As a part of the reform process, the Indian telecom sector
was thrown open to the private sector in the mid-nineties.
Research studies then showed that the industry had the
capacity to grow at a record combined annual growth rate
of 15 per cent over a decade. This industry, along with
IT, was labelled as one of Indias sunrise industries.
the opportunity, a number of private payers like Bharti
Enterprises, Hutchinson, BPL Mobile, the Tatas and, most
recently, Reliance Infocomm have ventured into this sector.
telecom companies basically offer two types of services:
services. The major players in this segment are Bharti,
Hutchinson and BPL Mobile companies that use
the global satellite management (GSM) standard. With
this standard, telephone calls can be made to and received
from any place.
services. The major players are BSNL, the Tatas and
Reliance, using the code division multiple access (CDMA)
standard, which offers limited mobility. Calls can be
made to and received from certain fixed areas.
the initial stages of granting licences to operators,
only cellular licences were given. The licence fee was
very high and a cellular operator needed much more investment
as compared to the basic operator.
entered the telecom scene in December 2002 with a bang.
It announced a series of rates that were way below the
rates offered by the cellular operators. This has led
to a price war, which now questions the basic survival
capacity of some of the cellular operators.
operators have sunk in huge sums of money into their ventures.
To illustrate, Bharti, which is the largest GSM provider,
with a licence to operate in 16 circles, has pumped in
about Rs 9,000 crore, Hutchinson about Rs 5,000 crore
and BPL mobile about Rs 3,000 crore.
return on their investments has a gestation period and
they can look at profits only after that time. Thus, when
Reliance Infocomm announced its rates, the calculations
of the cellular operators went haywire.
cellular operators had to bring down their rates to match
the competition. But the point is, will they able to sustain
their business with such low tariffs?
of these companies require additional funds for the new
circles where licences have been issued. The resources
of these operators are limited and the only way they can
meet their funds requirement is through foreign direct
FDI in the telecom sector has not been easy. The government
permits only 49 per cent FDI in this sector. Till date,
less than 10 per cent of the FDI approvals in this sector
has actually entered India. Global strategic investors
have shown a declining interest in India due to various
reasons, such as sectoral caps, global meltdown of the
telecom capital markets and an unpredictable regulatory
The report of the Working Group on the Telecom Sector
for the Tenth Five Year Plan (2002-07) said the most important
stumbling block to FDI in this sector is the mindset of
the incumbent operator and the new operators. It
is, as such, crucial for all the operators to get out
of their mindsets and strive to arrive at a solution and
once the issues are narrowed down, it should be possible
for the regulator to find a solution for the sake of the
second factor is uncertainty in the regulatory regime.
Though things have improved vastly after the reconstitution
of the Telecom Regulatory Authority of India (TRAI), the
kind of regime that would replace TRAI when the Convergence
Bill becomes an Act evokes concern. It is absolutely important
to clarify to all the prospective investors that the migration
to the convergence regime would be seamless, the report
even as disputes crop up, at least in the initial years
of opening up of a sector, the dispute settlement mechanism
should be able to address these issues in a speedy way.
above measures, along with faster right of way
permissions, long-term guarantees, and the adoption of
a uniform policy with single window concept
by agencies granting right of way permissions
will pave the way for speedy execution of projects and
attracting FDI in this sector.
The cellular industry, in the meantime, is clearly at
the crossroads. Some of the smaller players are likely
to fall by the wayside while others will be looking at
consolidation with other players for survival.
irony of the matter is that a recent study of the Indian
telecom market conducted by the international research
firm Frost and Sullivan showed that the industry is still
projected to grow at a combined annual growth rate of
13.42 per cent in the next five years. This growth will
take place despite the shake out in the internal telecom
market, uncertainties over regulation and price wars.
the next five years, the tele-density in India is expected
to cross 10 per cent with the ongoing aggressive push
of communication facilities by both private and incumbent
operators, says the study.
initiative, therefore, now lies with the government. The
government needs to speedily initiate policy and legislative
measures and create a level playing field for the operators
and foreign investors.
is still a sunrise industry and a lot of resources have
already been invested in the industry. If steps are not
taken now, it will be a case of yet another opportunity
lost for India.