31st July, 1995, the day when India’s first cellular call was made 1, 25 years henceforth and

India
has one highest cellphone users in world.
After restructuring DoT in 19912 and declaring telecommunications as essential services under
National Telecom Policy(NTP)1994,the parliament passed further liberalization in 1997 3. GOI
recognized importance of privatization in increasing teledensity and started privatization in a
phased manner. After a bidding process, licenses were awarded to 8 operators in the four
metros, and 14 operators in 18 state circles. The government only allowed one or two private
players in each circle along with a government player. The idea was to prevent one company
from becoming too big and establishing a monopoly 4, however, in hindsight there were certain
flaws outlined in this process:

 The rest of the world that followed one country one network; India was segregated
based on circles
 Private players targeted premium consumers and pager owners and positioned
themselves as a complement to pager. The total number of pager owners were around
10 lakhs only5
BSNL (Dolphin, Garuda) still a market leader in the dictated prices and others were forced to
follow the suit. Furthermore, private players with foreign investors were handicapped by
policies6 and despite being forced to keep call rates high still reporting losses and low
penetration due to the following:

 Lower Economies of Scale and high barriers to entry - Tower construction was
expensive7 and there was restriction on number of towers in an area. Furthermore, only
passive tower sharing was the industry norm and that too was very expensive.
 Competition – State players did not need to manage costs and had easier land
acquisition process. On the other hand, private players due to foreign investments could
only lease land, which would further drive up cost 8. Thus, private players had to be very
judicious in selecting a tower location.
 High Spectrum Costs – Despite GOI policies for a level playing field all the private
players were in red primarily due to high spectrum costs, while public companies were
immune to such costs.
 Availability of Complementary Products – A handset in the late 1990’s would cost
between 25k and 40k. Indexed at current rates, this would be equivalent to 1 lakh. 9 This
further dented growth and establishing economies of scale.

1
https://nextbigwhat.com/cellular-mobility-in-india-15-years/
2
https://shodhganga.inflibnet.ac.in/bitstream/10603/96536/16/16_chapter-9.pdf
3
https://dot.gov.in/new-telecom-policy-1999
4
https://www.indiatoday.in/magazine/cover-story/story/20091228-1995-telecom-licensing-begins-the-call-of-
change-741625-2009-12-24
5
https://timesofindia.indiatimes.com/india/from-rs-24-for-a-call-to-the-lowest-rates-in-the-world-the-25-year-
journey-of-mobile-phones/articleshow/77328144.cms
6
Where any entity backed by a foreign investor had restrictions on land acquisition
7
(approximately 5-6 lakhs/ tower construction and 1/1.5 lakh/ monthly maintenance)
8
(rental costs were 3-4 lakhs/month in a high density areas)
9
https://www.indiatoday.in/magazine/cover-story/story/20091228-1995-telecom-licensing-begins-the-call-of-
change-741625-2009-12-24
  Indirect Competition – Indians still considered mobile ownership a premium product and
relied more on pagers and PCOs.
Overall, high barriers to entry, higher fixed and marginal costs, lack of availability of cheap
complements and availability of cheaper substitutes kept the penetration low and failed to allow
private players to achieve lower economies of scale. It was only under the NDA government that
introduced further liberalization in 1999 through TRAI – the salient features being:

 Easier access to infrastructure sharing

 Higher FDI’s share
 Revenue share in spectrum fee rather than fixed component
Additionally, the following further enhance telecom growth and lowered call rates:

 Land reforms
 Establishment of Indus and Infratel – Outsourced infrastructure that consolidated and
reduced costs significantly.
The GOI overlooked the merger despite apprehensions from regulatory authorities on collusion
since it helped GOI reach its objective of enhancing tele-density.