"May you live in interesting times!"

A Chinese curse.

One man's curse is another’s blessing. Interesting times these. It sure is a blessing for many even as anathema for others especially in the telecommunications industry. Around the globe, the industry has been witnessing upheavals of sorts with industry structures and norms collapsing, giving way to a new order. An order that is unprecedented and that can only be limited by the mind.

Need for information and the urge to communicate has been the driving force and technological advances the enablers. Digital technologies and wide acceptance of the Internet have accelerated this process. At present, one in every ten people has a fixed telephone line, one out of twenty people owns a mobile phone, and there are millions of Internet users. The numbers are slated to grow exponentially in coming times!!

India too is a participant in these interesting times. The country’s telephone density has grown from a meagre 1.2 per cent in 1994 to 2.2 per cent in 1999. There are more than a million mobile phone users and another eight lakh Netizens.

The New Telecom Policy 1999, is only a further reiteration of the exciting times to follow. In a bold decision, the policy spells out that the fixed service providers (FSP or basic service operators) are to be granted a separate non-exclusive licence for each service area, initially for twenty years. There will be no limits on the number of licences issued. There will be a one- time entry fee plus revenue sharing as opposed to a multi-year licence fee earlier. And, interestingly the domestic long distance operations are to be thrown open.

Reality check
Currently, with a 23.42 million lines' telecom network in place, the 12th largest in the world and the third largest among emerging economies, there are some dark sides too. India still remains low on the world’s telecom density list. The country's telecom density is a tenth of the global average, lower than many.

Estimates by the government and other independent bodies (see table alongside) suggests that there will be around 82 million lines by 2006-07. This implies an addition of around 60 million lines over the next seven years. Industry experts put the cost of setting up a single direct exchange line (DEL) or a plain telephone connection at around Rs 40,000. Factoring this in, around $56 billion worth of investments would be required for the creation of basic telecom infrastructure to meet the target set to be achieved by 2007.

Further, the Department of Telecommunications (DoT) and the Mahanagar Telecom Nigam (MTNL) will be providing 80 per cent of the connections with the balance being catered to by the private operators. Yet, the government would have to arrange for $45 billion and the private sector $11 billion. A tall order as the current scenario does not provide the required support to match the demand estimates and the possible services that the industry could offer in the future.

The current scenario
Recently, in a sweeping move, the minister for information and technology announced that the Telecom Regulatory Authority of India (Trai) would be reconstituted. The minister stated that a separate three-member body would address and settle disputes. The regulatory and adjudiciary functions would also be segregated. But sadly enough, these policy announcements have only complicated the existing conundrum further.

The international players and funding agencies' approach the regulatory aspect of the industry with covert suspicion. Bearing evidence to this is Swisscom and Bell Canada’s withdrawal even as other players are on the fringes. Majors like AT&T and US West have frozen investments into India.

Previous bunglings including auctioning of licences and of course the high fees have stunted private participation in the sector. But even subsequent to opening up of the sector and finalising of licences, only three private basic service operators have forayed into the field viz., Bharti Telecom, Hughes Ispat and Tata Teleservices. The cautious mood prevails even as the rest of the *** are waiting and watching the situation.

The Rs 1,800 crore worth cellular industry has incurred losses in excess of Rs 5,000 crore in 1999. Though part of the woes of this sector were caused by over-estimation of revenues, a rigid licence fee structure, the tariffs and the calling party pays (CPP) scheme all have combined to intensify the industry problems. There are at least two operators in circles (read states) who are up for sale.

Similar is the case with the paging services. Non-viability of projects given the existing scenario saw Max Page surrendering its licence. In mid-1999, the paging services industry saw a drastic dip in subscribers.

Then there is the National Internet Backbone project which state officials should be operational on 26th January 2000. But, this nowhere seems to be possible the way things stand. Scant progress has been done on this front. It is alleged that the entire tendering process was warped as a certain international player underbid the rest. This resulted in a delay and more than half a million prospective Internet users are awaiting connectivity for want of infrastructure facilities.

More often than not, the so-called sanguine government policies carry no weight with the industry players and international observers alike. In a recent paper presented by Telecom Commission former chairman, N Vittal at IIM (Ahmedabad), he pointed out that Trai was set up three years after the telecom policy was announced. Then there have been various unresolved issues including DoT being the referee, the rule maker and a player as well.

A change in stance
To say the obvious that telecom services are important for the country's growth and development and that the problems are retarding the same, would be passe. A World Bank report only reaffirms the importance of this infrastructure. The report pointed out that a single percentage increase in the telephone density has the potential to trigger off a three per cent growth in a country's economy.

In view of this then, a change in stance is the need of the hour. In perspective then, prioritising would go a long way in boosting productivity. Government's single major priority should be to increase the telecom penetration levels and at affordable rates. "Any imposition which is not genuine to the business of telecommunications is an exaction which cannot be justified by any means," asserted member of the IT taskforce, TH Choudhary at a Trai forum in Mumbai. He reasoned that if other services like couriers and airlines don't share revenues with the government then, why should the telecom industry do it. However, he also added that in case such a sharing mechanism was required, it should be imposed to make the service affordable.

The industry has been characteristic in that it has always skirted issues that could rake up a controversy and in turn has relegated technological developments to the background. For instance, between mobile services and VSATs (very small aperture terminals), the former has been upheld as being a 'premium' service while VSATs have been grossly neglected. This, even as the VSAT technology could provide rapid connectivity, especially in the rural areas. The VSAT operators -- VSAT networks interface transparently with the existing network -- could offer a variety of reliable services like data transfers, voice and even high-speed Internet access, et al. The way it is happening in Ethiopia, Kazakhistan and Russia, which have commissioned VSAT networks to provide new and improved lines in their urban and semi-urban regions.

But in India, where prices are amongst the lowest in the world, the customers do not get a differential advantage over the other services available, as the imported components attract high duties.

According to an International Telecommunications Union study, "Facilities licensing regimes based on the types of services provided over the facilities have problems. It is difficult to maintain sustainable distinctions based solely on the physical characteristics of certain facilities. Fixed and mobile networks are now largely substitutable. Any notion of infrastructure licensing which tends to create regulatory advantages or disadvantages for different technologies introduces market distortions."

The report also suggests how technology could provide with the opportunities that could effect social obligations. In the US, the concept of virtual phones has become a support for the homeless. It is also popular in Chile and Botswana. Virtual telephony gives a subscriber a phone number and a mail box, enabling the user to receive messages and access them from any phone. An upgraded but still economical service radio pages the subscriber when the new message arrives.

Here then lies the folly of battling technological forces. A battle that many countries have reluctantly succumbed to. TH Choudhary in an article in Voice & Data maintains, " One non-progressive provision in the new telecom policy is not allowing telephony on the Internet. That must have been a concession to the conservatives, to the opponents of change". He reasons, " There are four million PCs and around two million Internet connections are expected by 2001. That is about ten per cent of the total DoT lines. If these people make calls on the Internet, how can you stop it? It is absolutely unenforcable."

The brighter side
However, the brighter side is where the Internet Service Providers' (ISPs) policy for one has witnessed the rapid acceptance of the Internet. The policy though introduced late last year is extremely progressive. The licence fee is minuscule and the provision to reach the customers direct via the 'last mile' access. Recently, the private ISPs have also been allowed to access the international satellites and create international gateways.

The Internet service subscribers' number stands at close to half a million and the number of Internet users is estimated to be close to one million. And, according to industry sources there would be more than 1.8 million Internet users this year. Importantly, the price of Internet access is falling by every other day. A vibrant example of how competition serves the consumer. The target of Internet access to all district head offices by 2001 now looks highly achievable.

Long call home
But the most exciting prospect is opening up of the domestic long distance operations to private players. According to Trai experienced players in the telecom industry, with a ready blueprint and schedule, proposal to cover uneconomic and isolated areas and with promoters with a net worth not less than Rs 2,500 crore, could enter this market. The entry fee is pegged at Rs 500 crore of which Rs 100 crore, a non-refundable fee, would be in cash. The rest would be a refundable deposit to be used as an incentive to ensure the timely roll out of the network. Trai estimates the current domestic long distance market to be worth Rs 12,441 crore which is expected to double to Rs 23,916 crore by 2005; and it will be worth Rs 53,000 crore in the next ten year's time.

Little wonder then that this market has started attracting massive attention from various sources including the Railways, Power Grid Corporation and Gas Authority of India (Gail). The Railways India Technical and Engineering Services (Rites) has already embarked on an action plan. It is laying optical fibres along the Mumbai-Chennai stretch in partnership with BPL. This Rs 250 crore plan will also connect Pune, Bangalore, Hyderabad and Mangalore via extensions. This incidentally happens to be the most lucrative stretch, estimated to account for 40 per cent of the total long distance revenue in the next five years.

MTNL too is not taking matters lying down. It plans to have microwave links between its two licenced cities -- Mumbai and New Delhi. While this link would cut the interconnecting costs that it pays DoT, there are a few aces up its sleeve. MTNL is reported to have a kitty of Rs 1,000 crore ready to pick up moribund cellular operations from existing private operators. This apart, MTNL also proposes to offer cellular services in its licenced areas which could make it a formidable player in the telecom industry.

Meanwhile, DoT through Sancharvahini, a backbone project plans to double its 76,261-route km by 2002. By investing Rs 31, 848 crore till 2007, DoT means business especially in the national long distance market.

While all this action unfolds, two things are for sure -- customers will have choice and competition will translate into thin margins.

Evolving strategies
Treading on the services' side of the industry will not be the same. N Vittal, in his paper clearly suggests that the telecom sector financial stability was based on a 100-year monopoly. And like the aviation industry, it will surely not remain as profitable once completely open. At the moment, 54 per cent of DoT's revenues accrue from the interconnect charges. Once the private players start offering competitive rates, this stands to diminish. Or at least the profitability margins will decline.

Similar threats, but in a different vein, haunts MTNL. Though the penetration of Hughes Ispat has not dented MTNL's portfolio, chances are it could. For, if not Hughes Ispat some other entrant could woo its bulk customers away. Already, Hughes Ispat has managed to attract large corporates. For MTNL, its bulk customers matter as 90 per cent of its revenues are accounted by 11 per cent of its subscribers.

VSNL though, remains a shade away from competition on account of being an international carrier. But, it is not totally bereft of pressures. For one, VSNL is under pressure to reduce its international rates. This, even as competition in the gateway business steps up. And latest reports say that VSNL is gearing up to combat competition. This is evident from the competitive pricing of its Internet services and which is quality service.

But then Internet telephony could always tilt the balance. According to an ITU report on the direction of international call traffic, " The longer that international telephone calls continue to deviate in price from domestic calls, the more international voice and fax traffic will shift to the Internet. As a result, prices for local calls are likely to become the base prices for more and more international communications." Little wonder then that VSNL has a finger in every pie. It has tie-ups with satellite players for GMPCS and it is planning a strategic alliance to have a share in the domestic long distance market too.

Moreover, the telecom industry is witnessing commoditisation of sorts. Banking solely on one technology or product to deliver could be myopic and fatalistic. As an observer of technology once suggested, "Today's technology, tomorrow's commodity".

As such, the only bankable proposition remains the customer. Strategies and services should reduce customer churns and attract new customers. Sloppy customer service and arrogance could be fatal.

Soon, a telecom company will resemble a shopping mall -- a one-stop shop. A study by international telecom consultancy, The Strategis Group, suggests that more than 60 per cent of the customers surveyed by them preferred to do business with companies bundling two or more services.

It is not only the basic service providers, but even other players like the mobile service operators would have to look at adding value to banal services. The only word that would provide the players with pricing power (read profits) is -- options.

Indeed, the power that converging technologies unleash is unprecedented. To survive in this connected global market place then the Indian policy makers would have to take a real hard look at the realities that convergence throws up.

An ITU report sums it up succinctly, "Digital technology is what allows convergence of media (from print to television) with telecommunications (fixed or mobile) and computing (hardware and software) to create "something" which will be greater than the sum of its parts. While promising great advantages, this "something" however also challenges a safe and familiar status quo which it will take courage to renounce old orders are being overthrown by the pace of technological change. Even the relatively new orders are finding it hard to keep up."

Talk about interesting times!