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December 29, 1997


N Vittal

The Changing Change

A review of India's telecom history from the
dirigiste Forties to the market-driven Nineties.

Living at the end of the Twentieth Century, we cannot be more aware of the truth that there is nothing more constant than change itself. In our lifetime alone we have experienced tremendous changes in every sphere of activity conceivable.

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Change is also a challenge. The evolutionary ancestors of humans survived the changes in the planet's atmosphere. The dinosaurs did not.

Whether it is human life or human organisations, adjustment to change is the first condition for survival.

In recent times technologies, which handle exchange of information, like those in telecommunications and computing, have changed rapidly. They have also accelerated the pace of change in almost every other human activity.

So let us pause awhile and review the 'change experiences' in India's telecom sector with the hope that it teaches us a few lessons for the future which is falling upon us ever so rapidly.

Let us begin at the beginning. 1947. India wins freedom form its colonial masters and quickly sets out on an economic path guided by dirigiste philosophies.

The year also symbolises the beginning of the process of de-colonisation. The newly independent nations are busy in the exciting process of nation building. In Europe and elsewhere too it is a period of reconstruction in the aftermath of the Second World War.

It is a time when interventionist governments are the norm rather than the exception. In India the philosophy of the state controlling the commanding heights of the economy gains popularity, decades later to be ridiculed with descriptions like 'the permit licence raj'.

In an area like telecommunications, the government's grip is all the more stifling. Thanks to the dominance of the wireline technology, telecom is considered to be a natural monopoly, not only in India but also in many parts of the world.

Section 4 of the Indian Telegraphs Act confers monopoly rights on the Government of India. The Department of Telecommunications, firmly at the wheel, led the growth of the telecom industry over the next four decades after Independence. Expansion was financed by continuous tariff revision.

The government was trying to achieve 'universal service' - the objective of telecom services covering not just urban areas but rural India too.

There are four engines that have always driven India's telecommunications sector. They are (i) technology (ii) political will (iii) regulatory and judicial activism and (iv) market dynamics.

Let us look at the thrust of the first engine: Technology.

There has been an explosive rate of change in the technology of telecommunications. While wireline and the wireless technologies were invented at about the same time a century ago, wireline became the dominant mode.

However, the last 20 years have seen significant growth in wireless technology, thanks to the application of digital technology to telecommunications.

Further breakthroughs in areas like optic fibre, satellite communications and the growth of networks linking telecommunications and computers have ushered in dramatic changes.

Today, we live in an era of multimedia and huge computer networks. The Internet is one of the most exciting developments of our time. It is a network of over 50,000 networks serving 40 to 60 million people. It is also going to change significantly the way commerce is conducted.

We are also witnessing in India awareness about the shift from wireline to wireless. In fact, to be a private sector player in India's telecommunications sector, you would have to promise to operate the wireless-in-local-loop technology. We are also seeing exciting developments of indigenous technology like the WLL methods of Dr Jhunjhunwala, Indian Institute of Technology, Madras.

Equally important is the interest shown by government players like the Indian Railways and the Power Grid Corporation. Both would like to leverage their existing network for commercial telecommunications activity.

The second engine of change is political will.

Political will generally operates under two circumstances. The first is when there is a crisis and there are no alternatives. The second is when it is felt that the policy contemplated is likely to have a positive impact on the party in power, especially in a democratic system like India.

In 1991 the country faced an economic crisis, especially on the foreign exchange front. The year was also marked by historic geopolitical changes. The Soviet Union imploded and the Berlin Wall came down. Practically all countries of the Second World, the communist world that had believed and experimented with centrally planned economics, moved towards a market driven paradigm.

India too had to make a U-turn in its economic philosophy and move towards a market friendly economy model.

But significant progress in the telecommunications business did not have to wait for 1991. Breakthroughs in technology had brought about changes in the Eighties itself.

Initially, post and telegraph were part of a single department. In 1985 they were separated with different boards for telecommunications and posts.

Then 1986 saw the development of a corporate structure called the Mahanagar Telephone Nigam Limited. MTNL quickly covered 22 per cent of the total telephones in the country, all in the two mega-cities of Bombay and Delhi.

On the technology front, the Centre for Development of Telematics, or C-DoT, was set up with a directive to develop indigenous digital automatic exchanges on a war footing.

Dramatic changes took place in 1994 with the announcement of the National Telecom Policy on May 13.

The implementation of the NTP, however, saw vested interests within the government's bureaucratic machinery at work. The liberalisation process in the telecommunications industry first became 'tender centric' and when the tenders were opened 'licence fee centric'.

Besides, the profitable telecom business was rendered unprofitable because the private sector was not allowed to handle long-distance calls. A restriction was put on the number of circles in which a private-sector service provider could operate and the ceiling on tariff was made to conform to the rate that the Department of Telecommunications would itself charge.

But there was a silver lining. Private-sector operators introduced cellular phone services and paging services in many places. After initial hiccups, they are growing.

In fact, in two years, cellular telephones have touched the 0.5 million mark, beating the growth records of China and Thailand.

Also the Telecom Regulatory Authority of India was set up in March 1997. This was an attempt to build a regulatory body, which would ensure a level playing field between DoT and the private-sector operators.

The functions of the TRAI as prescribed by the TRAI Act are:

  1. Functions of Authority: Notwithstanding anything contained in the Section 11 (1) of the Indian Telegraph Act, 1885, the functions of the Authority shall be to
    1. Recommend the need and time for introduction of a new service provider
    2. Recommend the terms and conditions of licence to a service provider
    3. Ensure technical compatibility and effective interconnection between different service providers
    4. Regulate arrangement amongst service providers of sharing their revenue derived from providing telecommunication services
    5. Ensure compliance of terms and conditions of the licence
    6. Recommend revocation of licence for non-compliance of terms and conditions of licence
    7. Lay down and ensure the period for providing local and long-distance circuits of telecommunication between different service providers
    8. Facilitate competition and promote efficiency in the operation of telecommunications services so as to facilitate growth in such services
    9. Protect the interest of the consumers of telecommunications service
    10. Monitor the quality of service and conduct the periodical survey of such provided by the service providers
    11. Inspect the equipment used in the network and recommend the type of equipment to be used by the service providers
    12. Maintain register of interconnect agreements and of all such other matters as may be provided in the regulations
    13. Keep register maintained under clause open for inspection to any member of public on payment of such fee and compliance of such other requirements as may be provided in the regulations
    14. Settle disputes between service providers
    15. Render advice to the central government in matters relating to the development of telecommunication technology and any other matter related to the telecommunication industry in general
    16. Levy fees and other charges at such rates and in respect of such services as may be determined by regulations
    17. Ensure effective compliance of universal service obligations
    18. Perform such other functions including such administrative and financial functions as may be entrusted to it by the central government or as may be necessary to carry out the provisions of this Act.
  2. Notwithstanding anything contained in the Indian Telegraph Act, 1885, the Authority may, from time to time, by order, notify in the official gazette, the rates at which the telecommunication services within India and outside India shall be provided under this Act including the rates at which messages shall be transmitted to any country outside India; provided that the Authority may notify different rates for different persons or class of persons for similar telecommunication services and where different rates are fixed as aforesaid, the Authority shall record the reasons therefore.
  3. While discharging its functions under Sub-Section (l), the Authority shall not act against the interest of the sovereignty and integrity of India, the security of the state, friendly relations with foreign states, public order, decency or morality.
  4. The Authority shall ensure transparency while exercising its powers and discharging its functions.

The TRAI began well by giving a ruling in favour of the private operators against the unilateral sharp increase in the tariff for cellular operators introduced by DoT in early 1997.

The fourth engine for change is market dynamics.

In fact, it is market dynamics, which will ultimately benefit the customer the most. Unfortunately, the manner in which the National Telecom Policy of 1994 has been implemented leaves much to be desired.

The initial focus was on tender and then licence fees. As a result, the entire exercise of allowing private parties to enter the telecom services sector became an exercise in one-upmanship. A casino atmosphere emerged.

Parties, which hardly had any resources, claimed they could pay very heavy licence fees and got the licences. They have still not been able to fulfil their commitments. As a result, of the 21 circles hardly two have got private sector operators as far as basic telephone services are concerned.

Perhaps this can be looked upon as a problem of transition. The government is trying to disentangle the knots in which the private parties and the state itself have tied themselves.

The recent decision of August 1997 to allow financial institutions to reassign the licence of the defaulting parties, both in basic telephone service and in cellular phones is a welcome step.

However, unless the basic policies by which the telecom services in India have become poor investment propositions are corrected, all these efforts will have only a marginal impact.

The change experiences in the telecom sector can be seen also in terms of the human dimension. On the one side are the 450,000 employees of the DoT and the 5,000 officers with a monopoly mindset. Perhaps it is their resistance, conscious or unconscious, which is slowing down the process of telecom reforms in India.

In fact, many of the contracts, which the private parties have been forced to enter into, are loaded heavily in favour of the DoT. Perhaps the TRAI may be able to correct the imbalance.

The monopoly mindset also comes in the way of new technologies growing as fast as they should. For instance, the most exciting thing happening now is the Internet. Unfortunately, while the rest of the world is creating information highways, we are creating information traffic jams. This comes from insisting that no two networks can be linked to each other directly and they have to go through the DoT network.

Another instance is that of the extremely slow process of releasing radio frequencies. I have suggested that the TRAI be empowered with the powers of spectrum management as well as issuing of licences.

The TRAI can then be really effective in ensuring that the objectives of the National Telecom Policy are achieved.

Another aspect of the human dimension is that the private sector service providers are today depending upon retired DoT officers. They are also poaching DoT's brainpower. But the issue of proper training, especially in new technologies, and preparing the manpower in the years to come is a challenge to be met.

Yet another dimension is the view taken by the DoT employees unions. They feel that employees should be trained in modern technology. Of the 450,000 employees, over 40,000 have been trained. This itself is a massive number as far as training programmes are concerned.

Nevertheless, the tragedy is that the new technologies need lesser number of people whereas DoT is highly over-manned. DoT employs a significant percentage of the people employed in telecommunications industry the world over. Yet the number of telephones in the country is small fraction of the global figure for telephones.

Resolving this problem of over-staffing and developing competitiveness is going to be an interesting area.

At present, there are three conflicts of interest on the telecom scene. The first is between the Indian companies and the multinationals. The second is between the rural and urban telecom sectors. And the third is between equipment manufacturers and service provides.

The Federation of Indian Chambers of Commerce and Industry had set up a taskforce on telecom. I had chaired it. The taskforce, which represented a wide spectrum of the industry, has come up with an alternative set of suggestions. Initiating action on the FICCI taskforce report could perhaps yield some solutions.

Apart from the TRAI, another forum that can play a very effective role is the consumer redressal machinery under the Consumer Protection Act. In fact, there is already a view in the government that a 'citizen's charter' be drawn up.

But all said and done, the best guarantee for customer satisfaction is ensuring a level playing field and having multiple players. Market dynamics will do the rest.

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? | The four-engine design | Learning to learn | Heads 'n hands | Post-mortem | Where's the cash | Mr T S Eliot's digital wisdom | Banking on IT | R, R & R | Pots & Pans

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