INDIA’S TELECOMMUNICATIONS
INDUSTRY: POLICY, REGULATION AND
INDICATORS
Payal Malik
December 4, 2006
Pre-Conference Technical Meeting
Under the Project: Equity and Access in Indian
Infrastructure: Blending Competition and Regulation
(Activity Co-financed by ECCP)
OUTLINE

Role of Regulation

Policy and regulatory developments shaping
outcomes of the industry in terms of indicators

Results of the Telecom Regulatory Environment
Survey

Conclusions: Policies and Regulatory initiatives
for taking the reform process forward
Role of Regulation

Reforms have involved more than just privatization

Market liberalization and introduction of new laws and
regulations

Regulations, regulators and regulated industries interact in
complicated ways that in turn affect the development of the
industry

Close relationship between the nature of a regulatory regime
and investment behavior of the firms subject to that regime

Discuss this by providing consistent set of indicators that allow
for an analysis industry performance (from a regulatory,
investment and industry point of view)
Role of Regulation: In Principle

Maintain impartiality and credibility in contexts where
the incumbent has traditionally been state-owned and
state-privileged

Work towards public goals such as universal service
Role of Regulation: In Practice
However,
 Country’s institutional endowment determines
outcomes
the nature of regulatory

Most striking feature of the Indian regulatory system is the relationship
between the government and the regulator

Special political interests capture the state, which then has a potential of
capturing the regulator and distorting the decision of the regulator and state
owned firms

State thus might not be maximizing the “true” SWF, but the welfare
function of some special interests

Need to model the political economy of the state to see how the
“operational” SWF is constructed
Teledensity
CAGR Mobile : 73.82%
CAGR Fixed: 9.46%
8.22
9
8
7
4.84
6
3.71
5
3.21
4.58
4.28
4.01
3.96
3.16
2.65
4
3
1.24
2
0.187
0.35
0.63
1
0
2000
2001
2002
2003
Mobile
2004
Fixed
2005
2006
Ownership
100%
4.7
5.3
7.1
10.6
90%
15.1
21.4
39.3
80%
47.1
56.5
70%
60%
50%
95.3
94.7
92.9
89.4
40%
84.9
78.6
60.7
30%
52.9
43.5
20%
10%
0%
1998
1999
2000
2001
2002
Public
Private
2003
2004
2005
2006
Impact of Regulatory Measures: Lowering
Tariffs Increasing access
INCREASING ACCESS
AARPU/Subscriber per month
1400
35.0
1319
1200
30.0
29.0
1113
1000
25.0
24.5
884
800
20.0
in $
in Rs.
19.4
634
600
15.0
13.9
469
10.3
400
407
10.0
8.9
200
5.0
0
0.0
2000
2001
2002
Rs./month
2003
AARPU (USD)
2004
2005
HHI of Concentration
1.20
1.00
0.96
0.80
0.64
0.67
0.60
0.56
0.60
0.54
0.40
0.27
0.13
0.20
0.09
0.08
0.08
0.11
0.00
1999-00
2000-01
2001-02
2002-03
Landline
Mobile
2003-04
2004-05
Increasing Competition
Foreign Direct Investment
120000
103183.3
100000
95621.3
104087.3
98635.3
84806.3
Rs. in Million
80000
Foreign Direct Investment Inflow Year-wise
Cumulative
60000
42211.5
45097.3
40000
39709
40084.8
22328.4
20000
9876.5
20.6
0
1993
17756.4
12451.9
140.2 2067.4
7648.3
2228.2
160.8
1994
1995
1996
1997
1998
10815
4548
2885.8
2126.7
1999
2000
2001
2002
3014
2003
2004
904
2005
Indicators of Performance
Indicator
2004-05
2005-06
Total Revenue (Rs. billion)
Contribution of Govt. Companies
Contribution of Pvt. Companies
716.7373
421.7420 (59%)
294.9953 (41%)
867.1955
452.3298 (52%)
414. 8657(48%)
Total EBITDA (Rs.billion)
Govt. Companies EBITDA
Pvt. Companies EBITDA
267.8570
186.1320
81.7249
301.3792
187.0912
114.2880
Capital Investment (Gross Block)
Govt. Companies
Pvt. Companies
1788.31
66%
34%
2006.66
64%
36%
Capital employed
Pvt. Sector
Return on Capital Employed (RoCE)
1538.64
599.25
1700.87
658.56
7.82%
Cumulative FDI in Telecom (Rs. Billion
till Jan 2006) (Percentage of
total FDI)
113.13 (8.3)
122.18 (7.8)
Gross Domestic Product (Rs. billion) at
factor cost) Current Prices
Share of Telecom sector to GDP
28439
2.52%
32006
2.71%
Total Employees of Telecom Companies
Govt. Companies
Pvt. Companies
Subscribers per Employee at
year end
Govt. Companies
Pvt.Companies
436891
394334
42557
132
1089
429400
382105
47295
158
1678
State-wise differences in mobile teledensity
State-wise differences in fixed teledensity
Rural/Urban Teledensity
32. 8
31. 13
2 6.2
21. 3
1 4.3
12. 2
10 .4
1 0.4
9 .08
8 .2
7. 04
6. 9
6
5.8
6. 1
4. 8
4
8. 88
4.3
2. 3
1. 9
1.6
1. 3
2.9
0. 3
0. 3
0. 4
0. 6
Mar-96
Mar-97
Mar-98
Mar-99
1.2
1. 5
1.74
1.84
1. 98
0. 9
1.7
0.7
Mar-00
Mar-01
M ar-02
Mar-03
M ar-04
Mar-05
Jun-06
S ep-06
U rban Teledens ity
Rural Teledensit y
Tot al Teledens ity
TRE Survey

Perception of efficacy
– Five dimensions derived from Reference Paper of the
GATS Protocol 4
• Market entry
• Scarce resources
• Interconnection
• Tariffs
• Anti-competitive practices
• USO



Panels of representative and informed respondents
Value of panel study assessments
Objective: Capture relevant informed opinions
Results of the TRE Survey
4
3.5
3.3
3.7
3.9
3
3.3
2.72
2.5
2.5
Likert Score
2
2.6
2.88
2.7
2.3
2.2
3.1
1.5
2.0
2.0
1
0.5
0
Market Entry
Interconnection
T arif f Regulation
Regulation o f Anti
Competitive
Practices
Dimensions
Fixed
Mob ile
Access to Scarce
Reso urces
Universal Ser vice
Obligatio n (USO)
over all
Market Entry

Licensing process has been a mechanism for liberalising
markets; has also been one for controlling and restricting
entry and raising large amounts of money through license
and entry fees

Has now been substantially reduced to attract entry

Regulatory Intervention: Reduce mobile operator’s
license fee from USD 4.5 billion to USD 1.5 billion and
converted the regime into revenue sharing

TRAI facilitated the Unified access regime such that
licensing regime did not come in the way of
technological developments
Market Entry

Unification process will be completed only when
DoT removes all service based licences and
brings them under a single umbrella of unified
licence

Market entry procedure currently is ignoring the
technological possibilities opened up due to
convergence

However, market structure is not controlled by
TRAI
Regulation of anti-competitive practices

Aimed at introducing competition was fairly successful
for mobile technologies

Much less successful for wire line (fixed), network

Inability to do away with the cross-subsidy regime in the
form of ADC, till February 2006

Ignoring the recommendations of the regulator on
infrastructure sharing the DoT is unable to dilute the
restrictive and monopolistic practices of the incumbents
and provide a level playing field to new entrants

LLU for Broadband access

Some of the inherent problems with the TRAI Act and
some due to the institutional relationship
Internet and Broadband Access
7.50
7.00
6.67
6.50
6.00
Subscribers in Millions
5.50
5.00
4.40
4.50
4.00
3.66
3.73
3.50
3.00
2.95
2.29
2.50
2.00
1.50
1.13
1.00
0.50
0.22
0.32
0.13
1999
2000
2.11
1.52
1.02
0.62
0.65
0.35
0.33
0.00
2.14
1.76
0.74
0.51
2001
Internet Subscribers
2002
Broadband
2003
Household
2004
Commercial
2005
USO

TRAI plays a major role in implementing the existing
USO program, it does not have the powers to change it

Benefits from using auctions: difficult to have sufficient
participants bidding against the incumbent

Tend to be used by market players to extract too many
concessions

Important strategic implications: effect the way firms
compete against each other

Incumbent in an advantageous position bidding against
operators relying on transfer or lease of assets from their
competitor
USO

Auction design disregarded commercial, legal and
regulatory implications of the fact that the incumbent had
a fair amount of network

An important precondition for these auctions to be truly
competitive is that the regulator should put in place
effective access regime in place prior to the auctions

Effective, non-discriminatory access regime for sharing
of backbone: Special Obligations counterbalance its
market power; Sunk cost arguments
Backbone supply by operators (route
km; March 2005, incl. leased capacity)
USO

TRAI has made progressive recommendations when it links subsidy
provisioning away from VPTs and individual phones to the creation
of infrastructure

Avoid a subsidy laden universal service programmer concentrating
on individual phones

Public finding of backbone networks assurance of open access to
those networks

Scope of the subsidy has been expanded to include “niche” players
and not merely the large licensed players

Regulator has done its job and the government should take the
initiative and implement policy
Conclusions

Policy confronts the issues of licensing and universal
service

Competition but also the government should not be able
to stop entry (contestability)

A process of conversion from specialized to unified
licenses will be necessary to remove the inherited license
restrictions, and to avoid intractable regulatory issues

Policy should encourage multi-platform competition and
does not perpetually have to play catch-up with
technological progress.