Soon after taking over as the communications minister, Pramod Mahajan had
taken a dig at the industry’s never-ending parroting about China’s emergence
as the new global benchmark, due to its explosive growth in telecom.
But can the industry afford to be wishy-washy about the matter? Especially
when the fact is that the communist China has left the oldest democracy–the
US, and the largest democracy–India, far behind in the field of telecom, and
everybody is trying to unravel the mystery. What is so spectacular about China’s
success?
Let’s look at the statistics: China has 120 million mobile phones while
India has 5 million, China has 170 million fixed phones while India has 37
million, and China has 22 million Internet subscribers while India has 3
million. In terms of fixed and mobile teledensity too, China is way ahead of
India.
Clearly, India’s numbers are insignificant as compared to China. And of
late, there has been much hullabaloo over the news of India’s cellular
subscriber base reaching 5 million. But is that indeed an achievement for a
country of more than a billion people?
According to Analysys’ research, it was the use of a mix of their own funds
or suppliers’ credit, and the enormous desire of suppliers to develop the
Chinese market, that the growth of fixed and mobile services has become a
phenomenon. The research report goes on to trace the phenomenon to 1998–the
beginning of the Chinese model of competition. According to John Poston,
principal consultant, Analysys UK, "If throughout this period Southeast
Asia and India showed a desire for telecommunications development, China, I
suggest, showed consistent determination to succeed at it. The West thought it
could all be left to the market that mobile license should be a major income for
the governments (taking a lot of value from the market) and appeared to lose the
ability to undertake rational financial analysis of business cases."
India versus China: Striking Disparity |
||
 | China | India |
Basic subscribers | 170 million | 37 million |
Mobile subscribers |
120 million | 5 million |
Internet subscribers |
22 million | 3 million |
Mobile tele-density |
6% | 0.3% |
Fixed tele-density |
13% | 3.7% |
Source: China Institute of Telecommunications |
Government the Biggest Driver
Most of the initiatives of the government of China were largely unopposed,
given its nature of political system, which helped foster a rapid growth of
telecom in the country. There was a sense of commitment on the part of the
government to push the development of the telecom infrastructure. Chinese state
monopolies China Telecom, China Mobile, and China Unicom did a wonderful job of
making telecom services available to large parts of the country by quickly
rolling out the network. Liu Cai, vice chairman and secretary general of the
China Institute of Telecommunications, said that it was the separation of the
government function from the business function and the introduction of
competition that were largely responsible for laying the foundation of a
tremendous growth of telecom in China.
The period between 1998 to 2000 is considered as the first phase of telecom
reforms in China. The period saw the creation of a separate ministry of
information industry (MII), the separation of post and telecom services,
restructuring of the telecom business, and the promulgation of
Telecommunications Regulations of China. This was followed by the setting up of
a national regulatory authority. The robustness of the reform process can be
gauged from the fact that the global telecom downturn hardly had any impact on
China, where it continued to grow at a healthy rate.
What Ails India, while China Grows... |
|
China |
India |
Timely implementation of rollout obligations |
Constant delays |
Excellent RoW regulations | Non-existent, non-coordinated RoW |
Strong manufacturing base, still growing |
Non-existent manufacturing base |
Strong government determination to succeed |
Government determination lacking |
No litigations |
Large number of litigations |
IP telephony opened in 1999 with MII–earlier known as the ministry of post
and telecommunications–issuing license to the government-affiliated telecom
bodies. China Telecom, China Unicom, and Jitong Communications are the three
major players. The government noticed the proliferation of illegal IP telephony
and instead of launching a major offensive against the practice, thought it was
better to allow it. The move allowed the government to tap the business
potential of a virgin volume market.
According to a case study by ITU, "The imminent arrival of commercial
Internet access, its convergence with the existing data traffic, its perceived
importance to sustained economic development along with the type of content that
was being transmitted, motivated the government to commercialize access to the
Internet." In August 2001, China added one more feather to its telecom cap
by overtaking the US in terms of cellular subscribers, thus becoming the largest
mobile market in the world.
It should be recalled that when China opened its IP telephony network, one of
the largest in the world, it got rolled out in a record time. This was possible
due to a clear-cut policy and no bureaucratic hurdles whatsoever. And as soon as
it discovered that the huge gray market were eating into its revenues, instead
of putting a severe clamp on its operation, the government chose a different way
to deal with the situation. It looked at the revenue it was losing on account of
this new service. This resulted in the allowance of IP telephony by the Chinese
government.
Overcoming Hurdles: India versus China
WTO: |
China’s approval to enter the World Trade Organization and the permission for foreign direct investment in a phased manner will go a long way in fueling its already high telecom growth. The Chinese government plans to spend $151 billion to expand and improve its telecom infrastructure by 2005. A five-year plan for an increase in fixed-line capacity to support 220 million fixed-line users, and an increase in mobile capacity to support between 260 million and 290 million mobile users is on the card. |
-
Right of Way: While RoW continues to play the
spoilsport in India, resulting in continuous delays in the rollout of
networks, China has faced no problem on the front. This has largely been
possible due to an excellent cooperation with local authorities in
facilitating the rollout of networks. On the other hand, the situation in
India has been chaotic, to say the least, with too many authorities to seek
permission from before obtaining the RoW. The state government, the
municipality, highway authorities... the list is endless. Most of the state
governments have no policy at all. This is one area which has not been
seriously looked into by policy makers in India. -
Litigations: The growth of telecom in China is due
to absence of major litigations. This has led to timely implementation of
various projects, and consequently, a faster rollout of networks. In
contrast, Indian telecom reforms process has been derailed by a large number
of pending litigations. A large number of cases are still pending in courts,
prominent among them being the one on permission given by DoT for the
introduction of WLL services by basic operators. -
Manufacturing Base: Most of the global vendors
have their manufacturing facilities in China, which also caters to local
markets. Besides, local manufacturers of handsets have also proliferated,
which has resulted in a low entry-level barrier. In turn, low costs of
technology and manufacturing in China have helped the industry meet a
burgeoning demand of the local market. The government plays the role of a
coordinator for equipment development, production and marketing activities
through affiliated factories, subsidiaries, marketing offices and interests
in foreign-invested joint ventures. It is also responsible for reviewing and
approving all foreign licensing and JV agreements with affiliated factories.
India’s Abysmal Show
It is sheer irony that despite being one of the earliest
countries to open its market to competition and allow foreign investment in
services, the overall telecom growth and penetration in India has been abysmal,
with the tele-density per 100 users being a mere 3.7.
Telecom in China: Statistical Snapshot |
Year 2000
January to August 2001
China Telecom and China Mobile hold 90% of the total market share while |
Private players can’t shrug off all responsibility and
squarely put the entire blame on the government. Their failure to understand the
potential of the Indian market and their unwillingness to go beyond the urban
areas has been quite glaring. According to Eun-Ju Kim, senior advisor,
Asia-Pacific, ITU, "India was one of the first countries to open its
telecom market but it is only recently that some good progress is being made
with regards to the overall growth of the telecom infrastructure."
India, as opposed to China, is still nowhere as far as
manufacturing is concerned. There are a couple of players in the public as well
as private sector but they are just not enough. There is enough room for the
domestic manufacturing sector to take a major initiative. This will bring down
the cost of telecom equipment that is currently being imported at a much higher
price.
According to TEMA, India produced telecom equipment worth Rs
11,000 crore in FY 2000-01. These mainly comprise the switching, transmission,
CPE, PIJF and OFC equipment. Some export-oriented production units are also
there, which cater to foreign markets. But that is not enough. For a long time,
some players have talked about manufacturing cellphones in bulk to cater to the
local market. It is these types of initiatives that must come into being to
remove the entry-level barrier. Only such moves will generate more demand, and
lead to an increase in the subscriber base. Rural market too, has been lying
largely untapped due to no suitable revenue model in place.
However, it can’t be denied that several external factors,
mostly economic in nature, have deterred the industry from taking bold steps. It
needs to be understood that the overall economic condition of the country is
directly linked with the way telecom grows in a country. While the Chinese
economy has been growing at the rate of around 10 percent. This means a better
purchasing capacity of the population, which in turn results in volume growth.
India’s economic growth, in contrast, is stagnant at around 5Â percent and
the country has been in the throes of a bad patch for some time now. As of now,
the demand for services is also not very attractive.
According to the Economist Intelligence Unit’s latest
report, India’s grand telecom plan has been marred by poorly thought-out and
inconsistent policies, corruption, legal challenges and bureaucratic delays. A
typical example is the way the rollout and uptake of the basic services have
progressed. The six private operators, in five years, have installed just about
3 lakh lines. Most of that installation has been in urban areas, with rural
telephony repeatedly taking a back seat.
Recent WTO developments at Doha have raised fresh concerns
for India. China’s entry into WTO will mean that it may look a more attractive
destination to foreign investors as compared to India. The government needs to
look at these developments as a serious potential threat to India’s interests,
and work towards easing some of the restrictions.