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September 15, 1997


N Vittal

The four-engine design

For the telecommunications industry to grow at the desired pace and achieve the goals as prescribed in the National Telecom Policy, 1994, India will have to understand the powers that will make it possible to wire the nation.

India's telecom revolution will fly only if the four engines of technology, political will, judicial activism and market dynamics are fired up in unison.

Let's look at technology first: Across the world, the rapid growth of wireless telephony is challenging the conventional wire-line systems and the myth that those who own it could have a monopoly over telecommunications.

The second engine is political will. This, India acquired in 1991 when it faced a financial crisis. The origin of the National Telecom Policy '94 can be traced directly to the consequences of the 1991 threat.

The third engine is judicial activism. Section 4 of the Indian Telegraph Act, 1885, is the fountainhead of the monopolistic environment in the country's telecommunications industry. Two recent judgements have, however, provided the legal possibility of escaping the regressive legislation. The Supreme Court decision in the Hero Cup case of February 1995 and a July 1996 ruling under the Monopolies and Restrictive Trade Practices Act in the UP Irrigation Department case are significant.

Market dynamics is the fourth engine. And its full power can be seen if certain policy changes are made. Here are four: (a) The private sector must not be restricted from operating long-distance calls services, (b) The ceiling on the tariff charged by private telecom service providers must not be limited by that of the Department of Telecommunications' level, (c) Restriction on the number of 'circles', or areas, in which private service providers can operate must go and (d) A really effective telecom regulatory authority must be set up.

The four engines I have discussed so far will only ensure the growth of telecommunications. To understand the dynamics of that growth we will have to consider other factors.

We may begin by looking at the growth of the market itself. So far, the Indian telecom services have grown through the effort at generating resources from existing operations. But the monopoly service provider, the Department of Telecommunications may have generated the situation where there is a continuous increase in tariff, well ahead of the rate of growth of the wholesale price index. "This is an effort at demarketing," former Videsh Sanchar Nigam Limited chief Hanuman Chowdhary, has pointed out.

Yet, there are some observers of the telecommunications business who point out that with the substantial rise in the rate of growth, the number of people on waiting lists for subscription to various services, has come down. The statistics is being used to question the existence of a market for new service providers.

The answer is that the market will have to be created by promotional efforts of private service providers. They cannot hope to replicate DoT's strategy which worked only in an monopolistic environment.

Market growth can be linked to economic growth. It has been suggested that a 1 per cent increase in telephone density will lead to a 3 per cent increase in the gross domestic product. There are those who will challenge that actually the reverse is true, that a higher GDP gives greater telecom density. Which is the cause and which is the effect?

As far as telecom is concerned, the paradox softens a little because telecom itself can power economic development. So much of business is conducted on time-based competition. Good telecom services would ensure that Indian companies compete effectively. When we talk of telecom services in the rural context, an example pointed out by S G Pitroda comes to the mind. Many years ago he noticed that telecom services in rural Karnataka enabled farmers to fetch a better prices for their produce in Madras than in nearby Bangalore.

Yet another growth opportunity arises from the telecom infrastructure itself which provides new employment opportunities as shown by companies like Healthscribe in the Software Technology Park at Bangalore which are doing transcription work for doctors under the American Health Insurance Scheme in the United States.

In short, market growth in the telecom industry will be propelled, on the one hand, by imaginative marketing of service providers and, on the other, by the perceived linkage between the provision of telecom services and the consequent development of business and employment opportunities.

That leaves us with the issue of building the telecom infrastructure. More pertinently, the issue of generating the capital required. The National Telecom Policy, 1994, estimates a need to attract Rs 230 billion investment in the Eighth Five-Year Plan period alone.

The Common Minimum Programme of the United Front government talks about a Rs 7 trillion investment over five years in the entire infrastructure sector, including telecom.

How are such large resources going to be mobilised? As far as telecom is concerned, the capital must not be invested in one single agency like the Department of Telecommunications which provides end-to-end services. Instead, it would be more judicious to look at niche markets where several service providers can compete.

This means there may be some companies with larger resources who can go in for the backbone services like laying down optic fibre cables or traditional copper cables or setting up of large switching exchanges or VSAT networks. For other value-added services, smaller companies can work out marketing arrangements amongst themselves.

The advantage here is that without waiting for companies with very large resources to come to India, we can make the necessary corrections in our policy regarding market dynamics.

This will call for removing restrictions on long-distance calls, circles and tariff ceilings, as I have already mentioned earlier. Automatically, the requisite capital will be mobilised, resulting in the growth of telecom infrastructure much faster than visualised.

It will be noticed that the logic and the forces propelling competition in the more developed countries are different from those in India. Here we are allowing multiple service providers because the government as the single service provider does not have the resources for providing universal services as well as increasing the telephone density substantially.

Secondly, the technological option of making maximum use of wireless telephony is available in India. This is not an option in the already-wired developed world.

Thirdly, the increasing convergence of different types of telecom services, the most significant of which is the coming together of cable TV and telephones, are developments which India as a late-comer can take advantage of.

I hope a healthy mix of all these different engines of growth and the factors of development we have discussed will go on to build in India a state-of-the-art telecom infrastructure within the minimum possible.

Previous columns: Critical mass | T.R.a.I | Santa Clause 11(2) | The Broadcasting Bill | The death of distance | S.O.S, getting the message out of the bottle | Force 7 from FICCI | Of railroads and info highways | Techno Politics | Cheating death: Ways to resurrect ITI | The HAM-handed miracle | Electronic governance | Which came first?

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