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Basic Services–Is It Too Basic?

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VoicenData Bureau
New Update

Trivial issues have replaced the vital ones and we seem to have lost the

sight of the basic objective of our telecom reforms. The private operators have

been lukewarm to the opportunities in basic services. Fixed services are not

presumed to be a viable option. Where have we faltered?

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Telecom for all and telecom within the reach of all" is

how the National Telecom Policy 1994 (NTP ’94), the first ever policy document

on telecommunications of the Indian republic summarized what we set out to

achieve. In these two populist but extremely relevant slogans, we proclaimed to

the world that accessibility to communications was the driving force behind

India’s telecom reforms.

And to achieve that goal, India was ready to dare it all.

Going against the global trends of opening up long distance first, India first

threw up the local services for competition. What followed thereafter is a sad

story, but it is important to emphasize that even in hindsight, no one has

criticized the wisdom of that decision on local services. What has been the

culprit is the way we went about opening up the market. In fact, five years

later, the National Telecom Policy 1999 (NTP ’99) re-emphasized India’s

commitment to the spread of telecom network to most Indian citizens.

"Availability of affordable and effective communications for the citizens

is at the core of the vision and goal of the telecom policy," it outlined.

In other words, unlike the West, the prime, if not the sole,

objective of India’s telecom reform was to make the telecom network reach most

Indians. It was surely not competition for competition’s sake.

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Today, unfortunately, we are lost in the comparatively

trivial issues–revenue sharing and licence fee, circuit-switched or

packet-switched, two operators or four–and have forgotten the basic objective

of giving telephone access to as many Indians as possible.

Technology majors, dotcoms, software export houses–the

so-called harbingers of the new economy–dictate our policy directions. There

are politicians who want to project themselves as radicals and others who are

dictated by their vote banks. You have to be "voice of reforms" or

"voice of the people". There is no place for a "voice of

reason".

Short-sighted Vision

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Take advantage of price-drops. –Vijay K Gupta, CEO, Lucent IndiaThe

Prime Minister talks of India becoming an IT superpower. His high- profile

minister for IT talks of taking IT to the masses. The communications minister

(see interview) never misses an opportunity to mention of his

commitment to rural telephony.

But do we really think that way?

Consider this. NTP ’99, which created a renewed hope in the

telecom sector, targets for a 15 percent tele-density by 2010. This target has

been held as sacrosanct by everyone–the DTS, the TRAI, and the private sector

players. Does that mean that ten years from now, even if 15 percent of our

people–that is less than 40 percent households–have a telephone, it is

enough for our country?

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It is fine to have 15 percent as the minimum target. Maybe

the policy makers actually meant that. But today, all calculations are based

around this target, as if this is the figure that we should ideally achieve.

When technology is changing so fast and prices dropping every quarter, if not

every month, is it realistic to assume such a target?

Let us see why is it so unambitious? According to Census

projections, India would have 1,162 million people by 2010. 15 percent tele-density

by that time means that we will have 174.3 million telephone connections. TRAI

itself, in its consultation paper on fixed service licensing, estimates that

going by the present growth rate, DTS itself could have a subscriber base of

166.6 million. That leaves the target of 7.7 million for the private sector. In

other words, 4.4 percent of the total connections will be with private

operators. It is safe to assume that 10 to 15 percent of the total lines will go

to business organizations that give



major revenues. Even if one-third of them go to private basic services
providers, what is the need for these operators to go to residential users?

And we keep on repeating that the objective behind our

telecom reforms is to make telephone accessible to all.

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One more clarification could be needed. TRAI assumes that

competition from private basic service providers will lower DTS’ subscriber

base to 122.8 million. But won’t competition also grow the market? Hasn’t

that been the case elsewhere? These figures–166.6 million or 122.8 million–are

determined by DTS capability, that too in a monopoly



market. Competition in an underdeveloped market (which India is) does not snatch
away market shares. It develops the market. In fact, DTS could add even more

than 166.6 million



connections!

A moot question that TRAI has considered in detail is

affordability.

Fixed service is not attractive. –Arun Seth, CEO, BT IndiaThere

are three options–to continue to subsidize local telecom service, to raise the

rental/tariff, or lower the per-line cost. The third option is the best in the

long run. While influencing the per-line cost is certainly beyond the scope of

TRAI, it is certainly not so for the Government.

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The present per-line cost is Rs 30,000 on an average.

Ironically, it is more in rural/remote areas. It has to be brought down to about

Rs 10,000-12,000 per line so that the present level of tariff and rental are

maintained. With a combination of Wireless in Local Loop (WILL) and C-DOT

switches, it is certainly possible.

There is another aspect that we often overlook. The DoT

perspective plans, which are the basis of most of these calculations, were done

at a time when the equipment cost was still very high. "We have to

recognize the five years’ gap. The world has gone through a fundamental

change. The advent of IP has not only made it possible to offer much more than

what the operators used to offer, it has also brought down the cost of network

deployment considerably," says Vijay K Gupta, the Indian chief of Lucent

Technologies, arguably the first name in global carrier equipment.

A combination of drop in prices of the backbone equipment and

low-cost indigenously developed access technologies will certainly help in

bringing the cost down, thus making the telephone services more affordable.

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While TRAI maintains its "technology neutral"

position, the Government does not seem to be interested in going beyond licence

fee and revenue sharing.

Why Fixed Service Is Unattractive?

Worldwide, telecom operators are making money by

  • carrying the call for more distance or

  • providing more and guaranteed bandwidth to business users

    or

  • providing the subscriber the choice of services by

    offering fixed, mobile, and other value-adds.

Why Fixed Service Is Unattractive?

Why Fixed Service Is Unattractive?

Worldwide, telecom operators are making money by

  • carrying the call for more distance or

  • providing more and guaranteed bandwidth to business users

    or

  • providing the subscriber the choice of services by

    offering fixed, mobile, and other value-adds.

Unfortunately, carriers in India can tap all these areas with

ease, without going for a fixed service licence.

Fixed service operators will tune their business plans in conjunction their NLD plans. –Usha Rajeev, executive director,  PwC IndiaAllowing

intra-circle traffic to National Long Distance (NLD) carriers will make it

possible for them to tap this opportunity. The entry fee for these NLD operators

is likely to be Rs 500 crore. Even if the entry fee, if it is to be charged for

the local fixed services, is lower than that, the return on investment in NLD

will be better and faster. Many private operators, who are now local service

providers, are just waiting for this opportunity.

All ISPs are allowed to give high-speed connections. There is

hardly any entry barrier for the ISPs and many of them are even laying copper

cables to give DSL connections. These high-speed connections will be required in

heavy demand pockets with heavy business concentration. Business community,

which is the creamy layer of subscribers, will have the choice to go to its

ISPs. Since most of these ISPs will be national, it will make sense for big

multi-location companies to go to them for high-speed data transfer kind of

applications.

Allowing basic service providers to enter the mobile services

is being debated. It is likely that the powerful cellular operators’ lobby

will not allow that to happen. Even if that is allowed, the already existing

cellular operators will have an upper hand.

That leaves us with a fundamental question. How will the

fixed service licensee make money? Answers Arun Seth, chief of British Telecom

(India), "The revenues that may accrue to fixed-line operations in India

cannot favourably compare with the revenue that is expected from value-added

services."

However, there are new local players who are still

optimistic. Take for example, Ortel Communications, an Orissa-based ISP wanting

to enter basic services in Orissa. The company already has a good Optic Fibre

Cable (OFC) backbone in Bhubaneswar and Cuttack and wants to provide broadband

access, right from day one. Says Jagi Mangat Panda, CEO, Ortel, "Just

because NLD carriers are permitted to carry local calls, it does not mean they

can do it cost-effectively. Unless they have a particular competitive edge (such

as having already built a local access network), it will usually make more sense

for them to go through an existing network rather than ‘overbuild’. In any

circle, there will eventually be fewer local networks than NLD providers. Thus,

it is the former who will have a better pick of choices to deliver STD to their

customers."

Sounds convincing? Probably, when one considers a state like

Orissa, not really a hot target for many. That will ensure that the licence will

come cheap. If the company manages to get the licence for it, it will be a good

supplement to offer voice over the impressive network that Ortel already has.

That is not necessarily true for many other states.

Is the so-called telecom revival just big talk then? Not

really.

There are services that will generate revenue. Seth

identifies mobility, Internet, and IP infrastructure as growth areas. (Read that

as cellular services, ISP, and long distance.) Though he talks of BT’s

strategy, his is a common viewpoint that is true for most global operators.



No AT&T, NTT, Deutsche Telekom, or France Telecom is anywhere in the fixed
services’ scene in India. None of the major investors in other services (like

Hutchison) are looking at this either. In fact, the TRAI open house on fixed

services licensing held in Delhi recently had hardly any new face. That gives

enough indication of the interest in fixed services.

Whose Problem Is It?

Certainly not that of the fixed service providers.

Local service providers will be cost-effective for intra-carrier traffic. –Jagi Mangat Panda, CEO, OrtelThe

reason: There is hardly any committed fixed service provider in India. In fact,

they are too new to be committed. Most of the operators–Bharti, HFCL, Tatas,

and Reliance–have big long-distance plans. In fact, all the three, except HFCL,

see long-distance as the end and local service a means to achieve that end.

Bharti has been quite open about this.

"It is expected that operators entering fixed service

will be doing so in conjunction with their business as a NLD operators,"

says Usha Rajeev, executive director, Technology Infocomm Communications and



Entertainment (TICE) Group, PricewaterhouseCoopers India.

The prevailing politically correct opinion is there should be

free competition. There should not be any artificial barriers like fixed/mobile,

long-distance/local distinctions.

Fine. But at the cost of the objective with which we started

telecom reforms? Probably not.

Today, the prospective private operators are not too

interested in fixed services. "We may still go for a couple of circles. But

is mein rakha kya hai? We know we are not going to get money from it," says

a top executive of an Indian telecom company, who does not want to be named. His

plan is to use the network to provide value-added services around some

high-demand business pockets.

It is this strategy that may see some companies grabbing

licences, if the fee is low. "In the emerging scenario, the key lies in

paradigm shift towards e-business and creating synergies with media, content

providers, service providers, ISPs, etc," says Usha Rajeev of PwC.

Essentially, she hints at operators making money from business customers.

And why not? Any operator who is entering the business is not

doing so with a social objective. He is doing so for making money. It is only

natural to expect him to go for services in which he can make money easier and

faster. If tomorrow that is long-distance, he will go for that.

Fixed service, in its present form, will not make money. Even

if an operator takes a fixed service licence, he will concentrate on building

that part of network, where he can get his returns fast.

It will not achieve the national objective of providing

telephones to as many places and as many people. The task of ensuring that it

happens lies with the Government.

Needed: A Total Change in Outlook

Can it happen? Yes, there are ways. But that needs a total

change in approaching the problem, right from day one.

As we have seen, sticks do not work. Carrots have to be more

attractive than the business gains. Not always possible. So what is left?

Building more lines in all parts of India should look

attractive to the licensees. The solution: If you cannot change their business

plans, change the licensees.

License those operators for whom building telephone network

in Varanasi will look attractive. To whom giving more connections to residents

of Ranchi will look more attractive. To whom giving telephone connections in

Rourkela will be a viable business. Who are these operators? Of course, they

have to be from Varanasi, Ranchi, or Rourkela.

In simple words, we can follow the ISP model that has worked

well. Okay, there will be chaos. There will



be shakeouts. There will be quality of service issues. There will be
interconnection issues. But the consolidation process will take care of those.

What we need now is rapid spread of telecom networks in

India. We can dare all the issues for the sake of achieving that objective. We

have done that once before, and we can do it again.

Otherwise, the circle-wise licensing may have a few takers.

Moreover, it will not achieve our basic objective–telephone for all and

telephone within the reach of all.

Shyamanuja Das

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