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GOVERNMENT: Cues from Dragon's Success

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VoicenData Bureau
New Update

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.

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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?

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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

As on August 2001

Government the Biggest Driver

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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
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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.

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Overcoming Hurdles: India versus China

WTO:

Advantage China

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.

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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

  • $26 billion was invested in network construction, an increase of

    33% year-on-year
  • Number of fixed lines added was 36 million–33% growth
  • Mobile subscribers increased by 41 million–95% growth
  • Internet users grew by 13.3 million–153% growth
  • Total revenue of China’s telecom industry reached $42.25 billion

    in 2000
  • Total telecom services revenue was $37.13 billion

January to August 2001

  • Fixed lines increased by 25 million to a total of 170 million lines

    (3 million added per month)
  • Cellular subscribers increased by 40 million to a total of 126

    million (5 million every month)
  • Fixed line penetration reached 13.1% while cellular reached 9.7%.

China Telecom and China Mobile hold 90% of the total market share while

the share of China Unicom is about 9%. The rest four new entrants have a

market share of less than 1%

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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 5 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.

Sudesh Prasad

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