Bizness The%20telecom%20sector


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Bizness The%20telecom%20sector

  1. 1. Business Read on ................................... The Telecom benefit business and administration. The result was a concentration of telephones around urban and metropolitan centres. Sector Policy makers however, shifted their stand on telephones being a luxury rather than an essential infrastructural tool for efficient business and economic KenSource growth in the seventh 5 year plan (1985 to 1990). Thus began the real A brief history of development of telecommunications in telecommunications in India the country. Telecommunications in India were Cave drawings, drumbeats, After a long and extended debate introduced in 1851 when the British smoke signals are a thing of over the ineffective development of the Raj first laid telegraph lines near the past. Today, technological telecommunication in the country, the Calcutta. Later, in 1881, the advances have brought about Public Accounts Committee of the Lok telephone was invented by Graham a sea-change in the way we Sabha recommended a complete Bell and British firms introduced what communicate. From overhaul of telecommunications and a was then known as POTS (Plain Old Marconi's wireless long sought after reorganisation was Telephone Services) into the colony. transmission discovery in undertaken in 1986 to split the public, By the time India achieved postal and telecom operations into 1894 to modern satellites, independence in 1947, the country separate departments. communications have come a had 321 telephone exchanges in urban long way changing the way areas with a tele-density of just about The origin of reforms in the sector we live. 0.25 phones per 1000 people. The growth of telecommunications in the real sense began with the late prime minister, Rajiv Gandhi initiating the liberalisation of the sector firstly by de- monopolizing telecom equipment manufacturing in 1985. This allowed private firms to manufacture telephones, while the Department of Telecommunications (DOT) licensed switching technology from various foreign firms. A simultaneous thrust was provided Telecommunication has been a state to the national development of subject since independence, especially till telecommunications equipment by hiring the mid 80s, when the government non-resident Indian engineer, Satyen controlled all the aspects of the sector (Sam) Pitroda to start the Centre for through the ministry of Posts and Development of Telematics with the Telegraphs as a natural monopoly. goal of designing an indigenous digital Telephones continued to be looked upon telecommunication switch, whose more as a luxury than as an essential manufacture would be licensed to local means of communication that could firms. 48 Advanc'edge MBA September 2005
  2. 2. Business Read on ................................... The creation of the Department of Telecom (DoT) was followed by a proposal to change the organisation structure further by carving out the metropolitan areas into separate operating companies. However, one argument against the move was that this went against the planning goals to decongest urban areas and decentralize economic activity by issuing guidelines to place an embargo on new connections in urban areas. It was also felt that this would only exacerbate the pattern of lop-sided development by continuing to invest more in cities. However, another interpretation of liberalisation by the government from telephony. By virtue of its presence in the DoT’s motives to create MTNL and plain vanilla telephonic conversations to a major part of the country and the wide- VSNL could be the access these high-speed broadband internet ranging policy making powers that it companies could provide to private connections. This vast progress in the had, DoT emerged as a near monopoly capital, which it did not have and needed telecommunications sector has in the telecom sector prior to major to supplement plan allocations. In 1986, completely changed the lives of the reforms in the sector. according to the DoT annual report, two people in the country and more so the Then came in the second round of new public corporations, Mahanagar way in which business is done today. reforms wherein DoT was restructured Telephone Nigam Limited (MTNL) and The reforms in the telecommunications to create a level playing field among Videsh Sanchar Nigam Limited (VSNL) sector have been the most visible face private operators and the existing were set up to provide decision making of reforms in the country in the last players. The service providing segment autonomy and flexibility and allow public couple of decades. Privatisation and the of DoT was split and called the borrowings to supplement internal consequent competition in the sector Department of Telecom Services (DTS), resources. MTNL was carved out of have only added to the value that which was later converted to a DoT and took over operations, consumers derive from this industry, corporate entity and called Bharat maintenance and development of which is regarded as the backbone of Sanchar Nigam Limited (BSNL). This telecommunication services in New modern business. resulted in the division of duties in DoT Delhi and Mumbai. VSNL was set up to An essential part of the entire game as a service provider and a policy maker plan, operate and develop international of privatisation is the setting up of into two separate functions. Broadly, telecommunication services in India. tariffs in order to be beneficial for all DoT is now responsible for policy- So, when actual reforms were the players. This task has been making, licensing and promotion of initiated in 1994, there were three entrusted by the government to the private investments in both telecom incumbents in the fixed service sector, newly formed body for the purpose, The equipment and manufacture and namely DoT (Department of Telecom), Telecom Regulatory Authority of India provision of telecom services. BSNL, a MTNL and VSNL. Of these, DoT (TRAI). TRAI issued its first directive corporate body, is responsible for the operated in all parts of the country regarding tariff-setting following provision of services. except for Delhi and Mumbai while National Telecom Policy of 1999 aimed Telecommunications in India have MTNL operated in Delhi and Mumbai, at re-balancing tariffs and to usher in changed a lot since the initiation of and VSNL provided international an era of competitive service provision. September 2005 Advanc'edge MBA 49
  3. 3. Business Read on ................................... Subsequently, it conducted periodic based technology) in the market at an every 1% rise in the tele-density in the reviews and made changes in the tariff initial subscription of as low as Rs 500, nation. Accordingly, this sector has levels. Today, TRAI plays a very thereby flooding the market and received a great thrust from the important role of regulating the telecom improving the tele-density of the nation. government for investments and market which consists of a large number development. This industry is highly However, friction does exist between of players with more than 250 licenses capital intensive, in the sense that the existing players and the newer entrants, issued in various segments, which amount needed to start business in as also between the providers of include, Basic telecom services, Cellular this industry is very high given the services based on different technologies telephony, Radio Paging, Data technologically advanced nature of (CDMA Vs Cellular). The same needs to Networks, Voice Mails, E-mails and the the infrastructure needed to run it. be resolved with government Internet. The government’s effort at garnering intervention through the regulator in public funding for this sector has Today, the telecommunications order to further improve the services. remained largely constrained. The industry is a vast one with a large The telecom sector today is not a resource gap to meet telecom targets number of private players who are small one and covers various services of the 8th Five Year Plan was as huge constantly bringing down the cost to and many players within each service. as Rs 23,000 crore. This huge gap consumers thereby making services One of the most vibrant developments between government funding and more affordable and helping improve life in telecommunications has been Cellular projected funds requirement to in general and business in particular. On telephony – a technology that gives us provide additional resources to the Indian business scene are successful the power to communicate anytime and achieve the nations telecom target government owned institutions like anywhere. This segment, a part of the was what prompted the government MTNL and BSNL on the one hand, and broader telecommunications industry, to liberalise the sector in 1992 inviting even more successful and aggressive has today spawned an entire industry private participation in the sector. players like the Tata’s and Reliance on in mobile telecommunication. Mobile Among the larger sub-segments, the other. Competition has just begun phones today are an integral part of cellular mobile services were the first and is heating up every day with either growth, success and economic to be opened up to private lowering of tariffs or introduction of efficiency of businesses. The competition. newer and improved services to keep a government in India has today larger share of the market. Licenses were first awarded to recognized, providing world-class private players in the metropolitan cities Reliance, for instance, has been one telecommunications infrastructure as of Delhi, Mumbai, Kolkata and Chennai of the recent, more aggressive players the key to rapid economic and social in 1994 and later in the other 19 circles in the telecom business when it development of the country. Critical not in 1995. The first of the metro cellular introduced a wireless phone (CDMA only for the development of the networks became operational in Kolkata information in 1995. The government first used a technology duopoly for issuing licenses in the industry, its impact cellular communications. Only two on the overall operators were licensed to operate in development of the any circle. The license fee for the same economy is also was fixed with a 10 year validity. widespread. The Indian market was considered Conservative to be very attractive given the low tele- estimates put a density, the high latent demand and an tag of a 3% ever-rising middle class. The result was increase in the the immense interest shown by global growth of GDP for 50 Advanc'edge MBA September 2005
  4. 4. Business Read on ................................... telecom players, foreign direct employment generated by institutional investors and major these networks, there is also the Indian industrial houses in investing multiplier effect of indirect in the telecom sector, especially employment which will be cellular telephony. However the generated down the supply chain euphoria over an emerging sector comprising vendors, infrastructure was short lived and the players in suppliers, contractors, dealers, etc. the segment began confronting Estimates have it that the total with a series of problems that employment likely to be generated threatened their very viability and once the number of operators goes survival. The result was a massive up and new networks fall in place dry up of foreign investment in the would be in the range of lakhs. sector. One of the factors why this happened was that the Increased FDI Flows liberalisation and de-regulation of The Telecom sector is the the sector was done in a manner largest attractor of Foreign Direct that was not compatible with Investment in the country, global practices. In India, private accounting for almost a fifth of FDI participation was invited in 1992, the It is characterised by a host of approvals since 1991. regulatory authority was established in reputed Indian Business Houses and 1997 and later in 1999 there came Heavy investment in International Telecom majors about a tariff rebalancing, which till Infrastructure including the Birla’s, BPL, Escorts, date is far from complete. The cellular industry is responsible Essar, Reliance, RPG, Tata, and The steep license fee acted as a for the single largest chunk of Thapar. Among top international major deterrent in keeping costs low and players are SingTel, Asia Tech, investment by any individual industry. making services affordable which in turn AT&T, Bell South, Nynex, Millicom, The industry has already invested over resulted in stunting the growth of the First Pacific, Hutchison Whampoa, Rs. 20,000 crores and is expected to overall cellular market. The industry Telecom Italia, New York Life, invest even more in the years to come. soon came on the verge of bankruptcy Telecom Investments, Telesystems Revenue Generation for the throwing open the nightmares of a failed International Wireless, CellaNet and Government of India liberalisation. others. The cellular telephony sector is Contributions of the cellular industry Increased Connectivity: There are poised for big growth going forward to the Indian economy presently 42 networks operating in provided the government controls the World Class Infrastructure the country covering over 1,350 sector and its players in a healthy cities and towns and directly The largest recipient of Foreign manner. servicing over 6.7 million Direct Investment subscribers nation-wide. Basic and Cellular telephony form the The Industry would have invested back bone of communications in the over Rs. 25,000 crore in setting up Employment Generation country though the internet too has 69 networks serving crores of As the number of licensees goes up played a pivotal role. In our next issue subscribers with services being and they start their operations with 77 we intend taking a closer look at that offered in over 1,575 cities and (42 existing and 35 new) networks on towns and covering over 14,000 segment of communications to wrap up air, the employment opportunities in this villages. our discussion on the telecom sector. sector will be huge. In addition to the 52 Advanc'edge MBA September 2005