Telecom Telecommunication Telephone

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The telecom sector has been considered as a vital infrastructure sector which acts as a growth driver for other sectors in the economy. The advancement in the telecommunication sector has also transformed the business operations radically. Moreover, the Government has also recognised that the key to rapid economic growth and social development of the country would lie in the development of world-class telecommunications infrastructure.

India is one of the largest telecom services market in the world. The industry grew by.-------. The total number of telephone connections reaches 290.11 million at the end of February 2008.The teledensity is 25.31% by Feb 2008. The total wireless subscribers (GSM, CDMA & WLL(F)) base stood at 250.93 million at the end of February 2008. The total mobile subscriber base has increased from 56.88 million in March 2005 to 261.08 million in March 2008.

Historical Background

Indian telecom is more than 165 years old. Telecommunications was first introduced in India in 1851 when the first operational land lines were laid by the government near Calcutta. While Telephone services were introduced in India in 1881. Further, in 1883 telephone services were merged with the postal system. In 1947 after India attained independence all the foreign telecommunication companies were nationalized to form the Posts, Telephone and Telegraph (PTT) which was run by the government's Ministry of Communications. Thus Indian telecom sector was entirely under government ownership until 1984 when the private sector was only allowed in telecommunications equipment manufacturing. The government's earlier initiatives towards developing the R&D in this upcoming sector was formalised by setting up an autonomous body Centre for Development of Telematics (C-DOT) in 1984. It was set up to develop state-of-the-art telecommunication technology to meet the needs of the Indian telecommunication network.

The government separated the Department of Post and Telegraph in 1985 by setting up the Department of Posts and the Department of Telecommunications (DoT). DoT was its own regulator. DoT was a huge public sector entity which looked after the entire telecom service operation in the country. It managed the planning, engineering, installation, maintenance, management, and operations of telecom services for the whole of India. In order to ease out its operations in 1986, two new public sector corporations were set up under the DoT. One was MTNL which looked after the operation of telecom services in the metropolitan cities. The other was VSNL which was set up to develop international telecom services in India. However, policy formulation and regulation decisions in the sector lay with the DoT. Further the Telecom Commission set up in 1989 was vested with a lot of responsibilities to assist the DoT in policy regulation, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development and standardization/validation of equipment etc.

Recent Developments/Policy Initiatives

For a dynamic sector like telecommunications, dynamics of continuous change brought about by technological innovations calls for essential reforms to accelerate its growth. Thrust in reforms in the telecommunication sector was witnessed during the 90's along with the liberalisation of the economy. The National Telecom Policy was announced in 1994 which aimed to bring about universal service and qualitative improvement in telecom services. It also paved the path for the entry of the private sector in telephone services. With the entry of the private sector, there arose a need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was thus established in 1997 to regulate telecom services including fixation/revision of tariffs for telecom services. Establishment of TRAI had been a positive step in terms of separations of regulations from policy making and operations which continued to be under the purview of the DoT.

In 1992, the government unbundled the domestic basic services and the domestic value-added services (VAS) allowing private sector participation in provision of VAS such as cellular and paging services. Also licenses were provided to the private operators through bidding to provide intra-circle long distance service. While, inter-circle communication remained under the DoT. At the same advanced communication services like cellular, paging, email, fax, data transmission over telephone and leased circuits were increasingly being made available by private operators. Further, the New Telecom Policy (NTP) in 1999 allowed private operators to migrate from fixed licence fee regime to a revenue-sharing regime to help operators overcome their financial problems. This was a major decision which enabled the cellular mobile operators to bring in new investments and increase the subscriber base. Moreover, the other provisions of the Act included separation of the policy and licensing functions of DoT from the service provision function; permitting of interconnectivity and sharing of infrastructure among various service providers within the same areas of operation; opening of National Long Distance (NLD) and International Long Distance (ILD) services to competition (the Government has opened the National Long Distance Service to private operators without any restriction on the number of operators with effect from August 13, 2000); and carrying of both voice and data traffic by service providers. This new policy greatly facilitated the growth of this sector.


The monopoly of VSNL in ILD terminated from March 31st 2002

As of 31 March 2002, unrestricted entry was allowed in basic services on a revenue-sharing basis. All telecom services were opened up for private sector participation: national and international data connectivity was opened to all; and internet services were also opened up without any restriction on the number of entrants and without any entry fee. A National Frequency Allocation Plan (NFAP-2002) was evolved in line with the Radio Regulations of the International Telecom Union (ITU) to cater to the conflicting demands on the spectrum.

(source: Telecom policy and regulation in India, Telecom Sector profile (CAG)

The entire telecommunication sector was opened to private participation and competition (except cellular services where spectrum is a limiting factor). It was recognised that private sector participation would also benefit in expansion of sustainable connectivity in the rural sector. The Government had set up a Universal Service Obligation Fund (USOF) in 2002 to encourage rural telephony. This fund is also expected to help to achieve universal service obligations (NTP-99 has laid emphasis on Universal service)

(Source: India Core)

The entry of the private sector and the resulting completion has resulted in a major restructuring in the tariff structure. The process of rationalisation in the structure was initiated by the TRAI when it issued the Telecommunication Tariff Order (TTO) 1999. As a result both domestic long distance and international long distance rates have been brought down substantially. The cellular telephone sector had also witnessed a substantial decrease in tariff rates. Yet, this has helped in increasing user base and has eventually led to high growth in the financial performance of the telecom sector. Gross Revenues for the sector currently stands at US$ 26 bn, which accounts for 3% of GDP.

The private sector is actively present in the wireless segment as compared to the fixed wirelines. This has brought about a structural and compositional change in the telecom sector. Moreover, FDI ceiling has been raised to 74% for various telecomm services. Growing share of private sector in total telephone connections to 72% in dec 2007 as compared to 20.3% in Mar 03. (Planning Commission report on Telecom)

Number of Telephones (million)

















share of PSUs














































Source: Planning Commission Report on the Telecom sector

Considering that the penetration of broadband and internet services in India, by Dec 2003 was 0.02 and 0.4 respectively, was very low and recognising its potential to aid the growth process

the broadband policy was announced in 2004 to improve the quality of services (especially rural) and to cover 20 million subscribers by the end of 2010. It also aimed in creation of an environment for promoting knowledge based society. Improving broadband connectivity would bring about major implications such as creation of e-governance, greater integration into the world economy through international voice and videoconferencing lower prices for National Long Distance (NLD) and International Long Distance (ILD) etc.

There are around 3.02 mn subscribers as on Dec 2007, an increase of 2.84 mn from Mar 2005. In 2007 the government has issued a new single for internet services instead of for licences required earlier. As on Dec 2007, there are 378 licences for internet services and 9.69 mn internet subscribers. The Broadband policy has envisaged that by the end of 2010, it would cover 20 mn broad subscribers and 40 mn Internet subscribers.

(Source: Annual REP-DoT, Economic Survey 2004-05)

With the trend in the telecommunication sector moving towards mobility, the government has recognised and implemented automated spectrum management system in January 2005 for addressing bottlenecks in spectrum availability. As radio frequency spectrum is one of the necessary ingredients of mobility. Electromagnetic spectrum is considered as a scarce natural resource and needs to be properly utilised to introduce new radio communication technologies.

(Economic survey- 2005 & 2006)

The impact of the reform process undertaken to develop the telecommunication sector can be realized through the growth achieved in this sector. Also the FDI ceilings in this sector have been raised to 74%. While 1005 FDI is permitted in the area of telecom equipment manufacturing and provision of IT enabled services. The total FDI equity inflows in the telecom sector from August 1991 up to July 2007 have been Rs. 20,718 crore which is 8.1 per cent of the total FDI equity inflows into India during the period. The 10th plan has targeted a teledensity of 9.91% by Mar 2007. Teledensity has increased from 5.11% as on Mar 2003 to 18.22% in Mar 2007 surpassing the target. The wireless phone network has grown from 13.30 million connections on Mar 2003 to 101.86 million connections as on Mar 2006. While the total wireless subscribers base stood at 165.11 million at the end of Mar 07 with 33.14 mn urban subscribers and 20.07 mn rural subscribers. The wireless segment has thus grown tremendously as compared to the total fixed (wireline) subscribers which stood at 40.75 mn subscriber base as on Mar 07.



With more than 70% of the population living in villages, it has been proposed to achieve a rural tele-density of 25% by deploying 200 million connections at the end of 11th Five Year Plan. As on Nov 07 rural teledensity was 7.9%.It has been envisaged that optimum utilisation of USO fund and increase in mobile services would help in achieving this goal. Moreover, broad connection for all gram panchayats and public health care centers, secondary and higher secondary schools and provision of 3G services to all cities /towns with more than 1 lakh population is sought to be achieved during the 11th Five Year Plan. Moreover, a total of 650 million connections (including 66 million wired and 584 million wireless connections) are expected to be achieved by the end of 2012. The growth process in this ever-evolving sector needs to be backed by a strong R&D support. Active participation of the private sector in R& D would aid in the flow of benefits to this sector. Further there is also the vision of making India a hub of telephone manufacturing. This would be achieved through establishing telecom specific SEZs and also by setting up Export Promotion Council to promote export of telephone equipment and service.

(Source: planning Comission report on Telecommunication, approach to 11 5 yr Plan, Economic Survey - 08)