Telecommunication Revolution in India

ABSTRACT: India has witnessed what many describe as a telecommunication revolution during the last decade. The entire Indian telecommunication industry and government policies related to this sector have undergone a sea of change, going a long way in bridging the digital divide. In just ten years, once a luxury item, the telephone has now become a necessary commodity in the country. Efforts are currently underway to connect every corner of the country to the Internet, thereby ushering India in a new information revolution. The present report discusses how this transformation occurred, how India broke technological and price barriers, and what lessons global telecommunication companies may learn from India.

REPORT CONTENTS

1. Introduction

Executive Summary

2. THE FIRST FEW STEPS FORWARD

2.1 CDoT: The First Success Story

2.2 New Telecommunication Policy

2.2.1 New Telecommunication Policy: Objectives

2.2.1.1 Towards the privatization of basic services

2.2.1.2 Promoting the usage of new technologies

2.3 New Telecommunication Policy: 1999

2.3.1 New Telecommunication Policy 1999: Key Objectives

2.3.2 Promoting the Usage of Domestic Technology

2.4 The Final Steps

3. the technology angle

4. The industry interest

5. Looking ahead

6. Conclusion

7. CONTACTS & WEBLINKS

1. Introduction

A telecommunication revolution was the last thing on the mind of Indian policy makers in the early 1980s, since telephones were considered to be items of luxury and something developed nations in the West needed to worry about. Higher up on the priority list for India were subjects such as urban and rural development, economic reforms, and industrial revolution. Unfortunately, no one thought about the result of a synergy between building a telecommunication infrastructure and the overall development of the country, including urban, rural, economic and industrial development, and how they could bring about a paradigm shift in the development of the nation.

Starting in mid-Eighties, the entire approach changed with the realization dawning upon the administrative machinery that a good telecommunication infrastructure could be the right enabler to all these reforms. A national level organization, the Centre for Development of Telematics (CDoT), was formed by the Indian government. Its main task was to develop and adapt state-of-the-art technologies to suit Indian needs and link this to the overall development of the nation. The responsibility for spearheading the initiative was given to a well-known technocrat, Sam Pitroda. It was under his leadership that India began to realize that a quality telecommunication infrastructure, along with substantial food, clean water, and adequate shelter, was a fundamental component in the process of modernization.

Unfortunately, high costs, low demand, and stringent technology import rules became a barrier for the telecommunication revolution to sweep the country. The 1980s did see some activity in the telecommunication sector, including the establishment of much-needed rural exchanges and public call offices being built throughout the country. However, a telecommunication revolution remained a distant dream.

One major change that took place in the 1980s was the ease of connectivity and the simplification of the process for making long distance telephone calls. This process became much more simple compared to earlier years when one had to rely on the operator to connect users to a long distance call. From the latter half of the 1980s, slowly but steadily, ordinary Indians started to increasingly rely on the telephone rather than mail. However, operational and maintenance costs were still steep and remained a major deterrent for a large part of the Indian population to use the telephone extensively.

The early 1990s, however, saw these early problems slowly being solved. Two major events changed the scenario completely: (1) economic reforms leading to large-scale liberalization initiatives and thus, the privatization of telecommunication services in India, and (2) the rise of the Indian software industry. The first one facilitated the entry of the latest technology from the West, while the second one created the demand required to sustain the telecommunication industry.

However, there was another major hurdle the telecommunication industry had to (and is still trying to) overcome—the pricing challenge. India is an extremely price conscious market and the price of a gadget is, more often than not, the deciding factor. Given such circumstance, the standard global telecommunication revenue model—an investment of US$800 for installation and a 35-40 per cent annual recovery—would just not work (to make an investment required to install a profitable telephone line, a telecommunication company would like to recover 35-40% of its initial investment through revenue earnings). The reason is simple: converted to Indian Rupees (approximately 1USD = 45 Indian Rupees), these figures become abysmally high for the average Indian to afford.

While people had to wait for three years to obtain a telephone connection in the early 1990s, today, telecommunication companies are wooing them with all sorts of rewards to get over the counter connections. At present, with over the counter connections, a customer needs to walk into a telecommunication operator’s shop, pay the required fee, and take home a telephone set that has already been enabled. In the case of fixed phones, it takes a few hours to have the connection ready. Previously, before the telecommunication revolution, one had to wait for three to five years after applying for a telephone connection to actually get a telephone set. Today’s Indian telecommunication user has the option of choosing from various state of the art technologies and standards such as GSM, CDMA, WLL, F-WLL, and DECT.

The following sections discuss how a combination of technology, government, and industry support are converting India into a telecommunication power and one of the most-favored nations when it comes to global telecommunication companies.

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Executive Summary

• India has witnessed a telecommunication revolution in the last decade brought about by a collaboration of government, industry, and the scientific community. From a situation where an applicant had to wait three years to obtain a telephone connection to a position where telephone companies are wooing consumers with rewards for over the counter connections, it has been a success of indigenous technology development and effective implementation management.

• The magnitude of success can be gauged from the fact that telephone lines added to the basic services network over the last five years have been one and a half times that added in the preceding five decades. Today, India has an average annual growth of 22% for basic telephone services and over 100% for cellular and Internet services. India has also more than 70 million telephone connections and is expected to add at least 25 million new subscribers in 2004.

• The Indian government launched the initiative by building a telecommunication center of excellence called CdoT and empowering it to build, operate, and transfer indigenous technologies. CDoT was instrumental in building robust telephone exchanges that could serve the remote villages as well as large metropolises. Today, over 90% of rural exchanges operate on the technology developed by CDoT. One of the main reasons behind the success of the CDoT initiative was the success transfer of technology to other manufacturers.

• The CDoT example was followed by the TeNET group in IIT, Madras. The group developed a cost effective, robust, and efficient WLL (Wireless In Local Loop) technology that helped in connecting rural and urban areas at a fraction of the cost of other existing technologies.

• All these initiatives were backed by the Government. Two telecommunication policies were released within a span of 5 years in 1994 and 1999. These two policies changed the entire telecommunication situation in India by allowing private participation and co-existence of telephone networks based on different technologies. These aspects helped the consumer secure the best benefits. According to the report India Telecommunications by J. M. Morgan Stanley dated April 15, 2002, India is one of the largest emerging telecommunication markets in the world, with tremendous growth potential.

IMPACT & ASSESSMENT

The present report describes the telecommunication status in India and the changes that occurred in that nation within decade. The various nodal agencies that took part in the revolution are described in this report, along with a few technology initiatives that played an important role. While not a market research document, the present report will enable the reader to comprehend the telecommunication situation in India. The telecommunication revolution in India represents a success of the free market along with sensible government policies.

2. THE FIRST FEW STEPS FORWARD

It was during the mid 1980s that the Indian Government realized the need for a modern telecommunication infrastructure. They understood that not only such infrastructure would give a tremendous boost to all sections of industry, but it would also become an enabler for various development policies of the Government. With a view towards making India one of the forward thinking nations when it came to the telecommunication infrastructure, the Government formed the Center for Development of Telematics (CDoT).

2.1 CDoT: The First Success Story

C-DoT was established as a premier technology research center to develop technologies for the growth and digitalization of the telecommunication network in India. The focus was on developing contemporary technologies suited to Indian conditions and then on transferring knowledge to other public and private sector companies who would take care of the manufacturing and implementation phases. CDoT was vested with full authority and total flexibility to develop state-of-the-art telecommunication technology to meet the needs of the country’s telecommunication network.

Two decades after the organization was formed, it would not be an overstatement to say that it was the pioneer in bringing about the telecommunication revolution in India. Today, more than 25 million lines (out of a total of approximately 42 million fixed line telephones in the country) are based on C-DoT technology, manufactured by over 20 different corporations. Not only was the center successful in developing the technology, but it was also successful in transferring that technology to other companies to facilitate a faster and smoother implementation.

Some of the CdoT’s responsibilities included the following:

• Development of robust, economical, small capacity (around 200 lines) Rural Automatic Exchanges. This single initiative revolutionized the entire rural telecommunication situation in India—over 32,990 exchanges use this particular technology to provide seamless connectivity to remote villages in every corner of the country. In fact, this technology became so successful that it has been exported to over 24 countries in Asia, Africa, and Latin America.

• Development of high capacity (up to 40,000 line switching systems) exchanges with state-of-the-art features such as CCS7 signaling, Intelligent Network, ISDN, and V5.X interfaces.

• Implementation of an efficient technology transfer process to public and private sector companies, resulting in a manufacturing infrastructure for producing more than seven million exchange lines per annum.

• Delivery of close to 25 million lines for use in the Indian telecommunication network.

2.2 New Telecommunication Policy

In 1994, a new telecommunication policy was released, which brought a sea of change to the entire telecommunication situation in the country. The policy was developed in line with the liberalized Indian economy and the administration’s bid to attract more foreign direct investment.

Responding to the call of the industry, the Government wanted to formulate a policy that would give the highest priority to the development of the telecommunication infrastructure, a prerequisite for the smooth functioning of any industry.

The table below shows India relative to other countries with respect to the telecommunication status existing in 1994:

In 1994, India had a telephone density of 0.8 per hundred persons, compared with the global average of 10. There were about 8 million lines with a waiting list of 2.5 million applications. Only 140,000 villages, out of a total of 576,490 in the country, received telephone services. The new policy revised these targets drastically and made them almost on par with the rest of the world. The new policy demanded that:

• Telephones should be available on demand by 1997

• All villages should be serviced by 1997

• There should be one PCO (Public Call Office) for every 500 persons by 1997 in urban areas

• All value-added services available internationally should be introduced in India to raise the telecommunication services in India to international standards, preferably by 1996

2.2.1 New Telecommunication Policy: Objectives

The old telecommunication scenario was completely transformed by the new policy, which invited private participation and modified some of the key aspects of the existing policies. Some of the principal objectives of the new policy were:

• To make telecommunication affordable to all and to provide services on demand without any waiting period whatsoever

• To provide universal access (certain basic telecommunication services at affordable and reasonable prices covering all villages) at the earliest

• To provide world class telecommunication services, minimizing consumer complaints, and providing special attention to public interface.

• To ensure that India emerges as a major manufacturing base and exporter of telecommunication equipment. This was necessary, taking into account India's size and development

• To achieve all these objectives without compromising the defense and security interests of the Country.

2.2.1.1 Towards the privatization of basic services

In line with the new telecommunication policy, the Government deregulated certain sectors in the industry and allowed private participation. Before the new policy, this was something unheard of—the Department of Telecommunication and the Government, through their fully owned companies Videsh Sanchar Nigam Ltd. (VSNL) and Mahanagar Telephone Nigam Ltd. (MTNL), were the only organizations allowed to provide telecommunication services in India. The National Telecommunication Policy of 1994 allowed the entry of the private sector into telecommunication services and also paved the way for cellular and other value-added services such as email, Internet, etc.

In fact, the privatization of basic telecommunication services represented a major step forward in the overall infrastructure development of the country. Quoting a relevant extract from the policy document:

With a view to supplement the effort of the Department of Telecommunication in providing telecommunication services to the people, companies registered in India will be also allowed to participate in the expansion of the telecommunication network in the area of basic telephone services. These companies will be required to maintain a balance in their service coverage between urban and rural areas.

The privatization of telecommunication services is a good example of the Government and private sector joining hands and working together. However, despite being largely on track for a number of telecommunication initiatives, some slippage occurred when it came to privatization of telecommunication services. As a JM Morgan Stanley report [India Telecommunications, 15-April 2002] on the Indian telecommunication industry, published in 2002, pointed out:

The privatization of the Indian telecommunication industry began in 1994-95, with the entry of private last-mile service providers, resumed in 1999 and picked up momentum at the beginning of 2001. Apart from guidelines being set to permit and encourage competition in virtually all segments, new licenses have been issued to private players in the national long-distance (NLD), wireline, and cellular segments.

As is evident from this comment, despite having a new telecommunication policy in place, the privatization efforts did not really gain momentum until 1999 when an updated policy was published.

2.2.1.2 Promoting the usage of new technologies

One very significant shift in stance, announced in the new telecommunication policy, was the Government’s willingness to accept and allow pilot projects for new technologies. Taking into account the cost factor, achieving success in connecting every corner using existing technologies would be difficult.

As Professor Ashok Jhunjhunwala from the Tenet Group at the Indian Institute of Technology in Chennai, points out in a paper entitled Making the Telecommunication and IT Revolution Work for Us: [Prof. Ashok Jhunjhunwala is one of the pioneering figures of the Indian telecommunication industry; details on his background can be found at http://www.tenet.res.in]:

[….] a telephone operator today spends around Rs.30,000 [approx. US$670] per line to provide telecommunication services to a subscriber. Taking into account finance charges on the investment (15%), depreciation (10%), and operation and maintenance cost (10%), an operator needs at least 35% of the initial investment as yearly revenue just to break even. Add the license fees and taxes to this, and the revenue per subscriber needs to be at least Rs.1,000 [approx. US$23] per month.

Following Prof. Jhunjhunwala’s revenue realization model would mean ignoring a large fraction of Indian consumers, since that group would not be able to afford this kind of expenditure. As a result, a new technology had to be found, which would reduce the cost of laying down a telephone line to Rs 10,000 (approx. US$220). The new policy directly promoted the usage of new technologies and made the following statement:

Pilot projects will be encouraged directly by the Government in order to access new technologies, new systems in both basic as well as value-added services. It is therefore necessary to encourage indigenous technology and set up a suitable funding mechanism for indigenous R&D so that the Indian technology can meet the national demand as well as compete globally.

This statement meant good news for scientists. Active government support would not only go a long way in developing the technology, but also help its implementation.

2.3 New Telecommunication Policy: 1999

In 1999, five years after the national telecommunication policy was revised, a new telecommunication policy was announced by the Government. This bore proof of the magnitude of importance the Government was attaching to the telecommunication sector. Government officials had begun to realize that a good telecommunication infrastructure could go a long way in implementing social reforms and overall development of the country. Consider the following extract from the preamble of the new policy:

The Government of India recognizes 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 by 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 the development of this industry.

The policy also looked back at its predecessor and analyzed what had been achieved and what had not been, and the reasons thereof. The chart below details the achievements vis-à-vis the telecommunication policy of 1994.

The new policy also took into account the contribution of the private sector in the penetration of the telecommunication infrastructure. Unfortunately, the private sector telecommunication industry was not in sound financial health, largely due to prohibitive entry-level costs and certain other licensing issues that were hampering the private sector’s growth.

By the time the NTP:1999 was released, licenses were awarded to 8 cellular operators in the four metros, 14 cellular operators in 18 state circles, 6 basic telephone operators in 6 state circles, and various paging operators in 27 cities and 18 state circles. VSAT services were

liberalized for providing data services to closed user groups. Licenses were issued to 14 operators in the private sector. The Government also announced the policy for Internet Service Provision (ISP) by private operators and had issued licenses for the same.

The new policy was developed to pave the way for India to become a telecommunication power and achieve connectivity for all corners of the country.

2.3.1 New Telecommunication Policy 1999: Key Objectives

The new policy was an extension to the initiative that started five years earlier. Apart from announcing the restructuring of DoT, the policy also addressed a number of problems existing service providers were facing. The formation of the Telecommunication Regulatory Authority of India (TRAI) in 1997 (see http://www.trai.gov.in), and its powers were also discussed in the new policy. The key objectives of the new policy were as follows:

• To provide access to telecommunications for the achievement of the country's social and economic goals. Availability of affordable and effective communications for Indian citizens

• To strive to provide a balance between the provision of universal services to all uncovered areas, including rural areas, and the provision of high-level services capable of meeting the needs of the country's economy

• To encourage the development of telecommunication facilities in remote, hilly, and tribal areas of the country

• To create a modern and efficient telecommunication infrastructure taking into account the convergence of IT, media, telecommunication and consumer electronics, and thereby propel India into becoming an IT superpower

• To convert PCOs, wherever justified, into Public Teleinfo centers having multimedia capability such as ISDN services, remote database access, government and community information systems, etc

• To transform in a time bound manner, the telecommunication sector to a greater competitive environment in both urban and rural areas, providing equal opportunities and level playing field for all players

• To strengthen research and development efforts in the country and provide an impetus to build world-class manufacturing capabilities

• To achieve efficiency and transparency in spectrum management

• To protect defense and security interests of the country

• To enable Indian telecommunication companies to become truly global players

With its new policy, the Government also provided specific targets that were required to be met to achieve the objectives, thereby bringing in better accountability and objectivity. The targets set by the Government were the following:

• To make available telephone on demand by the year 2002 and sustain it thereafter so as to achieve a tele-density of 7 by the year 2005 and 15 by the year 2010

• To encourage the development of telecommunication in rural areas, making it more affordable by suitable tariff structure and making rural communication mandatory for all fixed service providers

• To increase rural tele-density from the current level of 0.4 to 4 by the year 2010 and provide reliable transmission media in all rural areas

• To achieve telecommunication coverage of all villages in the country and provide reliable media to all exchanges by the year 2002

• To provide Internet access to all district headquarters by the year 2000

• To provide high speed data and multimedia capability using technologies, including ISDN to all towns with a population greater than 200,000 by the year 2002

2.3.2 Promoting the Usage of Domestic Technology

As done with the 1994 policy and again with the 1999 Telecommunication Policy, the Government encouraged scientific agencies and academic institutions to come forward with new technologies that could provide state-of-the-art telecommunication infrastructure at low costs. In the 1999 Telecommunication Policy, it became more specific and permitted research organizations to consider using the existing backbone network of public and private power transmission companies, Railways, GAIL, ONGC etc. for national long distance data and voice communication.

The policy also reiterated the necessity to begin investing in hardware manufacturing units for telecommunication infrastructure and stated that with a view to promote indigenous telecommunication equipment manufacture for both domestic use and export, the Indian Government would provide the necessary support and encouragement to the sector, including suitable incentives to the service providers utilizing domestic equipment.

2.4 The Final Steps

With the modified policy in place, the government began the second phase of issuing wireline services licenses to private operators in August 2000. The TRAI issued comprehensive recommendations for this purpose, and according to the revised regulations, the licensee could also offer WLL-based limited mobility services. However, this in turn led to a great deal of confusion related to the definition of ‘limited mobility’. Reliance Infocomm, the largest private telecommunication service provider, rolled out its nationwide CDMA-based WLL services with the help of multiple registrations in various cities, thereby allowing virtually seamless roaming. After receiving complaints from cellular operators, TRAI issued orders to Reliance to stop their multiple-registration-based roaming services.

In December 2003, the government issued the Unified Licensing Policy—a step that is likely to bring a change to the entire telecommunication situation in India and lead to a number of mergers and acquisitions. Already, the industry has welcomed the new unified policy and companies have started to apply for fresh licenses for providing basic and mobile telecommunication services. The new policy gives the consumer the option of choosing between GSM and CDMA-based services in the same area of operation of a particular service provider.

3. the technology angle

As is evident from the policies implemented as well as the regulatory and financial support provided by the Indian government, the administration was well supported to help India turn into more of a telecommunication powerhouse. The scientific fraternity in the country also extended full support to the Government in bridging the digital divide.

Building end-to-end telecommunication technology—hardware and software—was difficult, especially if one takes into account the fact that India was never considered to be a good manufacturing base for telecommunication hardware. Apart from the public sector ITI, there are few telecommunication manufacturing units worth mentioning. In addition, telecommunication is a very hardware-dependent industry, unlike software. Importing hardware, to an extent, was possible, but considering the large-scale implementation plans which the Government had set out, having manufacturing units in the country was unavoidable.

The pioneer in the telecommunication revolution was undoubtedly the CDoT. Single-handedly, the center of excellence for telecommunication sciences ushered in a major change. In fact, even today, 91 per cent of rural and 40 per cent of urban exchanges work on the technology developed by CDoT. According to estimates, the indigenous development of telecommunication technology by CDoT led to foreign exchange savings of Rs 40,000 million (approx. US$890 million). Besides the development of technology, CDoT also pioneered the technology transfer process wherein it licensed other manufacturers to build gadgets on their technology—an example of government-industry collaboration. Without the technology licensing mechanism for outsourcing manufacturing, it would not have been possible for the Government agency to handle such large-scale implementation.

Today, CDoT is actively pursuing the goal of developing indigenous technology. In order to extend the benefits of SMS to fixed line subscribers, CDoT has come up with a technology for

using SMS in fixed lines. The new technology will help fixed line subscribers and service providers since both will be able to reap the benefits of the new technology at lower cost.

The second phase of the revolution was ushered in by a group of scientists at the Indian Institute of Technology in Chennai. Led by Prof Ashok Jhunjhunwala, the TeNET group developed a number of wireless technologies for wireline services that would not only reduce the cost of implementation, but also increase the quality of services provided.

The TeNET group’s WLL technology, called CorDECT, has been widely used in India and abroad (For details on the CorDECT technology, refer to ATIP report ATIP97.002: CorDECT -- A New Indian Wireless Local Loop System). The technology reduces the cost of installing a telephone line to one third and provides a telecommunications infrastructure providing sufficient bandwidth (70 kbps, total) to allow simultaneous voice and Internet connectivity. The group is currently engaged in working towards providing Internet to rural areas. Using their indigenously developed technology, the TeNET group can provide high-speed Internet access to 200 villages from a single Access Center. The group—through a company that it formed called nLogue—already has agreements in place to provide telecommunication and Internet connectivity to every village and town of the districts of Madurai (Tamil Nadu), Dhar (MP), and Sikar (Rajasthan). It is also in the process of procuring similar agreements in Dehradoon (Uttaranchal), Adilabad (AP), Vijayanagaram (AP), as well as a variety of other districts.

In fact, as per their expectations, they should be connecting at least 1 million subscribers in three years. Professor Jhunjhunwala and his team hope to bridge the digital divide by providing Internet connectivity to all. As Prof. Jhunjhunwala points out, in the space age, information will be the key differentiator between the haves and the have-nots. This is interpreted to mean that the social division between rich and poor will now result from people who have access to the Internet, and thus information, and people who do not have that access, and as a result, are not considered “informed” by the global electronic community. Professor Jhunjhunwala is looking at a time when all information, and thus knowledge, would be disseminated through the Internet and various electronic media.

Efforts of the TeNET are finally bearing fruit. The modus-operandi of Prof. Jhunjhunwala is very simple: gather telecommunication professionals and help them form a company in collaboration with the IIT, develop the necessary technology, give the license to other companies for manufacturing the telecommunication technology, and finally go ahead with the implementation.

Orders are finally pouring in for Midas Communications; this company formed jointly with IIT for the CorDECT technology. Last year, Reliance announced its major order of 1.5 million CorDECT lines across the country in the next two to three years. Now, after a test-run with 25,000 CorDECT systems in 24 cities across nine states for over a year, Bharat Sanchar Nigam Limited (BSNL) has recently awarded a contract for over 570,000 CorDECT lines. In fact, Reliance Infocomm will be the largest user of CorDECT by using the system in rural areas where its CDMA technology is unsuccessful.

A number of other institutions such as the Telecommunication Engineering Center of the Government of India have been working behind the scene to develop effective standards suitable for India and have been advising the Ministry of Telecommunications on the issue. Once released, these standards are then used by manufacturing units for making domestic products.

Telecommunication Consultants of India, another DoT company, has also conducted important work towards the development of rural telephony in India.

4. The industry interest

The major industry players have long been looking at the government for the privatization of the telecommunication sector, one of the most lucrative businesses to be in nowadays. Thus, when the Indian government opened up the telecommunication sector, it was natural to expect a strong support from industry. Right from the day when the new telecommunication policy was released in 1994, almost all large industrial businesses, irrespective of whether they had experience in telecommunication or not, applied for a license to provide services in India. Their risk has paid off, and today, many of them have focused a great deal on telecommunication.

Multinationals throughout the world (Telstra, AT&T, and Hutchison amongst others) have formed joint ventures with Indian companies to build their infrastructure and operate from India. Telecommunication equipment manufacturing companies such as Nokia, LG, Samsung, Alcatel, Sagem, BenQ, Sony Ericsson, and Motorola have identified India as a core market and launched large-scale operations from there. Of course, the primary reason for that is the huge untapped market that exists in India.

Recently, Motorola announced their plans for expansion in the Indian telecommunication industry. Consider this report that appeared on a technology web site TechTree: (February 20, 2004)

Motorola Inc. is all set to play a major developmental role in the Indian telecommunication sector. Motorola's Global Telecommunication Solutions Sector (GTSS) said the company received wireless equipment agreements worth over US$307 million from leading Indian operators BSNL, MTNL, and Tata Teleservices. Under these agreements, Motorola will deploy new networks, as well as expand and upgrade existing networks for both Global System for Mobile (GSM) communications and Code Division Multiple Access (CDMA) system.

According to research data, India’s 72 million-telephone line network, including mobile phones, is one of the largest in the world. In fact, in 2004 alone, the country is expected to add 25 million new telecommunication subscribers.

Consider the following reports that appeared in the media:

According to a report from the online publication India Telecommunication News (http://www.indiatelecomnews.com/investmentfinance.htm):

India's telecommunication sector has attracted foreign direct investment (FDI) worth US$1.05 billion in the past two years, the government said in a statement. India opened up its telecommunication market to global companies in the early nineties to boost competition and boost phone usage -currently around 4.5 percent of the population have a phone compared with a global average of 15 per cent. " The total FDI inflow till date in the sector has been to the tune of US $1.99 billion," the statement said. "The sectors where maximum FDI has come through includes cellular services ... (and) basic telephone services.

According to the Hindusthan Times (December 2, 2003), a leading national newspaper in India:

India enjoys some of the world's lowest call rates as carriers, many losing money, cut charges to win subscribers in one of the world's fastest growing markets. Rates as low as 2.6 cents for a

three-minute local call have doubled the user base in the past seven months and the number of customers is expected to reach at least 100 million by 2005.

A JM Morgan Stanley report estimates the total market revenue will expand 7.7% per annum to US$12.3 billion (Rs 712 billion) by F2006 (March). Previously, since all telecommunication services were provided by public sector undertakings, the Indian government used to receive all telecommunications revenues. However, with the opening up of the telecommunication sector, these revenues will now be shared among private operators as well.

The Indian telecommunication market has grown at a 14% compounded annual growth rate (CAGR) over the last five years to reach a size of US$8.5 billion, and this growth is likely to continue steadily resulting in revenues of about US$13 billion by the year 2007, a study report from the Federation of Indian Chamber of Commerce and Industry (FICCI) highlighted.

That report adds that the growth of about 14% CAGR was driven by deregulation and technological changes which have led to a significant increase in competitive activity, rapid decline in tariffs, and swift growth in telecommunication services. Providing details for the potential of the telecommunications sector, the report observed that to cater to the growing demand for various telecommunication services, investments of about US$22 billion will be required. The report maintained that out of the US$13 billion in projected revenues by 2007, data services would account for US$1.6 billion, cellular services for US$3.8 billion, fixed lines for US$3.3 billion, national long distance for US$3.4 billion, and lastly, about a billion for international long distance services.

Growth has really been impressive in the cellular sector. The subscriber base for mobile services continued to maintain its growth during the first month of 2004. During the month of January 2004, approximately 1.64 million mobiles subscribers were added, bringing the total of this category to 30.0 million. During the month of January 2004, 1.37 million cellulars and 0.27 million WLL(M) subscribers were added, raising the total number of cellular subscribers to 23.37 million and that for WLL(M) subscribers to 6.71 million.

In India, at the end of January 2004, fixed line including WLL(F) have crossed the figure of 42 million while mobiles have exceeded 30.0 million, the total of telephone subscribers thus reaching around 72.0 million.

5. Looking ahead

With India being one of the few countries allowing both CDMA and GSM based telecommunication services, the war between technologies such as CDMA and GSM (and thus, telecommunication companies) is likely to heat up. In fact, large industrial companies such as Reliance have made substantial investments in both technologies.

As of mid-2004, no one really knows which technology will dominate the Indian market. Reports from various research agencies are adding to the confusion. Consider these two conflicting reports from the Gartner Group and IDC, two market research agencies, which appeared in the India Telecom News (http://www.indiatelecomnews.com/technology.htm):

CDMA is better for India – Gartner

Research and consultant firm Gartner notes Code Division Multiple Access (CDMA) technology CDMA is ‘particularly attractive for India’ and will prevail in the wireless world over the Global System for Mobile (GSM). Gartner's research director Geoff Johnson points out that while GSM has the advantage of greater number of users and of larger number of countries using it, CDMA is more popular in specific markets such as South Korea where they ‘chose CDMA exclusively and planned to be a major supplier of CDMA to the world’. Dwelling specifically on the Indian market, he stated: ‘The point to point concept of communication within specific circles will be an important factor in India. WLL will therefore work well in a market like this.’ Elaborating on the issue, he added that since the Indian market had clearly defined points of usage within a circle, WLL was likely to work better as opposed to GSM or unlimited mobility.

GSM way ahead: IDC

A threat to country's GSM-based mobile phone networks from new competitors with cheaper CDMA connections is more likely to start a war for new subscribers than spur a churn from existing ones, market researcher IDC says. Less than 20 per cent of GSM mobile phone service users in high traffic cities of New Delhi, Mumbai, and Chennai are willing to try cheaper wireless in local loop (WLL) limited mobility services using the rival CDMA technology, an IDC survey pointed out. GSM, or Global System for Mobile Communications, is the technology used by around 70 per cent of all mobile phone users in the world. CDMA, or Code Division Multiple Access, the wireless technology widely used as the mobile phone technology standard in the United States is its smaller competitor. Most cellular phone companies in India use GSM technology, but limited mobility phone services firms use CDMA.

However, the situation has changed after the Indian Government, with its unified licensing policy, has permitted operators to offer full mobility services using either of the technologies. This way, not only have they called for healthy competition, but they also opened the market for service providers from across the world. The future will be in accordance to the Darwinian principle—only the fittest will survive.

One more interesting phenomenon that is likely to take place in the near future in India is the usage of non-conventional resources for providing telecommunication connectivity. Organizations such as Indian Railways, Gas Authority of India Limited, and other utility service providers who already have an existing infrastructure running across the length and breadth of the country, are planning to utilize their under-used network in providing the telecommunication infrastructure.

6. Conclusion

As can be understood from various available statistical data, the Indian telecommunication market has experienced a very rapid growth in the last few years. Projections by market research agencies such as JM Morgan Stanley claim that similar growth will continue for quite some time now and a very large market exists for small and major competitors in the industry.

When dissecting the reasons behind the success of the revolution, one finds the synergy of government and the industry and research agencies emerging as the principal factor. The Indian government provided administrative support by easing telecommunication regulations; the industry provided financial support by investing in the telecommunication sector, while the scientific community provided the necessary technological support by developing indigenous technologies.

Additionally, licensing technologies represent another factor which helped the telecommunication revolution succeed in India. If CDoT had not allowed other private sector companies manufacture hardware based on their inventions, it would have been impossible to logistically manage the establishment of the telecommunication infrastructure of thousands of rural exchanges. Similarly, if the TeNET group had not licensed their corDECT technology to other manufacturers, it would have been almost impossible for them to handle such bulk orders.

In other words, the telecommunication revolution in India was not a mere scientific success; it was also a management success. This led to the present situation in which India finds itself today—almost all global telecommunication companies are waiting to invest in the country. With the software and business process industry booming in India, the demand for an even better telecommunication infrastructure is going to increase. In addition, the Indian government also has the major plan of connecting every village and practice eGovernance, in the true sense of the term.

The end result will be a win-win situation for the Indian consumer who will benefit from the best of the technology at the least price. The entry level costs for a telephone in India today is amongst the lowest in the world.

If one goes by the trends in the telecommunication industry, this is just the tip of the iceberg. Very soon convergence will take place in the telecommunication industry, leading to the removal of the distinction between fixed line telephony, wireless phones, and data services. Users will probably have just one device that will provide them with seamless connectivity to all sources of information. Moreover, it will be this information that will help bridge the digital divide.

7. contacts & weblinks

BSNL

Bharat Sanchar Nigam Limited. The largest telecommunication service provider in India. The telecommunication behemoth was incorporated a few years back and provides basic, cellular,

and limited mobility services throughout the country. For details, refer to their web site: http://www.bsnl.net.in.

DOT

Department of Telecommunication. A separate ministry in the Central Government. In charge of all telecommunication-related activities. For details, refer to their website: http://www.dotindia.com./

GAIL

Gas Authority of India Limited. One of the premier natural gas companies of India. Has an extensive pipeline cutting across the length and breadth of the country. For details, refer to http://www.gailonline.com

MTNL

Mahanagar Telecommunication Nigam Limited. Another public sector telecommunication service provider. Operations are limited to the metropolis Mumbai and Delhi. Has a considerable presence in fixed line and mobile phone segments. For details, please refer to website: http://www.mtnl.net.in.

TRAI

Telecommunication Regulatory Authority of India. The regulatory body for implementation of telecommunication policies. Empowered to solve disputes between operators. For details, refer to http://ww.trai.gov.in.

ONGC

Oil and Natural Gas Corporation. The premier oil and natural gas exploration company of India. They too have an extensive pipeline network. Scientists are planning to use this network for providing Internet access to remote villages in India. For details, refer to website: http://www.ongcindia.com.

VSNL

Until recently, the only Internet service provider. All overseas calls had to be routed through VSNL. One of the largest companies of the country. Was recently privatized (February 2002). For more details, refer to website: http://www.vsnl.net.in.

END OF REPORT ATIP04.017r