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Home > News > Columnists > Rajeev Srinivasan


The plenty that competition has wrought

May 10, 2005

India has crossed the 100-million mark in telephone lines, both landline and wireless put together. This means a teledensity of 9 per 100 population, that is one out of every 11 Indians on average has a phone connection. To those accustomed to American and European teledensities of over 100, that is there are more phone lines than people, this may not seem like a big deal, but in India's context, it is a minor miracle: for only ten years ago, there was only 1 phone per 100 Indians.

A revealing chart in the Indian media ('Phone connections cross 10-crore mark,' The Hindu Business Line, April 14, 2005) had the figures below. The growth shows no signs of slowing down, and another 150 million lines are likely to be added in the next three years. India has the fifth largest telecommunication network in the world, after China, the US, Japan and Germany. In the near future, India is likely to move up a few spots.

Year

Teledensity (phones per 100 people)

Total connections (millions)

Landline + WLL

(million)

Cellular (million)

1948

0.02

0.08

0.08

0

1951

0.03

0.10

0.10

0

1961

0.08

0.33

0.33

0

1971

0.18

0.98

0.98

0

1981

0.31

2.15

2.15

0

1991

0.60

5.07

5.07

0

1997

1.57

14.88

14.54

0.34

1999

2.33

22.81

21.61

1.2

2000

2.86

28.53

26.65

1.88

2001

3.53

35.29

32.71

3.58

2002

4.29

44.96

38.53

6.43

2003

5.11

54.62

41.93

12.69

2004

7.08

76.54

50.39

26.15

2005

9.13

100.27

58.81

41.6

CAGR 2000-05

26%

29%

17%

86%

The astonishing growth rate in cellular connectivity, ignited by private carriers, has made these numbers possible. To give credit where it is due, the ex-monopoly public-sector carriers have also shaped up and started competing, although they still demand special treatment in the 'interests of the public'. And deregulation has been the key in India as it has been elsewhere. But there are differences. India, which used to have an utterly inadequate telephone network before deregulation, is now moving towards having a half-way decent system.

The US, which used to have one of the best networks under the undivided Bell System, continues to have a great system, but hypercompetition has set in, making it difficult to make any money. Of course, hyperinvestment preceded the bursting of the dot-com bubble: $50 billion of venture capital money was poured into optical communication systems, and that has sunk without a trace.

In Europe, in a rare instance of regulatory guidance proving beneficial, the unified GSM standard has made it easy for travellers to roam; although there is criticism that GSM has become rigid and has not evolved as rapidly as CDMA has in the more chaotic American environment.

In India, demand is not the constraint; supply has been. Under the old system of quotas and permits, ruled over by a self-perpetuating and bribe-seeking bureaucracy, telecommunications was seen as a scarce good to be rationed. This regressive idea persists: in India you have 'volume penalties' instead of 'volume discounts'. That is, if you are a good customer, making a lot of calls, you get penalised: the price per call goes up as your volume goes up. The scarcity-economy model perpetuated by socialist entities such as the Planning Commission encourages bizarre ideas about demand and supply.

From the point of view of the ordinary person in India, the changes brought about by the improved telecommunication system are very positive. Telephones used to be hard to come by. For instance, when I was growing up, we lived in a neighbourhood of perhaps thirty households in a medium-sized city, and only one person had a telephone in their home, and all his neighbours gave out his phone number for them to receive critical calls, thus bothering this poor person.

If you applied for a line, it took five or six years for it to be sanctioned: a classic socialist economy. The powers-that-be made it clear that until everyone could afford a phone, nobody really should have one, and you ought to be ashamed of yourself for asking for a phone when so many people don't even get a square meal. You slunk away, shame-faced, feeling like some kind of heartless Scrooge.

There were also no public telephones. You depended on the kindness of shopkeepers to use their phone to call home in case of emergency and you were one of those evil capitalist individuals who had managed to get a phone at home. Of course noble socialist bureaucrats and politicians had arrogated to themselves the right to get phones for 'official' purposes, even after they retired.

The first revolution happened when the regulators threw open ownership of so-called 'Public Call Office' to various groups of people, especially the handicapped. This pay-phone with an attached attendant rapidly became a fixture in every neighbourhood except in the more remote villages. In an unintended irony, PCOs became the biggest ever employment-generator in a country that had wasted billions on dim-witted employment schemes that came to naught.

In an article in the Harvard Business Review some years ago, Sam Pitroda, a telecom entrepreneur who made a fortune in the US and was the architect of new rural exchanges designed in India, pointed out how farmers in remote villages increased their economic efficiency as soon as phones were available to them. For instance, they could schedule city-based truckers to pick up their produce, or to deliver fertiliser, something hitherto impossible.

The second revolution took place when the regulators decided to allow a number of cellular licensees. Even though there were teething troubles, GSM and CDMA as well as wireless-local-loop limited mobility systems are available over the counter today, no waiting and no guilt-trips required. You get your connection more or less instantly. As can be seen from the table, cellular systems have proven remarkably popular; you see them wherever you go. On trains, on the street, there is the persistent chirp of mobiles, and plenty of distracted, staring-into-the distance users thereof. Some drive two-wheelers, dangerously and illegally, one hand glued to mobile and ear.

People have put mobiles to ingenious uses, and lower income groups have taken to them with a vengeance. For instance, the person who plucks coconuts for my parents can now schedule his time efficiently; so can small-time taxi drivers. The most startling example comes from fisherfolk along the west coast, especially Kerala. There is continuous connectivity on land because it is densely populated. Smart fishermen in small country craft found that this coverage extends out to sea for a few miles as well; and started carrying their mobiles with them for emergency calls and storm warnings.

But then they realised another major benefit: disintermediation. They could call wholesalers directly from out at sea, fix the price, and sell the catch before they landed, instead of being cheated by middlemen. Furthermore, they could set sail for the fishing port where their catch would earn the most. And finally, they could choose to only catch whatever was in demand. Thus their investments in mobiles have paid off handsomely.

Telecommunications in India is a classic study in the benign results of letting people choose what they want, instead of allowing the dead hand of economic planning to dictate terms.

Rajeev Srinivasan


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Number of User Comments: 11




Sub: Indians proved

Excessive state control over the economy, day-to-day life, and bureaucratic red tape were the direct and inevitable outcomes of the old mindset, which resulted in ...


Posted by Kiran B





Sub: 100 million phones in India!

Excessive state control over the economy, day-to-day life, and bureaucratic red tape were the direct and inevitable outcomes of the old mindset, which resulted in ...


Posted by Kiran B





Sub: Fascinating

The stories about fisherman were fascinating and compelling. I think about how NRIs could contribute to this kind of growth and transformation in India in ...


Posted by ramprasad





Sub: Great Article

Hopefully the capitalist tresnd will propogate to other spheres as well...


Posted by Savani





Sub: Progress made by freedom to choose

The socialist and restrictive policies of yesteryears kept India tied down. Thanks to them, India managed to remain so poor and wasted so much time ...


Posted by Rakesh Ahuja




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