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India
Telecom
December 5, 2002
The competition game
Shyamal
Ghosh
INDIA -- Technology has been the driving force behind
dispelling the concept that telecom was a natural monopoly.
Now the same media is offering different services on
different platforms, whether it be audio, video or text.
Compression and digitisation techniques as well as broadband
access provided by optical fibre have accelerated the
opening up of telecom sector to competition whereby
market forces determine the nature of the multi-operator
environment.
In
India, competition has been the hallmark of the reforms
process in the telecom sector. Thus, apart from the
cellular mobile services being dependant on spectrum
availability, the entry of operators has been unrestricted
for all other services. Even in cellular mobile services
the presence of four operators in most of the circles
has encouraged competition, lowered the tariff, improved
the quality of service and spread the network.
In
the cellular sector alone, the subscriber base has increased
nearly 10 times over the past three years while the
tariff has been reduced by nearly 90 percent over the
same period. Similarly, tariffs have come down in long
distance international and national telephony by about
40% to 60%. Internet telephony is offered even at cheaper
rates.
The
interesting phenomenon observed is that even with unrestricted
entry in most telecom services, the number of operators
has ranged between three and four. The phenomenon of
both vertical and horizontal integration is also taking
place. Through vertical integration, the same player
is offering end-to-end services from international long
distance through domestic long distance to basic or
cellular services.
Further,
through the process of consolidation and mergers, horizontal
integration is happening whereby larger footprints are
being acquired for reaping the benefits of economies
of scale of operations. This has facilitated the phenomenal
growth in the cellular sector where the total number
of subscribers has recently crossed 10 million.
While
basic services have grown at a lower rate, with entry
of new players, it is expected that basic service would
also maintain a healthy growth rate. Globally wireless
subscribers are increasing at a faster rate than fixed
line. This is also the experience in India.
The
issue which is agitating the operators is that competition
is leading to squeezing of margins because of falling
tariffs and, therefore, profitability could get adversely
affected. In India, the existing level of tele-density
is only 5 percent. Therefore, a large market is still
to be penetrated.
While
some of the areas may be difficult to access, and may
yield less returns, there are still large parts of the
country where telecom service can be profitably extended.
Since the early bird reaps the maximum benefit, the
competitive challenge would therefore be to reach out
rapidly to those areas which are still to be covered.
Larger
volumes through ever increasing subscriber base with
fast growing voice as well as data traffic would ensure
reasonable growth in revenue and reasonableness of the
returns of investment. After all, investment in telecom
infrastructure has a long gestation period and therefore,
there is no reason to be apprehensive about falling
margins.
Of
course, in such a scenario the policy framework must
be stable with in-built flexibility to adjust to the
emerging needs and the regulatory mechanism effective.
Issues relating to inter-connection need to be resolved
effectively so that the network grows steadily.
Competition
is here to stay and is in the best interests of the
sector
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