The state-owned telecom monopolies are feeling the heat of competition for the first time, and the results are gratifying indeed to the consumer. And all this, thanks to the new Internet policy, with its emphasis on freedom of entry, has resulted in a textbook lesson of what contestable markets are all about.

The new proactive stance on Internet subscription rates adopted by VSNL, in response to MTNL's threat, is the second revision by VSNL. The earlier reduction was the 25-30 per cent revision in leased line charges, which subscribers might remember was in anticipation of competition from international telecom carriers.

But now VSNL seems set to fight out a price war of a different kind. Internet dial-upconnectivity is sold on an individual user basis, making subscription to the service extremely price sensitive. This aspect of the company's Internet service is undoubtedly a volumes game, which will definitely have a play on bottomlines in the future. VSNL's determination to maintain its leadership is not misplaced, given the carrot of "exponential growth." Then there is also the money to be made from portal charges for electronic-commerce and advertising revenues.

More importantly, however, competition in offering Internet services, is not quite the same thing as competition in other industries. Increasing access to the net brings with it vast network economies, which can be leveraged in turn to promote competition in a host of products. Size need not be a factor to promote services and products on the net, and advertising expenditure too would not matter all that much.

This is especially true for specialised goods. E-commerce is the vision of the future, and it promises to be radically different fromordinary commerce. It will seriously intensify competition, while at the same time enabling consumers to know more about world-class quality standards. Local standards of quality will have to be hugely upgraded.

In view of the extraordinary potential of the net, and of telecommunications in general, the approach towards deregulation in this sector has to be to lower transaction costs to the fullest extent. The current policy, with its strict compartmentalisation in voice and data, its rigid separation of fixed line, mobile telephony and satellite communications, its suspicion of voice over Internet, and its disregard of technological convergence in IT, telecom and broadcasting is hardly calculated to achieve the full potential of the telecom revolution.