The Indian telecom sector received a new lease of life thanks to a forward-looking National Telecom Policy-1999. Apart from improving tele-density and regulatory aspects, the policy also envisages opening up of the Domestic Long Distance (DLD) service to private operators for competition with effect from January 1, 2000. Here in this article we analyse the basic structure of the DLD segment, its revenue potential and the regulatory constraints.
Before than, what actually is DLD? The Indian telecom sector can be broadly divided into 21 telecom circles, which can be further sub-divided into Long Distance Charging Areas (LDCAs) and Short Distance Charging Areas (SDCAs). If one were to define the scope of DLD service, it refers to the carriage of telecommunication service over a long distance network i.e., a network connecting different Short Distance Charging Areas (SDCAs). DLD service represents the telecom services within the country but outside the local area of an exchange system.
At present DoT is the dominant provider of DLD services in the country. With the entry of private players in the basic and cellular segment, they were also allowed to provide DLD services to their subscribers within the circle. But unlike in the international markets, customers do not have the option of selecting the DLD carrier. A DLD service provider needs access to the customer for providing services. This is possible only through Basic Service Providers (BSPs) like MTNL who have the last-mile connectivity.
But the DLD service provider has to share his revenue with the BSPs (if he does not have the last-mile connectivity) for the termination of the call. This is often a sizeable percentage of their revenues. Currently DLD calls that do not terminate in the BSP’s service area are delivered to either DoT or VSNL. They in turn route the remaining portion of the call in exchange for access charges of Rs 0.48 and Rs 0.66 per pulse respectively. This was lowered last year by the TRAI from 0.50 and Rs 0.70 per pulse respectively in an attempt to add a sweetener to the DLD package.
One of the key impediments in the DLD segment is the transmission infrastructure. In DLD, the transmission network plays a vital role as it provides the Right of Way. The options to the telecom companies on this front are two fold. For one, they have to set up infrastructure right from scratch and have to spend millions in laying fibre optic cables (OFC is a better option as it enables both voice and data transmission at high speeds). On the other hand, they can use the existing infrastructure of DoT, utility majors or companies that are setting up broadband infrastructure (Reliance Infocom).
At present, most of the DLD infrastructure in the country is with DoT, which has 76,000 route-kilometer (Rkm) of OFC in comparison to 3,000 Rkm with other agencies. The Railways have approximately 1,500 Rkm of OFC. Almost all the BSPs and CSPs have also set up limited OFC infrastructure as they are allowed to carry long distance calls for subscriber within the service area (intra-circle) i.e. Hughes Tele.com would be able to transmit DLD calls within the state of Maharashtra where it has the license to provide basic telephony services.
OFC expansion plans…
Companies have laid out aggressive expansion plans, which are expected to provide the necessary impetus for the telecom sector. Basically, the infrastructure plans are drawn up by two kinds of entities viz. utilities and private operators. DoT has plans to add 1,36,000 Rkm of OFC by 2003. As per the perspective plan for 1997-2007, DoT plans to invest a total of Rs 2,329 bn, of which Rs 290 bn is estimated to be in the DLD segment (planned investment in switching is Rs 27 bn and the remaining in transmission media). Private telecom operators have also invested in DLD networks. Cellular operators have invested around Rs 6 bn in 10,000 Rkm of microwave and BTL (Bharti Telenet Limited) has invested around Rs 2 bn in 2,000 Rkm of optic fibre backbone in MP. Apart from this, utilities like Railways and Power Grid Corporation have plans to scale up their existing networks in an attempt to cater the growing need for transmission networks. If all the plans of utilities and service providers fructify, by 2003, alternate OFC network in the country will be around 70,000 Rkm.
Companies like Tata Power are laying OFC cables connecting four metros with the basic objective of becoming a carriers’ carrier i.e. to address the need for bandwidth for BSPs and CSPs. Reliance Infocom also falls under the same category. Currently contribution of revenues from data transmission is negligible. The reasons are two fold. One is that the bandwidth availability is very limited and transmission speed is on the lower side. On the other hand, the data transmission market is still at its nascent stage. But as broadband gains acceptance, telecom companies would be charging customers on the basis of volume of data transmitted apart from voice traffic. If that happens, carriers’ carrier will get a cut in the revenue.
But why are telecom companies so bullish on DLD? To understand the scope of DLD service and the potential, TRAI had done a sample study based on data collected from 40 cities. These cities are commercially important and account for 54 percent of Direct Exchange Lines (DELs) in the country.
Source: TRAI (estimates based on 40 sample cities)
The total DLD traffic is estimated to be around 27 bn minutes with a market size of Rs 124 bn. Inter-circle traffic is 6.7 bn minutes with the market size of Rs 67 bn. Metro cities with 4.6 m DELs together represent 25 percent of the country’s DELs. They also account for 48% of the country’s traffic with Mumbai and Delhi alone accounting for 36% of traffic. Even if a formidable player like BTL manages to corner a 5% market share, we are looking at Rs 6.2 bn as revenues from DLD alone. Besides, the market is estimated to be growing above 15% per annum. The first round of tariff restructuring by the TRAI last year (both on the domestic as well as on the international long distance telephony front) has increased paid-minute calls by atleast 20%. TRAI is expected to cut tariff further towards the end of the current financial year also. Given the fact that the DLD and ILD rates in India are the highest in the world, as TRAI restructures tariffs, one can expect a consistent growth in DLD market in coming years.
Metros account for a bulk of traffic…
||(% of total)
But all is not fair and smooth on the DLD front. There is lot of issues on the regulatory front that needs to be addressed with serious concern if we were to achieve the targets set by the NTP-99. We still have separate licenses for basic, cellular, ISP, DLD and VSAT services. There is huge conflict of interest between operators who have presence in cellular and basic telephony and for players who are venturing into broadband applications. DoT is still the monopoly provider of inter-circle DLD services in the country. At present, private licensed service providers are allowed to carry DLD traffic within their service areas only. For all traffic terminating outside their service areas, they have to interconnect with DoT. Why have this regulation in the first place? Just to safeguard certain interested parties, companies that are willing to commit funds should not suffer.
We still have lots of pre-conditions before issuing a license to provide DLD services. The guidelines for issue of DLD license reads “The applicant company shall pay one time entry fee of Rs 1 bn before the signing of the license. In addition thereto, four bank guarantees of Rs 1 bn each shall be given, which will be released back on completion of each phase. The promoters of the applicant company shall have a combined networth of Rs 25 bn. The total foreign equity in the applicant company must not exceed 49% at any time during the entire license period...” Reminds of the Licensing Raj era again!
The NTP-99 states, "The Government of India (Government) recognises that provision of world class telecommunications infrastructure and information is the key to rapid economic and social development of the country. It is critical not only for the development of the Information Technology industry, but also has widespread ramifications on the entire economy of the country. It is also anticipated that going forward, a major part of the GDP of the country would be contributed by this sector. Accordingly, it is of vital importance to the country that there be a comprehensive and forward looking telecommunications policy which creates an enabling framework for development of this industry".
The need for the hour is to liberate regulatory policies and provide an equitable ground for telecom companies so that, as these should not limit the scope of competition.