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Telecom: The policy changes - Views on News from Equitymaster
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  • Sep 26, 2003

    Telecom: The policy changes

    Among all basic infrastructure sectors in the country, the telecom sector has been one of the most progressive. If one were to look at the progress of the Indian telecom sector post the National Telecom Policy (NTP) of 1999, one would observe that the opening up of the sector to competition has certainly paid rich dividends, both to the government as well as the public in general. The most apparent example of the same has been the growth witnessed in the cellular market in India (as seen from the graph below). Higher competition has also ensured affordability of telecom services to Indian consumers.

    This is despite the fact that the NTP itself has been at the centre of a number of controversies. The NTP was primarily intended to increase the penetration of telecom services in the country, however also ensuring that a level playing field is maintained within the sector. To ensure these primary objectives the, Telecom Regulatory Authority of India (TRAI) was set up as the regulatory authority for telecom in India.

    Apart from providing telecom services the new entrants were also obligated by the government to ensure that rural telephony commitments would be met by them. In turn, the government promised that it would not interfere in the way these entrants would carry out their businesses. For example, the government promised that it would be technology neutral, i.e., the various players would be allowed to use the technology of their choice. However, the most prominent and controversial (like any other infrastructure sector in India) of all the policy stances was that regarding the setting of user tariffs. The policy on tariffs had to a certain extent ignored the fact that the telecom sector was rapidly changing wherein technological advances could render the policy redundant.

    For instance, the adoption of Wireless in Local Loop (WLL) completely changed the way fixed telephony service providers operate in a given circle. For the first time, these service providers could provide users with a limited mobility service that could be scaled up to full mobility. This completely violated the initial provisions of the telecom policy, which did not envisage such a situation. TRAI’s validity itself was questioned on this issue. While one does not need to be critical regarding the shortcomings of the policy, one needs to look in to what is being done to change the same.

    In this regard, the recent recommendations by the group of ministers (GoM) for the telecom sector, seems to be a step in the right direction. The GoM has suggested to the Union Cabinet that foreign investment in the telecom sector be hiked to 74% (from the present 49%), intra-circle mergers are allowed and also that a unified licensing regime is implemented. While the first two recommendations seem ‘healthy’ as they will lead to higher investments as well as increased consolidation in the sector, we have our reservations regarding the unified licensing regime. While in the long-term the unified licensing regime seems justified, in the short-term, we believe that it has the potential to further complicate matters and stoke further controversy, as there are a number of issues (like spectrum availability and charges, interconnection between services, and definition of interconnection seeker/provider) that have to be addressed if such a regime is to be implemented.

    Short-term difficulties notwithstanding, such measures have to be taken in order to further graduate to global telecom standards. However, having said that, how the government implements these policy measures will also assume a lot of importance. One thing is certain that the potential for telecom companies in the Indian context is huge with a very large untapped domestic market (only 5 people in every 100 Indians have accesses to telecommunication services). Controversies and policy roadblocks notwithstanding, we are likely to see a sector that could rival the software sector as far as growth prospects are concerned.



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