A tale of two teledensities

India was a latecomer in the global mobile phone expansion, but it is now the world?s fastest growing telecom market. Monthly wireless subscriber additions have accelerated from two million a month in 2003-04 and 2004-05 to three million subscribers a month in 2005-06, and more than 6 million subscribers in September of this year. Overall teledensity?fixed and mobile?stands at just over 13 phones per 100, compared to around 3% in 1999.

Much of the growth has been in rural and lower-income markets. Rural and urban teledensity grew at unprecedented annual rates of more than 20% over 2000-05. Pre-paid subscriptions, generally targeted at lower-income consumers, have grown three to four times as fast as post-paid subscriptions. Telecom companies are now targeting rural consumers with cheap calling rates and low-cost handsets. Falling local mobile call rates, now the cheapest in the world, have helped vegetable sellers to take orders, fishermen to bring their catch to market, and farmers to access market information.

A closer look at the statistics, however, confirms that this is only a start, and a wavering one at that. The rural-urban gap in teledensity narrowed somewhat during 2001-03, but steadily widened since then. Rural teledensity stood at just over 5% of urban teledensity by the end of 2005. The rapid expansion of access to mobile phones at the turn of the century has slowed to 5-10% growth rates in the last two years. Delhi, India?s most-connected city, has a teledensity comparable to the Philippines or Venezuela, while rural teledensity is closer to that of Chad or the Central African Republic.

India?s rapid increases in teledensity also pale in international comparison. The growth rate of mobile subscriptions over 2000-04 was comparable to the low-income country average, while the growth rate of fixed lines was lower. India?s teledensity is still a fraction of any other BRIC country. Coverage by mobile networks has increased from 40% of the population in 2003 to 60-65% today, but is still comparable to coverage in sub-Saharan Africa.

India cannot afford to be complacent. It must address the physical, technical, and institutional bottlenecks that will impede improvement and expansion of service.

First, all carriers, but especially state-owned BSNL, must invest in their networks to reduce congestion at points of interchange (POIs) between the networks. The number of POIs that did not meet Trai?s service quality standards is more than six times the number of congested POIs last year, with most additions on the list involving connections with BSNL. Almost twice as many calls are dropped at congested interconnections with BSNL, compared to congested interchanges between private operators.

Second, spectrum policy, a persistent bottleneck for expansion of services, has to be sorted out. Not only has military usage removed a large portion of the available spectrum from commercial use, but the allocation regime has also not been clear. Accusations of preferential treatment for BSNL have eroded perceptions of the regulatory environment.

Trai?s September recommendations were a welcome step toward clarification and coordination of commercial and military use of spectrum. Creating and empowering the National Frequency Management Board would help coordinate spectrum use. It is vital to provide the board with institutional independence and resources for in-depth research on changing technology and the implications for spectrum management.

Third, Trai must be treated as an independent regulator and accorded the resources to carry out its role effectively. The policy emerging from the spectrum negotiations must also be technology and provider-neutral to encourage investor entry and competition in the provision of 3G services. This is not a guaranteed outcome when regulation is subject to political pressures. Fourth, the government should actively support service expansion in rural areas. The move to use resources in the Universal Services Obligation Fund to support rural wireless expansion is constructive. Private operators are already exploring creative ways to provide lower-cost rural services, including sharing of telecom towers, but this temporary public subsidy can accelerate the process. This must be implemented quickly and competitively. Market pressures need to be maintained for the subsidised operators, perhaps by requiring them to quote the subsidy they need and selecting the lowest bid.

The USO Fund and other government resources should also be used to encourage expansion of competitive high-speed data access in rural areas. Powergrid and Indian Railways have built an extensive fiber-optic network in the public domain, which could be extended with wireless last-mile connections. With a regulatory regime enforcing open-access to these data ?pipelines?, the network would be a conduit for everything from integrating rural areas into business networks to enabling better monitoring of rural health or environmental conditions.

These changes will write the history in the tale of telecom. In one version, India misses the opportunity. The dramatic growth rate withers, rural expansion continues to slow, and the third-generation data network doesn?t really materialise. The communications network remains limited, with frustrating service quality even for those with access. In the other version, public support and private initiative together provide a near-universal voice and data network, seamlessly bridging geographical and economic divides. India becomes a case study for the benefits of leap-frogging to the technology frontier. Actions taken now will determine whether the telecom story truly is a tale of revolution. The death of distance, which this revolution ushers, compel us.

?Columnist NK Singh and Prof Wallack of the Univ. of California, San Diego, are collaborating on a book on infrastructure reforms in India