Indian Telecommunications

8/6/2019 Indian Telecommunications

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Indian Telecom Sector

A) Significant Policy changes and the roadmap: An Ordinance has beenpromulgated on 30.10.2006 as the Indian Telegraph (Amendment) Ordinance2006 to amend the Indian Telecom Act, 1885 in order to enable support for mobile

services and broadband connectivity in rural and remote areas of the country.Subsequently, an Act has been passed on 29.12.2006 as the Indian Telegraph(Amendment) Act, 2006 to amend the Indian Telegraph Act, 1885. The Rules foradministration of the Fund under this Ordinance, Indian Telegraph (Amendment)Rules 2006 have been published on 17.11.2006. The summary of the new USFactivities being taken up under the Rules are as given below:

i) Creation of infrastructure for provision of Mobile Services in rural andremote areas.

A scheme is being launched by the Government to provide support for setting upand managing infrastructure sites for provision of mobile services in the specifiedrural and remote areas of the country, where there is no existing fixed wireless ormobile coverage.

ii) Provision of Broadband connectivity to villages in a phased manner

With the aim to provide e-governance and data services to the rural masses, aproposal is also under consideration of the Government to provide subsidysupport for Broadband connectivity in rural and remote areas of the country in aphased manner by utilizing the infrastructure created for provision of mobile

services. The broad parameters under which the connectivity is required to beprovided are being worked out. The detailed scheme in this regard is beingprepared.

iii) Creation of general infrastructure in rural and remote areas fordevelopment of telecommunication facilities.

iv) Induction of new technological developments in the telecom sector inrural and remote areas.

B) Policy Initiatives taken and Targets

Network Expansion: The IndianTelecommunications network, with about 190million connections and tele-density of about 16.83% by December 2006 is thefastest growing market in the world and has emerged as one of the key sectorsresponsible for Indias resurgent economic growth. A target has been set forproviding 250 million telephone connections by December 2007 and 500 millionmobile by December 2010. Efforts are being made for mobile coverage ofgeographical area of 85% by 2007 and 90% by 2010.

The project at a cost of Rs. 980 crore for release of 45 MHz. spectrum from otheruser organization for growth of mobile services has been launched. Thisadditional spectrum is likely to be made available by June, 2007.

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Mobile Operators' Shared Tower (MOST)

The project for sharing of passive and active infrastructure and network operatingexpenses by mobile operators has been launched in Delhi and Mumbai. It aims atreducing the number of towers in the skyline of the city, optimal utilization of

resources and reduction in clearances from local agencies. The sharing ofinfrastructure will be increased in urban areas from present 25% to 40% by 2007and 70% by 2010.

Focus has been laid on localization and development of local content to helpbridge digital divide in development of tools and fonts in all major Indianlanguages by 2007.

Further, it has been planned to announce 3G Policy, introduction of InternetProtocol TV (IPTV) in 70 towns and Mobile TV in top 20 cities/towns in 2007.

Rural Telephony: 90% of the villages have already been provided with VillagePublic Telephones (VPT). Under Bharat Nirman, out of 66,822 uncoveredvillages, 38,795 villages have been provided VPTs till December 2006.Remaining villages will be provided with VPTs by November 2007.

Emphasis is being given to the technologies having potential to improve ruralconnectivity. To facilitate speedy rural penetration, efforts are on to makeavailable the mobile handsets at about Rs. 1000/-. A target has been set for 50million rural connections by 2007 and 80 million by 2010.

With the passing of the Indian Telegraph (Amendment) Bill 2006, USO supportwill be provided for the mobile services and Broadband connectivity in rural areas.USO subsidy support scheme will be utilized for shares wireless infrastructure inrural areas with about 8,000 towers by 2007 and 10,000 more by 2010. A targethas been set for reduction of urban-rural digital divide from present 25:1 to 5:1 byyear 2010. Support is being extended for rural household telephone connectionson landline and Fixed Wireless Terminals (FWTs) in 1685 Short DistanceCharging Areas (SDCAs) out of a total of 2647 SDCAs.

Broadband: The Year 2007 has been declared the year of broadband. Thebroadband penetration has not increased as expected and at present 2 million

broadband connections have been provided, covering more than 600 towns.Target has been set for 9 million broadband connections with maximum speedupto 2 mbps by 2007 and 20 million connections by 2010 and providingBroadband connectivity to all secondary and higher secondary schools, publichealth institutions and panchayats by 2008.

In rural areas, connectivity of 512 KBPS with ADSL 2 plus technology (on wire)will be provided from about 20,000 existing exchanges in rural areas havingoptical fibre connectivity. Community Service Centres, secondary schools, banks,health centres, Panchayats, police stations etc. can be provided with thisconnectivity in the vicinity of above mentioned 20,000 exchanges in rural areas.

DoT will be subsidizing the infrastructure cost of Broadband network throughsupport from USO Fund to ensure that Broadband services are available to usersat affordable tariffs.

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Roll out of Broadband services in the remaining areas of the country will be doneon wireless media with a minimum speed of 512 KBPS. This coverage isproposed to be extended before the end of 2007.

Research and Development: For pre-eminence of India as a technology

solution provider it has been planned to provide affordable technology for masses,comprehensive security infrastructure for telecom network, tested infrastructurefor enabling interoperability in Next General Network and doubling the telecomequipment R&D by 2010 from the present level of 10%.

International Bandwidth: Government is facilitating availability of adequateinternational bandwidth at competitive prices to drive ITES sector at faster growth.

C) Status of Telecom Sector and achievements:The Indian Telecommunications network with 203 million connections is the thirdlargest in the world and the second largest among the emerging economies of

Asia. Today, it is the fastest growing market in the world. The telecommunicationsector continued to register significant success during the year and has emergedas one of the key sectors responsible for Indias resurgent Indias economicgrowth. The sector, which was growing in the range of 20 to 25 per cent up to theyear 2002-03, has moved to a higher growth path of an average rate of 40-45 percent during the last two years. This rapid growth has been possible due to variousproactive and positive decisions of the Government and contribution of both bythe public and the private sector. The rapid strides in the telecom sector havebeen facilitated by liberal policies of the Government that provide easy marketaccess for telecom equipment and a fair regulatory framework for offering telecomservices to the Indian consumers at affordable prices. The Government has takenfollowing main initiatives for the growth of the Telecom Sector:

All telecom services have been opened up for free competition forunprecedented growth.

Foreign Direct Investment (FDI) in Basic and cellular, Unified AccessServices, National/ International Long Distance, V-Sat, Public Mobile RadioTrunk Services (PMRTS), Global Mobile Personal CommunicationsServices (GMPCS) and other value added telecom services is permitted upto 74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertiblepreference shares, and proportionate foreign equity in Indian promoters/Investing Company).

Foreign Direct Investment (FDI) in Manufacturing of Telecom Equipmentsis permitted up to 100% under automatic route.

217 ITA-I items are at zero Customs Duty. Specified capital goods and allinputs required to manufacture ITA-I, items are at zero Customs Duty.

Availability of low cost mobile handsets.

The international Long Distance Services (ILDS) opened with effect fromApril 2002.

Calling Party Pays (CPP) regime was implemented with effect from 1st May2003.

Guidelines for Unified Access Service License regime were issued in

November 2003, 27 licenses out of 31 Basic Service Licenses wereconverted to Unified Access Service Licenses.

In April 2004, license fee for Unified Access Service Providers (UAS) wasreduced by 2%.

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License fee for infrastructure Provider-II reduced from 15% to 6% of theAdjusted Gross Revenue in June 2004.

Entry fee for NLD licenses was reduced to Rs. 2.5 Crore from Rs. 100Crore. Entry fee for ILD reduced to Rs. 2.5 Crore from Rs. 25 Crore.

Lease line charges have been reduced to make the bandwidth available at

competitive prices to facilitate growth in IT enabled services. One India plan i.e. single tariff of Re. 1/- per minute to anywhere in India

was introduced from 1st March 2006 by the Public Sector Undertakings.This tariff was emulated by most of the private service providers also. Thisscheme has led to death of distance in telecommunication and is going tobe instrumental in promoting National Integration further.

The robust telecom network has also facilitated the expansion of BPOindustry that is having 500,000 employees now and adding 400 employeesper day.

Annual license fee for National Long Distance (NLD), International Long

Distance (ILD), Infrastructure Provider-II, VSAT commercial and InternetService Provider (ISP) with internet telephony (restricted) licenses wasreduced to 6% of Adjusted Gross Revenue (AGR) w.e.f. Jan 2006.

The Governments policy is neutral on use of technology by telecomservice providers subject to availability of scarce resources such asspectrum etc.

Licence Fees 6-10% of Adjusted Gross Revenue (AGR)

The Telecom Regulatory Authority of India(TRAI) was set up in March1997 as a regulator for Telecom sector. The TRAIs functions arerecommendatory, regulatory and tariff setting in telecom sector.

Telecom Disputes Settlement and Appellate Tribunal (TDSAT) came into

existence in May, 2000. TDSAT has been empowered to adjudicateany dispute - between a licensor and a licensee between two or more service providers between a service provider and a group of consumers hear and dispose of appeal against any direction, decision or order of

TRAI

Tariffs for telecommunication services have evolved from a regimewhere tariffs were determined by Telecom Regulatory Authority of India toa regime where tariffs are largely under forbearance. TRAI intervenes by

regulating the tariffs for only those services, the markets of which are notcompetitive.

Universal Service Obligation Fund (USOF) exclusively for meeting theUniversal Service Obligationwas established in April2002. The UniversalService Levy is presently 5% of the Adjusted Gross Revenue (AGR) of alltelecom service providers except the pure value added service providerslike Internet, Voice Mail, E-Mail service providers etc. Indian Telegraph Acthas been amended in October2006 to provide support for all telegraphservices including mobile and broadband to bridge the digital divide.

National Long DistanceThere is now no limit on the number of service providers in this sector. Thelicence for National Long Distance service is issued for a period of 20 years,extendable by 10 years at one time. The annual licence fee including USO

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contribution is @ 6% of the Adjusted Gross Revenue and the fee /royalty for theuse of spectrum and possession of wireless telegraphy equipment are payableseparately. At present 16 NLD (14 Private and 2 Public Sector Undertaking)service providers are there.

International Long DistanceIn the field of international telephony, India had agreed under the GATS to reviewits opening up in 2004. However, open competition in this sector was allowed witheffect from April 2002 itself. There is now no limit on the number of serviceproviders in this sector. The licence for ILD service is issued initially for a period of20 years, with automatic extension of the licence by a period of 5 years. Theannual licence fee including USO contribution is @ 6% of the Adjusted GrossRevenue and the fee/royalty for the use of spectrum and possession of wirelesstelegraphy equipment are payable separately. At present 10 ILD service providers(9 Private and 1 Public Sector Undertaking) are there. As per current roll outobligations under ILD license, the licensee undertakes to fulfill the minimum

network roll out obligations for installing at least one Gateway Switch havingappropriate interconnections with atleast one National Long Distance servicelicensee. There is no bar in setting up of Point of Presence (PoP) or Gatewayswitches in remaining location of Level I TAXs. Preferably, these PoPs shouldconform to Open Network Architecture (ONA) i.e. should be based oninternationally accepted standards to ensure seamless working with otherCarriers Network.

Unified Access ServicesUnified access license regime was introduced in November2003. Unified Access

Services operators are free to provide, within their area of operation, serviceswhich cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensees network by deploying circuit and/or packetswitched equipment. Further, the Licensee can also provide Voice Mail, Audiotexservices, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) asValue Added Services over its network to the subscribers falling within its servicearea on non-discriminatory basis. The country is divided into 23 ServiceAreas consisting of 19 Telecom Circle and 4 Metro Service Areas for providingUnified Access Services (UAS).The licence for Unified Access Services is issuedon non-exclusive basis, for a period of 20 years, extendable by 10 years at onetime within the territorial jurisdiction of a licensed Service Area. The licence Fee is

10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A,Category `B and Category `C Service Areas, respectively. Revenue and thefee/royalty for the use of spectrum and possession of wireless telegraphyequipment are payable separately. The frequencies are assigned by WPC wing ofthe Department of Telecommunications from the frequency bands earmarked inthe applicable National Frequency Allocation Plan and in coordination with varioususerssubject to availability of scarce spectrum. At present 3 to 6 service providers(2-5 Private and 1 Public Sector Undertaking) are there in most of the serviceareas.

Internet and Internet Telephony Service Providers

Internet services were opened to private sector in November1998 without internettelephony. The token licence fee is Re.1 for Internet Services. The Internet withTelephony (computer to computer, SIP to SIP and computer to out side India) was

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opened in April 2002. The licence fee is 6% of AGR for Internet Telephony. Thereare 385 internet service providers and 125 internet telephony service providers.

Growth of subscribers

The telecom sector has shown robust growth during the past few years. It hasalso undergone a substantial change in terms of mobile versus fixed phones andpublic versus private participation. The following table shows the growth oftelecom sector since 2002:

Subscribers base (in Million)

March02 March03 March04 March05 March06 Dec.06

Fixed lines 38.29 41.33 40.92 41.42 40.23 40.32

CDMA 0.25 0.61 9.46 15.92 32.67 44.17

GSM 6.43 12.69 26.15 41.03 69.19 105.42

Wireless(CDMA&GSM)

6.68 13.30 35.61 56.95 101.86 149.59

Gross Total 44.97 54.63 76.53 98.37 142.09 189.91

Internetsubscribers

3.23 3.64 4.55 5.55 7.05 8.6

Broadbandsubscribers

- - - 0.18 1.32 2.03

Thus, the number of telephones has increased from 44.97 million as on 31.03.02to 142.09 million as on 31.03.06 and 190 million till December 2006 and 203million by Feb. 2007. Wireless subscribers increased from 6.68 million as on31.03.02 to 101.86 as on 31.03.06 and 149.6 million as on 31.12.06.

With the opening of telecom sector to the private operators, their share in thenumber of subscribers has been steadily increasing which is evident from thefollowing table:

Number of Telephones (in million)

Year

(March)

PSU

Fixed

PSU

Wireless

Total

PSU

Private

Fixed

Private

Wireless

Total

Private

Grand

Total

%age

shareof

PSUs

2002 37.70 0.47 38.17 0.59 6.21 6.80 44.97 84.88

2003 40.02 3.16 43.18 1.31 10.14 11.45 54.63 79.04

2004 39.77 6.71 46.48 1.15 28.90 30.05 76.53 60.73

2005 39.87 12.21 42.08 1.55 44.74 46.29 88.37 47.62

2006 39.25 21.83 61.08 0.98 80.03 81.01 142.09 42.99

Dec.,06 37.27 29.20 66.47 3.05 120.39 123.44 189.91 35.0

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The share of private sector in the number of telephones has increased from15.12% (6.80 million telephones) in March 2002 to 65.0% (123.44 milliontelephones) in December 2006.

The preference for use of wireless phones has also been predominant in thesector. This is confirmed from the rising share of wireless phones, whichincreased from 14.85% (6.68 million telephones) in March 2002 to 78.8% (149.59million telephones) in December 2006. At present, the mobile subscriberadditions in India is more than 6 million mark, the highest in the world.Trend in Tele-density

Tele density in the country has steadily increased from 4.29% as on 31.3.02 to16.83% as on 31.12.2006. The rural telephony has not kept pace with theimpressive growth in urban connectivity.

Tariff Changes

The Indian Telecom Sector has witnessed major changes in the tariff structure.The Telecommunication Tariff Order (TTO) 1999, issued by regulator (TRAI), hadbegun the process of tariff balancing with a view to bring them closer to the costs.This supplemented by Calling Party Pay (CPP), reduction in ADC and theincreased competition, has resulted in a dramatic fall in the tariffs.

The peak National Long Distance tariff for above 1000 Kms. in 2000has come down from US$ 0.67 per minute to US$ 0.02 per minute in2006.

The International Long Distance tariff from US$ 1.36 per minute in 2000to US$ 0.16 per minute in 2004 for USA, Canada & UK.

The mobile tariff for local calls has reduced from US$0.36 per minute in1999 to US$ 0.009 - US$ 0.04 per minute in 2006.

The Average Revenue Per User of mobile is between US$ 5.06 - US$7.82 per month

Manufacture of Telecom EquipmentRising demand for a wide range of telecom equipment, particularly in the area ofmobile telecommunication, has provided excellent opportunities to domestic andforeign investors in the manufacturing sector. The last two years saw manyrenowned telecom companies setting up their manufacturing base in India.Ericsson has set up GSM Radio Base Station Manufacturing facility in Jaipur.

Elcoteq has set up handset manufacturing facilities in Bangalore. Nokia set up itsmanufacturing plant in Chennai. LG Electronics set up plant of manufacturingGSM mobile phones near Pune. Ericsson recently launched their R&D Centre inChennai. Flextronics has set up an SEZ in Chennai. Motorola is likely to go intoproduction in the first quarter of 2007. Other major companies like Foxconn,Aspcom, Solectron etc have decided to set up their manufacturing bases in India.The aim is for US$ 2 billion FDI in manufacturing, doubling the production in 2007and quadrupling it in 2010. Target has been set for achieving exports of 6 timesfrom present level of 0.5 billion in 2010.

The Government has already set up Telecom Equipment and Services Export

Promotion Forum and Telecom Testing and Security Certification Centre (TETC).A large number of companies like Alcatel, Cisco have also shown interest insetting up their R&D centers in India. With above initiatives India is expected tobe a manufacturing hub for the telecom equipment.

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Indian Telecommunications