Sunday, February 14, 2010

India's telecom revolution- Part 1

During the 1980s in India, one had to wait for a few years in the queue to qualify for a land line connection. Of course there were priority lists and perhaps some red tape involved in the allocation. Those were the times when one had to be a doctor to be in the priority list. The tele-density ( number of connections per 100 of the population) was an abysmal 2 to 4%. Come 1995, India launched the second generation digital telephony ( GSM technology). For the first time in the country,a major pan India infrastructure project was awarded to the private sector.

Imagine those sleepy days when the archaic DOT phones could ring endlessly and when having a land line connection was considered to be a status symbol and people used to envy the wireless sets in the possession of our cops. The mobile revolution since 1994 was albeit a slow one. India's states were categorized into telecom circles and were rated as A,B and C ,based on their importance. The four metros functioned as separate circles and is still the case. Bombay, for example ,was a Class A circle ,while a state like Kerala, Class B, and some of the eastern states were Class C. There was a virtual duopoly in most of these circles with only two operators allowed to operate in each of these. Interestingly , a state like Tamil Nadu had a monopoly for about 5 years . The industry was obviously in the formative ( development) stage. There were a bunch of operators with not even a single one with a pan India presence. The industry was marked by high entry barriers including high capital costs, low subscriber growth, high operating costs , low ARPU ( average revenue per user) and low economies of scale. The largest operator at the time, BPL Mobile , for example, had operations in Kerala, Tamil Nadu, Maharashtra and Bombay. Clearly some key southern states like A.P and Karnataka are missing. A call originating from Kerala to Maharashtra had to exit Kerala, route it through another operator's network in Karnataka and finally terminate to BPL's own network in Maharashtra. Imagine the inter-connect fees that could be levied by other stake holders for a single call. In those days, there was not a single operator that could be called as a national operator.High entry level fees paid by the operators to the government exacerbated the situation. Ironically , the only positive factor was the availability of spectrum due to lesser sites and customer penetration.

All these changed by the New Telecom Policy 1999 ushered in by the then A.B Vajpayee government. The government eased the license fees for existing and new players and encouraged more players ( including the state run BSNL) to enter the fray. Most importantly , the calling party pays ( CPP) was implemented virtually ending the period of charging incoming calls. The favorable policies brought into new entrants with a new brand Airtel popping up in the horizon.( The Bharti run Airtel brand was not even in the picture in the first few years of the mobile revolution). Prices were slashed with the rates going from highs of Rs. 16 per minute to lows of 40 paise/minute. The industry was at once propelled into the growth stage with spiraling customer demand, low capital and operating costs and high handset penetration. Older players like BPL exited the industry and newer ones like Airtel and Essar took roots. With the advent of CDMA, almost all industry power houses from the Birlas, the Tatas and the Ambanis made their entry in this industry. For some, the telecom business became their core business, pushing their other businesses out of their radar. The last ten years has seen unprecedented growth with teledensity capping 30% and with subscribers being added in millions. ( To be continued)

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