demands that the spectrum should be
equally allocated to all service providers irrespective of technology used by
them.

The private sector and public sector have approximately equal
market share in terms of number of telephone subscribers but there are
significant imbalances. The interconnection is a mandatory licensing condition
but still is delayed. The imbalance between PSUs and private operators is
apparent as private operators are considered as interconnection seekers, and are
required to bear complete cost relating to setting up and running of POIs though
PSU operators, use the same interconnection for their outgoing calls. Therefore,
these charges need to be shared amongst operators on traffic basis.

The Indian telecom sector is one of the most heavily taxed
industries. The excessive regulatory levies include service tax, licence fee,
spectrum charges, ADC, service tax, entry tax, OCTROI, stamp duties etc. As per
our estimates, these levies account for 30% of the revenue. These levies are
mounting with increase in revenue. Incidences of high levies when combined with
lowest tariffs in the world leave operators with slender margins. The rollout of
networks in rural areas where costs are higher will put more pressure on
margins. To provide a sustainable business model to the operators and to give
incentive to rollout services in rural areas, it is therefore imperative that
these regulatory levies are reduced.

Recently, there are indications that due to growth of the
telecom sector, few state governments see this sector as a potential revenue
earner for them. Thus taxes which were hitherto being applied to manufacturing
sector, are being levied on telecom which is a service industry. For example,
BTS is being treated as a manufacturing hub and VAT is being applied. Similarly,
the broadband services are being treated as value added service with sale of
light energy and VAT was applied in one instance. The telecom sector has to be
considered as an infrastructure sector and there should not be attempts to tax
this sector further.

Notwithstanding these challenges, entirely new networks have
emerged. Our members have ambitious aggressive plans to rollout networks and
enhance service offerings. As we move from voice centric to data driven market,
we are supremely confident of our long-term goals to attain market leadership.

With emerging new technologies, rollout of telecom networks in
far flung areas, I feel the best in the Telecom sector is yet to come. We are
eagerly awaiting the more exciting days to come.

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