The need for deregulation in telecom sectors


Deregulation of telecom sector in India is one of the most successful economic deregulations that were initiated post liberalization. The actual process started in the 1980's with the government allowing private parties to manufacture telecom equipments. In 1994, the National Telecom Policy 94 was formulated with an ambitious aim to provide universal telecom service by 2020(check this number). At that point of time, the Department of Telecom (DoT) was the monopoly supplier of telecom services in India. Telecom penetration was very low and the tariffs were one of the highest in the world. Government realized that for its ambitious plans to bear fruit, it needed private capital as well. Initially private players were allowed to provide value added services like e-mails, pagers etc. Subsequently private companies were allowed to provide Cellular Mobile Telephone services. Telecom deregulation in India took a fast track with the formulation of the New Telecom Policy 1999 (NTP99). NTP99 heralded significant changes in the structure of Indian telecom sector. The DoT which had monopoly powers was bifurcated into DoT, which now looked into formulating policies for the sector and the Department of Telecom services (DTS) which provided the services. DTS was discontinued and BSNL was formed in October 2000. Another major change was the institution of TRAI as an independent regulator. The TRAI act of 2000 conferred TRAI full powers to decide on tariffs and interconnections. Since then TRAI has played a significant role in facilitating the telecom revolution in India.

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The success story of the telecom deregulation of India is also the success story of market forces over government monopoly. From a point where the income tax department would come knocking when a person got a telephone connection, to having the world's lowest telecom rates, Indian telecom sector has come a long way. In this report, we analyze the process of telecom deregulation in India from 1980 to the present times. The rest of the report is organized as follows: Section 2 gives the salient features of deregulation and a summary of its social impact. In section 3, we pull ourselves back and take a hard look at the exact process by which deregulation was effects. Section 4 covers the barriers that were faced during the deregulation. Section 5 describes the social impacts of deregulation and also looks into what could have been done to achieve better results. Finally, in section 5, we give our view on what can be learned from this successful social innovation, to be used in other areas.


The Indian telecom industry has truly come of age. Having emerged as the fastest growing telecom market in the world, India has over 500 million telecom subscribers, with more than 120 million subscribers. Significantly, tele-density has also shown significant increase to cross the 40 percent mark with urban figures reaching 100 %. India's telecom success story has made people across the world sit up and has attracted huge investments from major players. The success is majorly due to well implemented and structured government policies of gradual deregulation coupled with India's overall economic growth. These, along with numerous growth-oriented steps taken by private players have created an environment conducive to both innovation as well as inclusive growth. Today every fifth person in rural India is connected; mobile phones are no longer a figment of the imagination for numerous wage earners, farmers, shopkeepers alike. It is not surprising therefore that a country of over a billion , where the sheer volume of consumers forces prices down to never-before-seen numbers , that the fastest growing telecom industry has become the second largest in the world.

The Face behind it all: Sam Pitroda and the CIA agent in the cabinet

The man responsible for India's telecom revolution was none other than the iconic Sam Pitroda. The MIT graduate who was earning millions of dollars in the US , was the drive behind technology establishment since during the 1980's no one had any idea about how telephony and IT communications worked. When asked what he was doing in India , he claimed that he was here to fix our telephones ! Having worked his way to get an hour with Indira and Rajiv Gandhi , he managed to convince them of his revolutionary idea. Under the Rajiv Gandhi government , Sam Pitroda had 11 million people working on 6 major communications projects- all for a mere salary of Re1 annually. Having built up major systems from scratch , Pitroda was quick to realize the need of privatization and invited 50 manufacturers to bid for licenses for a mere 5,00,000 rupees. Prior to this all licenses were government controlled. In many ways , Sam Pitroda was responsible for technology , policy changes and most importantly a change in mindset. He had the vision of convergence, where he realized that software, coupled with a robust communication infrastructure and internet connectivity could lead to a massive growth in India's economic landscape. Many left that he was wrong, but those who mattered trusted him and the rest as they say, is history.

Mobile services

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The Indian mobility market can be characterized as one with a very large subscriber base (427 million as of June 2009), high growth (addition of 10 Mn+ subscribers every month), low ARPUs (INR 165 per month) and significant churn rates. Initial opening up of mobile services to private players in 1994-95 resulted in high tariffs and therefore poor demand. National Telecom Policy 1999 (NTP 99) replaced the fixed license fee with a revenue sharing model and the consequent lower tariffs resulted in the addition of over 12 times the number of subscribers in the 1999-03 period as compared to the 1995-99 period. The period also saw the establishment of the Telecom Regulatory Authority of India (TRAI) in 1997 as well as the Telecom Dispute Settlement and Appellate Tribunal (TDSAT).While TRAI was the designated independent regulator, TDSAT resolved license disputes and appeals against TRAI. The Calling Party Pays regime was introduced in 2003-04 which made incoming calls free. The current market is characterized with high competitions with many foreign firms entering through the joint venture routes. Competitive intensity in the market resulted in tariff reduction and launch of innovative schemes like lifetime prepaid and low cost handset bundling. Entry barriers for a new subscriber were substantially lowered. Essentially the price wars were sparked by the Relaince led DAPO (Dhirubhai Ambani Pioneer Offer) which had low STD and SMS cost for reliance CDMA to CDMA handsets. The recent entry of DoCoMo sparked off the now game changing per second pulse rates forcing established firms like Airtel and Vodafone to rethink their tariff strategies. Even today, telecom giants are constantly vying with each other to come up with the best tariff plans and customized packages to cater to the needs of their diverse customer base. Another significant innovation would be the implementation of Mobile Number Portability (MNP) which would allow users to switch between service providers whilst retaining their original phone number. Although MNP has seen stiff resistance from government run BSNL and MTNL, it is finally up for implementation on 31st October 2010 in major Indian cities. This, and various other innovations, wouldn't have been possible without the flexibility offered by TRAI to these firms. In a sense, government policy of deregulation has quite cleverly transformed a government held monopoly into an oligopoly.

Internet Services

Internet access in a sense came into India in the early 90's. ERNet, a division of Department of Electronics (DoE), and NICNet (Department of Statistics) made the initial inroads in this field. The ERNet (Educational and Research Network) project was designed to provide Internet connectivity to the premier educational and research institutions of India, while NICNet was assigned the provision of Internet services primarily to Government departments and organizations. Videsh Sanchar Nigam Limited (VSNL) came as a saving grace for an Internet-starved India. Although VSNL launched its Gateway Internet Access Service on 15th August 1995 for enabling public internet access, government policies were quite restrictive. Initially, DoT allowed VSNL the license to operate this service only in the 4 metros. By the VSNL charter, it is supposed to only provide international telecom gateways, not end-user services. The monopolistic practices of VSNL, coupled with undoubtedly high investments to increase service capabilities, led to difficulties for other entrants into the ISP domain. After economic liberalization in 1992, many private ISPs like SIFY, Tatas , Reliance entered the market. However, penetration and data rates were low and this coupled with a majorly urban focus forced the government to rethink and re-invent its policies. The opening up of the Internet sector set the background to NTP 99, which was a major attempt to plug the loopholes in the 1994 policy. The Department of Telecom issued Broadband Policy 2004, in a bid to encourage high speed internet growth in the country and to encourage economic growth. The policy also set an ambitious growth path for broadband in India by fixing stiff targets. The current scenario is populated with the likes of Airtel , Reliance , Tata Indicom , Beam , O Zone , BSNL , MTNL and is characterized by healthy competition. With bandwidth increasing and costs dropping as penetration goes up, India looks set to match up in this regard with developed nations in the west. The Internet revolution also went hand in hand with India's establishment as an IT superpower and had a key role to play in its overall GDP growth.


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A of the key frontier in India's telecom story would be the launch of 3G technology by all the major players. The recently held 3G auctions opened up India's airspaces to the cutting edge 3G technology which seeks to transform the way in which users communicate. Each telecom circle has a designated number of spectrum blocks out of which 1 block is reserved for the state run operators BSNL and MTNL. With the launch of 3G services the operators would be able to provide rich data services including the much awaited video conferencing technology - particularly to HNIs, working professionals, enterprise customers and youth. Although initial vibes suggest that not everyone would be able to afford the services, the very nature of the telecom market as well as the lure of a potentially massive subscriber base would soon drive down prices. The DOT and TRAI have been criticized for having delayed the 3G auction but its better late than never. The future would see some serious capital investment in infrastructure as well as handset manufacturing. This strategic innovation was quite well placed, and comes at a time where investor confidence in India is high with the government's policies being lauded for having kept the Indian economy more or less insulated from the global meltdown.3G can meet the demands of high speed data access and content rich services in the urban landscape and in a way would go a long way in realizing the Government's broadband penetration dream.