THE TELECOM BOOM IN INDIA AND ENCOURAGING POLICY FOR TELECOM AND IT REVOLUTION Dr.

SOWRI RAJAN KOMANDUR

HEAD, INDIAN TELECOMMUNICATIONS Email: Komandur26@yahoo.com Komandur@md3.vsnl.net.in Phone/Fax: 91-40-27530332

The Telecom sector represents one of the fastest growing sectors in the Indian economy. This has been triggered by a stiff competition in the market that has brought down tariffs as well as simplification of the policy environment that has promoted healthy competition in the industry. The mobile segment has been growing rapidly and has emerged as the fastest growing market in the world. The government has eased rules for inter circle and intra circle mergers. Also as the sector matures, further consolidation is a reality and this will lead to survival of more profitable players in this industry. Most of the smaller players have been acquired by telecom conglomerates. The telecom service market is witnessing impressive growth. The number of mobile phones (GSM and CDMA) surpassed the number of fixed phones. The significant growth in the telecom service market also has given impetus to domestic manufacturing. The department of telecommunications (DOT) has started working on national telecom policy (NTP) 2005. NTP 2005 addressed issues related to quality of service (QOS), rural telephony, telecom manufacturing, internet and broad band. The government announced its national telecom policy in 1994 and defined its objectives like provision of world class services at reasonable rates and to make India as major base and specific target be achieved were announced. Subsequently new telecom policy was framed in 1999 with a view to create an environment which enables continued attraction of investment in the sector and allows creation of communication infrastructure by leveraging on technological development. The policy liberalization followed since 1991 has resulted in a big growth to path of telecom sector in India. The new telecom policy announced in 1999 modified the NTP94 to take into account far reaching technological developments taking place in the telecom sector globally and to implement the Govts resolve to make India global IT super power. The Indian IT industry compromising of IT services and software has contributed immensely to Indias GDP growth in the past decade. Its export success has only enhanced Indias status in the highly competitive global business. The tenth plan has visualized an addition of 650 lakh new connections -395 lakh by the public sector companies (BSNL) and MTNL and 255 lakh by private sector, because of an explosive growth in the cellular segment especially in the private sector, almost 49 percent of 10th plan target has been achieved in the first two years. The rate of expansion has been encouraging during the first nine months of 04-05. The growth has been driven by private sector, while pubic sector contributed only 25 percent. The cellular segment contributed to about 85 percent of the net addition, private sector accounting to 78 percent of the growth in this segment. In spite of this impressive growth, India lags behind connection like Brazil and china where teledensity is more than 40. Policy initiatives in many areas have led to reduction in tariffs, expansion of networks and increase in teledensity, such policy initiatives are a continuous process. The other items like providing adequate financial support to USO national plan for optimum use of

spectrum and provision of telecom services to people in rural area in an efficient and affordable manner form a part of the agenda of the tenth plan. The prime consideration guiding policy includes affordability and reliability and broad band services incentives for creation of additional infrastructure, employment opportunities, induction of latest technologies, national security and bring in a competitive environment to reduce regulations interventions. The new policy encourages creation and growth of infrastructure through various access technologies which can mutually co-exist like optical fiber technologies digital subscriber lines on copper loop, cable TV, network, satellite and terrestrial wireless technologies. The choice is left to service provider. The traditional strategy in India has consisted of using cross subsidies charging urban consumers more than rural consumers. The universal service obligation fund in Indias telecom sector is a unique institutional innovation which ensures provision of services at a minimum cost in rural areas through a system of open bidding. At present USOF is funded by imposing a levy of 5 percent of adjusted gross revenue of telecom companies. Telecom connectivity constitutes an important part of the effort to upgrade the rural infrastructure. It is planned by the government to provide village public telephone service to about 67000 villages by November 2007. The teledensity in April 2006 is 13:09. Number of phones as on 30th April 2006 is 1461.97 lakhs. New broad band policy was announced in 2004 October. National internet exchanges were set up in India during September 03- February 2004. After the announcement of new telecom policy in 1999, progress in telecom India has been extremely rapid. The total number of telephones (basic and mobile) rose from 22.8 million in 1999 to 88.6 million at the end of October 2004. The growth of teledensity required substantial financial investment. The telecom regulatory authority of India runs public consultations on comprehensive legal frame work, unified licensing, spectrum related issues, rationalization of differential custom duty regimes, restriction on use of protocol, institutional funding, FDI, right of way. ISPs have provided services to BPOS/ITES & software companies, which have earned India USD billions and the reputation of being IT India. In fact, it is being universally recognized that internet proliferates, so will e-commerce and e-governance and e-business. It is therefore of Indias national interest to boost the expansion of internet services in India which will not only help India to become a part of emerging global economy, but will also enable the citizens to avail of the benefits arising out of IT enabled services. The subscriber base 0.01 million in August 1995, in June 2005 5.9 million. E-factor, governance, education, medicine, commerce, business, entertainment, banking, consulting 50 billion IT exports. Microsoft, Google, reliance and Bharthi started as SMEs, within 40 yrs. SMEs contribute to volume and rapid growth of industry. The growth rate is 6.08% per quarter. A strong and vibrant SME service provider community will help achieve broad band vision of India. India needs about 60,000 ISPs to make India into a cutting edge and innovative country. The combined revenues of all the independents ISPs together represent not more that 1Qtr revenues of a single integrated Telco in India. Of more than 40 million copper loops available with BSNL, 14 million are available in rural areas. It is recorded that 7 million

copper pairs of the incumbent were suitable for broad band. So far less than 4 percent have been put to use for broadband in October 05, India had 6 lakhs broad band subscribers translating into one fifth of the target of 30 lakhs. In India the center for development of telematics is working to provide an integrated rural wireless mobility and broad band solution (RURA WIMOBB). This will help improve teledensity in the rural areas and also provide mobility and the benefits of broad band technology to the rural masses. This solution envisages converting rural switches to packet based nodes. They will be made compatible with GSM with co located wireless access nodes for broadband. 3G also is relevant for enhancing Indias competitiveness in the ITES/BPO segment. The e-bharat is said to be the most aggressive and comprehensive e-governance exercise being planned by any country in the world. A Rs.6000 crore mass IT empowerment drive, spearheaded by national e-governance acceptance plan (Ne GAP) of the union ministry of information technology; it is expected to provide direct, last mile technology and net access to thousands of entrepreneurs through over 100,000 multi-purpose info kiosks by December 2007. These kiosk will serve as single point of contacts for a variety of community services like e-learning-training, e-teaching, e-health, e-talemedicine,efarming,e-tourisim, e-entertainment and the entire gamut of e-commerce. It will truly connect Indian villages and change the face of rural India. E-bharat is about taking technology and broad band infrastructure to the door step of over 70% of Indians living in rural villages. It is a collective initiative between union government, state governments, corporates, NGos, telecom service provides, rural entrepreneurs, universities, hospitals, insurance companies, tourism and entertainment entities. The third generation services will facilitate far higher speeds and data through puts which will facilitate the delivery of a wide range of multimedia services including video telephony, television etc. 3G will represent the true conversion of fixed and mobile telephony. 3G has voice capacity 4 to 5 times higher than the present 2G services and can serve as an ideal plat form to deliver low cost voice telephony to Indian customers. 3G can drive penetration in huge addressable market in the rural areas where the price of services is the key factor. Further the high speed data capabilities of 3G will fulfill the content rich mobility experience that will increasingly be in demand in urban and metropolitan market. 3G also will prove to be a crucial tool in undertaking social initiatives, such as delivering e-education, tele medicine etc. The Indian IT Revolution The Indian IT industry comprising of IT industry and software has contributed immensely to Indias GDP growth in the past decade. Its export success has only enhanced Indias status in the highly competitive global business. The IT industry is easily one of the fastest growing and high performing segments of Indian industry and it has recorded a compounded annual growth rate (CAGR) of nearly 50 percent over the past three years . The IT industry has generated some of the core sectors of the economy where as the spiraling growth of the ITES-BPO sector has impacted socio-economiccultural polemics the nation. The Indian ITES industry continues to scale double digit it growth and is expected to exceed $36 billion in 2005-06. The Indian information technology (IT) industry is reverberating with the buzz of billion of dollars and thousands of professionals. The recent announcement of IBM where the company said it will invest $6 billion in India over the next three years or the Indian IT biggies like Infosys, Wipro

or TCS announcing their intention to raise head count or 20,000 each during 2006 are a few examples of the buzz. A NASSCOM survey points out that the Indian IT-ITES industry has recorded 33% growth in exports, clocking revenues of $23.6 billion in FY 2005-06 compared to export revenue of $17.7 billion in FY 2004-05. The FY 2005-06 also saw the overall Indian IT-TES industry (including domestic market) growing by 31% registering revenues of $29.6 billion up from $22.5 billion in 2004-05. In 1998 there were around 1200 IT services companies. To-day the number has gone to 2800. There has been evolving trend in the Indian IT industry where the SMEs are focusing providing IT services. The 3G will be available in India in 2007. These use a host of high-tech infrastructure networks, handsets, base stations, switches and other equipment to allow cell phones to offer broad band wireless internet access data, video, live TV and CDquality music services. The telecom boom in India has opened up a big window for a clutch of nich software companies. With telecom operators in India planning to invest billions of dollars in expanding , upgrading their networks, small IT firms are planning to the ride the investment boom to become a major player. As the telecos operate and upgrade their networks to 3G with greater data and multimedia capability, greater number of IT applications can be loaded on the networks. According to NASSCOM biggest opportunity is in software applications for mobile phones. It is now a Rs.1200 crore industry growing at 30-35% per annum. It will explode once telecom operators rollout to 3G networks. The global corporations have investments of $ 8.6 billion in the telecom and information technology sectors in 2005-06 according to data compiled by ministry of communications and IT. From a mere $3-4 billion that India used to report a couple of years ago, FDI inflows into the country in 2005-06 are estimated to have touched $ billions And the government is now looking at $12 billion inflow in 2006-07 and three fold jump since 2003-04. The Indian IT-ITES industry is expected to grow by 25-28% in fiscal year 2006-07, clocking revenue of $36-38 billion. IT-ITES exports are likely to grow by 27-30% in FY 06-2007 posting revenue between $29-31 billion, according to NASSCOM. There is no stopping Indias telecom boom. For the two largest private mobile operators reliance communication ventures (RCOVL) and Bharti Airtel, it is not only wireless segment that is growing, broadband and long distance businesses also are contributing to the growth. The increase in the broad band and long distance revenue is being contributed by higher minutes of use in the long distance segment and larger average revenue per line in the case of broad band. Broad band is often touted as the elixir for bridging digital divide in India. The governments seriousness towards creating a broad band India is positive and the number of 10 million subscribers by 2010 looks impressive. Broad band brings true convergence and laws related to information technology, telecommunications and broadcasting are being revisited so that service providers content providers and infrastructure providers can move at a faster pace. Laws related to copyright, online billing, transmission and cable TV have to be restructured to suit broad band. A lot of submarine cables are deployed which light up the existing capacity to make broad band affordable. Cable like i2i, falcon multi-terabit, new generation DWDM submarine cable system providing multiple landings through the gulf-region with submarine links stretching to India at one

end and Egypt at the other end, Tata indicom cable and semewe -4-those cables help in bringing a lot of international band width into the country, resulting in the cost of Internet band width coming down..