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Giving telecom the right policy push
Basic lessons from China

Krishnan Thiagarajan

Policy-makers need to correct the skew between basic and mobile telephony and encourage greater competition if the basic-mobile gap is not to widen.

THE Communications Minister, Mr Dayanidhi Maran's vision of ringing in `OneIndia' rates for local and long-distance calls and treating the entire country as a single market has set the telecom sector abuzz with expectation.

Recognising the need to put the telecom sector on a higher growth trajectory and pave the way for new technologies to flourish, the Ministry is also planning to come out with a New Telecom Policy, 2005, replacing that of 1999. And rightly so.

Consider the government's preliminary target of quadrupling the mobile subscriber base to 200 million by 2007 from the present 55 million. Unless the government permits newer technologies such as Voice over Internet Protocol (VoIP) and WiMAX and favours a liberal market regime, such as direct inter-circle connectivity among mobile operators, this target may be quite difficult to achieve.

A study paper released last week by the Telecom Regulatory Authority of India on `Financial Analysis of Telecom Industry of China and India' indicates fascinating trends for comparison. Indian policymakers can draw key lessons from the growth in the Chinese telecom market. These include:

Focus on basic services: The total Chinese telecom subscriber base of 675 million as of March 2005 is almost equally divided between basic and mobile services, at 350 million and 325 million respectively. And between 1997 and 2005, the basic services subscriber base has consistently clocked double-digit growth.

In India, basic services have been growing in single digits over the past three years, after clocking double-digit growth in the late 1990s. The basic services subscriber base has stagnated in the 40-45 million range in the past three years. Two factors probably account for this slow growth in the Indian markets. One, the excessive focus on growing the mobile markets, to the detriment of basic services. As the study points out, the higher capacity utilisation by the Chinese basic service providers has helped them peg their capital employed per subscriber in China at $169 — less than half that of Indian basic service providers at $362. It appears that letting the Indian private sector players renege on their rural rollout obligations has only hit the growth of the sector.

Two, the late launch of the broadband over DSL (digital subscriber line — the copper lines of basic service provider) by the state-owned Bharat Sanchar Nigam Ltd (BSNL) and the absence of competition within the broadband segment appear to account for this sluggish pace of growth in the basic services segment.

Besides this, a healthy dose of competition, leading to a drop in basic service tariffs, can also stimulate the growth of this segment. While the ARPU (average revenue per user) in the Indian and Chinese markets is comparable at about $9 in the mobile sector, the ARPUs in the basic sector in India, at $15, is significantly higher than China's $9.14.

Unless Indian policy-makers address these two issues, this distortion in growth between basic and mobile services will only worsen in years to come.

Mobile on a different footing: Examining the growth of the Chinese mobile market vis-à-vis India shows that if the latter has to sustain the scorching growth pace and leap to the next phase, it will have to pave the way for a more liberal and competitive regime in the following areas:

Regulatory levies: The regulatory levies, such as licence fees and spectrum charges, in China are a mere 0.5 per cent of revenues compared to an average of 8-12 per cent for Indian companies. The high regulatory levies is one the reasons for the operating expenses per subscriber of mobile companies in India, at $4.18, being substantially higher than the $2.41 in China.

Though the telecom regulator has recommended an across-the-board reduction of the annual licence fee to 6 per cent and a reduction in spectrum charges, the government is yet to take action on these proposals.

Flexibility in tariff plans: Despite consolidation in the mobile sector, the key mandate for policy-makers will be to keep the competition as fierce as in the past. The mobile sector is just beginning to witness the first set of bundled offer packages from Tata Indicom, Reliance Infocomm and Airtel, that include subsidised handsets, mobile connection and free talk time.

As this trend has worked well in the developed countries such as the US and Europe, in India too, this innovation is bound to find favour among mobile subscribers. If the `OneIndia' rate comes through for local and long-distance calls, then the bundled packages can get even more attractive for consumers.

Infrastructure sharing: The key thrust to the telecom sector will happen when the Indian government takes the bold move of allowing direct inter-circle connectivity between mobile operators. Through direct inter-circle connectivity, operators with a national footprint or within adjacent circles will be able to handover calls among themselves, bypassing the national long-distance operators altogether.

If the `OneIndia' rate comes through for local and long distance calls, four of the top five operators in the country who already have a national footprint will be able to come up with aggressive tariff plans that bundle local and national long-distance minutes.

If in the larger public interest, infrastructure sharing such as cell-site sharing or roaming is made mandatory on commercial terms, the mobile growth may accelerate by leaps and bounds. In a bid to bring down the overall cost of operations, private mobile operators such as Airtel, Hutch, Idea and BPL are resorting to sharing of existing mobile cell sites in a big way across the country.

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