“TELECOM SECTOR IN INDIA - CHALLENGES AND

OPPORTUNITIES”

External Guide
Mr. Sanjiv Jain
Director of Galaxy Rent –A-Tel Pvt Ltd.

Submitted To
Sumanta Sharma

Submitted By:
Prashant Agarwal
FW/2004-06/PGP
Marketing & H.R.
IIPM, New Delhi
Thesis ID: DEL/MKT/FW06703

Date: October 2006

 ACKNOWLEDGEMENT
It is well-established fact that behind every achievement lies an
unfathomable sea of gratitude to those who have extended their support and without
whom the project would never have come into existence, without their help the
present work would never have assumed its forms and completion.
 TABLE OF CONTENTS

Page
Topics

SYNOPSIS

Chapter –1
INTRODUCTION
OBJECTIVE

Chapter –2
RESEARCH METHODOLOGY

Chapter –3
CCRITICAL REVIEW OF LITERATURE

Chapter –4
DATA ANALYSIS AND PRESENTATION
RECOMMENDED MARKETING STRATEGIES

Chapter –5
CONCLUSION
RECOMMENDATIONS

REFERENCES

ANNEXURE
LETTER FOR APPROVAL
Dear Prashant,
I have received your synopsis as well as the confirmation that Mr.Sanjiv
Jain would guide you through the thesis.This letter is a formal approval
to the topic proposed by you “Telecom sector in India - Challenges and
Opportunities.”
Please go ahead with the thesis. Make it a comprehensive thesis by
using empirical data as the basis of the research.
Remember to register your topic at the Library (B27) either by going
there or by forwarding my mail to anuj.kumar@iipm.edu and send me
the id number for my records. Furthermore, you are required to send me
a total of at least 6 thesis guidance response sheets (I will be mailing the
format once I receive your id number) before the coalescence of the
thesis.

Regards,
Sumanta Sharma
Associate Dean (Department of Projects)
The Indian Institute of Planning & Management
Satbari Campus
New Delhi – 110074
Phone: 011 26655080
Dear Prashant
pls note down ur thesis id no-DEL/MKT/FW06703,and mail back to sumanta sir for his reference.
Anuj Kumar
(Librarian)
 SYNOPSIS

Details of the Student:

Name: Prashant Agarwal

Batch: FW/2004-06/PGP
Specialization: Marketing & H.R.
Phone No: 9891073410, 9818666438
Email: prashant_agarwal82@rediffmail.com

Desired Area of Research:

Telecom Sector.

Title of the thesis:

“Telecom sector in India - Challenges and Opportunities

Problem Definition /Hypothesis:

• Internet services of VSNL and MTNL..

• ISP policy.

• The telecom sector suffers from poor technical performance.

• Widespread equipment outage, low productivity, chronic unmet demand, and

rampant corruption.

Organization Identity for the Study:

Airtel, Hutch, Idea, Tata Indi-Com, Reliance and MTNL.

Literature relating to the Problem:

The secondary data will be collected from news paper, journals, telecom & business
magazines and internet.
The primary data will be collected from structured questionnaires which are required
to be filled up by the persons who are facilitating the services of this industry.

Objective of Thesis:

To understand what are the opportunities and scope of telecom sector. Moreover
what they are doing in order to serve their customers, clients as well as future
prospects in better and in most effective manner, which in turn help them in
increasing their market share, and profitability by providing value for money &
desired quality of service to their customers. Moreover projection of customer’s
need well in advance and using proper medium to communicate & educate their
customers to make maximum use of available services and offers..
Studying how telecom sector is generating revenue by providing various value
added service such as GPRS, Caller tunes, ring tones, wallpapers, and other value
added services. To study and review the various marketing strategies of various
players present in the telecom industry. Also to compare and contrast the profiles of
companies and market segment captured by them.

Scope of your thesis work:

The reason for selecting the topic is that I am working in the telecom sector &
moreover this sector is one of the fastest growing sectors of service industry in
India. This sector is growing very fast as compared to the other sectors, & at the
same time lot of opportunities, and expectation came from the customers to provide
excellent service in less cost.

Threats:

Increasing competition and decreased profit margins due to drastic reduction in the
call rates.

Information Source:

I will collect primary and secondary data for the thesis. I will collect primary data by
visiting various reputed organizations like Airtel, Hutch, Reliance, etc.

Research Methodology:

Qualitative Research Design.

Primary Sources:

• Questionnaires.

• In-depth Interviews of cellular service providers.

Secondary Sources:

• News papers.

• Journals.

• Articles.

• Telecom & business magazines.

• Internet.

Details of the External Guide:

Name of the concerned person: Mr. Sanjiv Jain

Qualification: Post Graduate Diploma in Marketing & Brand management.

Designation: Director of Galaxy Rent –A-Tel Pvt Ltd.

 CHAPTER-1

INTRODUCTION TO THE INDIAN TELECOM SECTOR

1.1 History

The British government introduced telecommunications services in India in 1851

near Calcutta by as a means of providing defense, law and order, general
administration, and revenue collection. Since that time, telecommunications has
played a critical role in shaping India’s march toward progress, and the importance it
holds for the future of India cannot be overstated. Telecommunications in India were
introduced only 5 years after Alexander Graham Bell invented telephones in 1881;
British firms introduced POTS (plain old telephone services) into the colony. By the
time India was independent in 1947, the country had 321 switching centers
(telephone exchanges) in urban areas and a tele-density of 0.25 phones per thousand
people. During the state-led planned economic policies till the mid 1980’s, the
government controlled all aspects of the telecommunications sector through the
ministry of Posts and Telegraph as a natural monopoly.. After the Public Accounts
Committee of the Lok Sabha recommended a complete overhaul of
telecommunications, “which was working in a most unsatisfactory manner in 1985,
a long sought re-organization was undertaken in 1986 to split the public postal and
telecom operations into separate departments.

Until 1985 India's telecom sector was a typical PTT model. The Ministry of Posts
and Telegraphs and its department controlled the posts and telecom services and
infrastructure. The sector was mainly governed by the Indian Telegraph Act of 1885.
In 1985 postal services were separated from telecom, and the Ministry of
Communications and its Department of Telecommunications (DOT) were assigned
powers including manufacturing equipment, policymaking, providing services and
creating infrastructure.. The government did not give priority to the development of
this sector. The national five-year Plans show that until 1985, the government's
investment in the telecom sector was less than three per cent; it was only from 1992
onwards that government spending increased to 11.9 per cent and more. It was only
in the early eighties, with technological advancements and international
developments, that the government took initiatives to move from the closed-
economy ideology towards more market-oriented reforms. The information
technology policy focused on the export of software and computers. To achieve this
goal, tariffs were lowered on imported goods and direct access to imported
equipment and technologies was allowed.

However, in the case of telecommunications, the government's approach was half-

hearted. The government was reluctant to break the dominance of DOT or let go of
its own powers. In 1984, overcoming resistance from DOT, the government was
successful in allowing private investment in the manufacture of customer premise
equipment. The government franchised public call offices and also set up two new
companies. Mahanagar Telephone Nigam Limited (MTNL), a mostly government
owned company which offered basic services in Delhi and Bombay, and Videsh
Sanchar Nigam Limited (VSNL), which offered international long-distance services.
Although these initiatives proved to be positive, they could not bridge the
overwhelming demand for infrastructure and services. Advancement of
technologies, international agencies such as the World Bank and trade blocks
(OECD), drew attention of the Indian government to the urgent need to develop the
telecom sector, as a means of overall economic development. The government
responded by constituting independent telecom reconstruction committees (for
instance, Artherya committee) for taking advice.

1.2 Recent Developments

India's 21.59 million-line telephone network is one of the largest in the world and
the 3rd largest among emerging economies (after China and Republic of Korea).
Given the low telephone penetration rate - 2.2 per 100 people of population, which
is much below the global average, India offers vast scope for growth. It is therefore
not surprising that India has one of the fastest growing telecommunication systems
in the world with system size (total connections) growing at an average of more than
20 percent over the last 4 years.

The Indian economy is currently undergoing a structural shift. The production of

merchandise such as agriculture and manufactured products are contributing a
smaller share of economic output, while contribution of the service sector is
growing. The service sector in India today accounts for more than 48% of economic
activity and is likely to grow at the rate of 8% per annum. A majority of service
workers are engaged in the creation, processing and distribution of information. The
telecom sector therefore assumes major importance as an enabling infrastructure.
Accordingly, it is vital for the country that there be a comprehensive and forward
looking telecommunications policy which creates a suitable framework for
development of this service industry. The availability of infrastructure for
electronically transferring and accessing information is perceived as critical for
hastening the realization of economic, social and cultural benefits as well as for
conferring competitive advantage.

The telecom sector in India has witnessed rapid changes in the last five years. There
have been far reaching developments in Information Technology (IT), consumer
electronics and media industries across the globe. Convergence of both markets and
technologies is a reality that is forcing realignment of the industry. At one level,
telephone and broadcasting industries are entering each other's markets, while at
another level, technology is blurring the difference between different conduit
systems such as wireline and wireless. As in the case of most countries, separate
licenses have been issued in India for Basic, Cellular, Internet Service Providers,
satellite and cable TV operators, each with a distinct industry structure, terms of
entry, and varying requirement to create infrastructure. However, this convergence
that now allows operators to use their facilities to deliver some services reserved for
other operators, necessitated a re-look into the existing policy framework.

For the country to grow and create a place for itself in the international arena, it was
felt that the infrastructure needs to be built and maintained, wherein the role of
telecom was indisputably very crucial. The government in this direction announced
the National Telecom Policy in 1994 (NTP 94). This provided for opening up the
telecom sector to competition in Basic Services as well as Value Added Services
like Cellular Mobile Services, Radio Paging, VSAT Services etc. It also set target
for provision of telephone on demand and opening up of long distance telephony.
This was followed by a New Telecom Policy declaration in March 1999 (NTP 99),
to remove some of the bottlenecks and move the liberalization process forward.

In Y2K, India has a population of over a billion, but only 27 million telephones. This
translates into a tele -density of 2.7 phones per 100 people. By 2005, the government
according to its National Telecom Policy 1999 (NTP99) wants to increase this tele -
density to 7 and double it to 15 by 2010. Currently just over 50 per cent or 374,695
villages out of a total 600,000 villages are connected to the world by the telephone. The
government wants to connect the rest by 2002 and increase rural tele -density eight-fold
by 2010, from the current 0.5 to 4 phones per 100 people. To this end, the Indian
government has given up its state monopoly and introduced competition to spur the
growth rate of telecom in all areas. Foreign companies have also been encouraged to
invest in the telecom sector and ownership guidelines have been liberalized. While
the ownership has been restricted to 49 per cent in the telecom services like basic
telephony, cellular, paging and Internet service providers (though companies like
Orange, the cellular operator in Mumbai have been able to get around this restriction
with ease: foreign companies are allowed to own up to 74 per cent in
communication satellite companies and wholly own manufacturing operations. The
initiatives form part of the economic liberalization policies followed by the
government since 1991 when a chronic shortage of capital, a ballooning fiscal deficit
and a precarious position of external reserves led to the start of India’s economic
reforms. The expectation was that new influx of private capital along with gains of
efficiency from competition would help accelerate economic growth. But results so far,
at best have been mixed. After the initial euphoria of liberalization, the Indian economy
slipped into recession by 1995. Annual GDP growth rates fell as the government, by and
large, withdrew as an investor in the economy while the private sector failed to step into
fill the investment gap. It has only managed to recover since 1998 on the back of strong
agricultural growth and a pick up in industrial demand subsequently.

1.3 Existing Structure of Telecom Sector

Telecommunications was not perceived as one of the key infrastructures for rapid
economic development during the formative years of the Indian economy. The low
levels of investment in this sector have affected the quality, quantity and range of
services provided. In 1998, Indian Telephone density per 100 persons was 2.2 while
the world average was 14.26. For the provision of basic services, the entire country
is divided into 21 telecom circles, excluding Delhi and Mumbai. Department of
Telecom Service (DTS) provides basic services in the 21 telecom circles, while
Mahanagar Telephone Nigam Limited (MTNL) serves Delhi and Mumbai. Six
private licenses have been issued for the provision of basic services, out of which
only three have commenced services at present.

Private participation in the cellular mobile market, on the other hand, has been
comparatively more successful. Eight cellular licenses, two in each of the metros
were awarded in October 1994. Subsequently bidding resulted in the award of
licenses in 18 Circles. As many as 137 licenses (of which 93 licenses were actually
operational by December 98) have been issued for providing radio paging services
for which bids were invited in two stages, first for 27 large cities (which had a
population of over one million) and in the second round for 19 Telecom Circles. The
number of licensees selected for each area range from two to four.

1.4 Indian Cellular Market Overview

Indian cellular market is poised to grow at CAGR (compounded annual growth rate)
46 percent for next five years, the best in Asia-Pacific region and subscriber base
will touch 44 million by 2006.

Cellular Telephony will be frontrunner in the growth of Indian telecom sector,

which will be amongst those countries witnessing fastest growth till 2006. Telecom
services worldwide would witness growth of over 5 percent in 2003.
Gartner predicted. Gartner said the growth rate would be even ahead of China in
percentage terms. The subscriber base currently pegged at 8 million will grow to 44
million by 2006. There will be entry of new players, which will not only lower the
price points but will also help broaden the market with innovative product offerings
and solutions. Basic services will continue to play a key role in increasing tele
density. Revenues from fixed telecommunication services will grow at a CAGR of
15 percent in the next 5 years from current $ 6.9 billion to $ 14 billion.

Cellular Operators Association of India (COAI) The Cellular Operators Association

of India (COAI) was instituted in 1995 as a registered, non-profit, non-governmental
society dedicated to the advancement of communication - in particular of modern
communication through Cellular Mobile Telephone Services. It seeks to establish
and sustain a world-class cellular infrastructure and deliver the benefits of affordable
mobile communication services to the people of India. Indian cellular subscriber
base has jumped 9-fold in four years. But they are still way behind in terms of
minutes of usage. Average market figures suggest that while the number of cellular
subscribers has increased 1817 percent between April '98-02, the minutes of usage
for post-paid cell users has risen by around 331 percent and that of pre-paid has
increased 220 percent. These are substantiated by Telecom regulatory Authority of
India (TRAI) figures, which suggest the growth of minutes of usage for post-paid
cellular users has gone up from 119 minutes per month per subscriber (MMS) in
April '98 to 394 MMS in April '02. A rise of about 331 percent. According to
Cellular Operators Association of India (COAI), the total number of cellular
subscribers has grown from 9, 13,869 in April '98 to 81, 70,575 in August '02, a
whopping 900 percent rise.

If current trend is any indication, penetration numbers may portray wireless

telephony as a pygmy compared to wireline (or fixed line) telephony, but looking at
incremental figures one gets the real picture of what's going on in the local
telephone market. India is fast going wireless. Wireless telephony, mobile and
limited mobility, is snatching a rapidly increasing share of incremental telephone
connections in India. And the financial year ending March '03 may well be a
watershed for wireless telephony. According to market sources, numbers indicate
that in '02-03, wireless may garner over 50% share of new connections.

So far, wireline has been much ahead of wireless in both new connections and, of
course, penetration. In the year gone by, year ending March '02, wireless got just
about 34% of new connections. Wireless penetration was just 15% of total phone
connections in India. A year before that, as on end-March '01, wireless penetration
was just under 10%.

The industry is considered as having the highest potential for investment in India.
The growth in demand for telecom services in India is not limited to basic telephone
services. India has witnessed rapid growth in cellular, radio paging, value-added
services, internet and global mobile communication by satellite (GMPCS) services.
This is expected to soar in the next few years.

Recognizing that the telecom sector is one of the prime movers of the economy, the
Government's regulatory and policy initiatives have also been directed towards
establishing a world class telecommunications infrastructure in India.
 CHAPTER-2
LIBERALIZATION OF THE TELECOM SECTOR
2.1 Introduction

Like many other sectors, the telecom sector too continued to enjoy government
monopoly so long as the basic telephone services were under the control of the
government. It was the National Telecom Policy of 1994 that paved the way for
private-sector participation and funding to achieve the aim of universal coverage of
telephone services at affordable prices. Since then, a number of private companies
have been given the license to provide various value-added services in the country.
The TRAI (Telecom Regulatory Authority of India) was established to act as an
independent regulatory body to protect and promote the interests of consumers and
to ensure fair competition. The government also accorded the status of an
infrastructure sector to the telecom industry, making it eligible for all fiscal benefits
that are enjoyed by other infrastructure sectors. There are two major government-
controlled companies in the telecom business, namely MTNL (Mahanagar
Telephone Nigam Limited) and VSNL (Videsh Sanchar Nigam Ltd). The MTNL
provides basic telecom services in Mumbai and Delhi. Services in the rest of country
are provided by the DoT/DTS Department of Telecommunications / Department of
Telecom Services). The VSNL enjoys sole control over international telephony as
all incoming and outgoing international calls are routed through its gateways. The
VSNL also provides such value-added services as gateway packet data transmission,
electronic data interchange, online data search, Internet, Inmarsat (International
Maritime Satellite) mobile services, satellite uplinking, private leased channels, and
video conferencing. Because of its hold over international telephony, the tariff for
incoming and outgoing calls has remained high in the absence of any competition.
Contrary to these, international call rates are declining globally with rising tariff
volumes, increased capacities, and improved transmission technology. The telecom
sector is witnessing a breakdown of most of the monopolies in favor of market-
controlled players, as huge investments are needed to construct a backbone access
network. The VSNL, according to an earlier plan, was to remain insulated from
competition until 2004. The government’s decision to allow many foreign or
domestic companies would only result in lowering the international call rates due to
increased competition in the satellite gateways business. It is difficult to envisage
the impact of the government’s decision on consumers in the short run. But what
would interest the common man would be improved services in basic telephony by
the introduction of competition, which ensures the fulfilment of universal service
obligation to one and all.

After the 1991 Economic Policy made a shift from a closed economic model to a
market-oriented model, private sector was invited to participate in reforming India's
telecom sector. However, the government took a half-hearted approach in
overhauling the legal and regulatory regime. Competition was allowed in cellular
and basic services. The Ministry of Communications and the incumbent Department
of Telecommunications (DOT) issued licenses to their competitors. Lack of
transparency in issuing licenses and unrealistic license fees derailed the reform
process and led to wasteful litigation. The courts did not support the regulator and
virtually made its role redundant. After the elections in 1999, the telecom sector
was the key sector in which major decisions were made. The DOT's service arm
was corporatized and the government decided to privatize its international long-
distance carrier, Videsh Sanchar Nigam Ltd. (VSNL), before 2002. It decided to
introduce more competition in cellular, basic and domestic long-distance services.

2.2 Private Sector Participation in Mobile Telecommunication

In 1992, competition was allowed in cellular mobile services. However, the

government failed to overhaul the legal and regulatory regime to suit the
competition process, and the antique 1885 Act was left in place to govern the new
competitive era. The Ministry of Communications and the DOT became responsible
for issuing and regulating licenses to new entrants in Delhi, Mumbai, Chennai and
Calcutta. Two private operators were allowed to compete in these four major cities.
Although the liberalization process had a rough start, it was clear that the Indian
market was huge and therefore had great potential to draw private investment. The
DOT, in May 1993, asked the leading Indian financial institution, Industrial Credit
and Investment Corporation of India (ICICI) to prepare a report on the development
of regulatory institution and to recommend terms and conditions for the private
sector entry in basic services.

“ In an emerging economy, great amounts of discretion lie with the sector

managers of the government, which, in India, lies with the Ministry of
Communications [in practice, coextensive with the DOT]. If such discretion is
unlimited or unrestrained and vests in a single person or office at any time, it is
unlikely to command the level of comfort which is mandatory for attracting
substantial private investment. The discretion should be so hedged that the
decision-making process becomes tolerably predictable and reliable. and
transparent. The investor would rather go by the written law. than be guided by
platitudes and pronouncements of the decision-maker. Thus, until the law is
formally changed. the value of the investment opportunity will be dismissed.”

Subsequent to the announcement of the policies, auctions were held for cellular
licenses in 20 states in December 1994 and for basic services in January 1995 .The
first round of the basic service (wire line) auction attracted 80 bids for 40 licenses
from 16 companies. In 7 of the circles (Delhi, Haryana, Karnataka) Maharashtra,
Orissa, Rajasthan, and Uttar Pradesh West), the bids followed some level of
rationality. In circles where an unknown Indian company Himachal Futuristic
communications Ltd (HFCL) was the highest bidder, they realized that they were
subject to the well known “winner’s curse”. The total license fee for which HFCL
bid was much higher than any of the bids of the second placed bidders, and virtually
more than all the other bids put together. Thus, the government was forced to call
for a second round of bidding because HFCL backed out of following through on the
bids; also, many circles received either one bid or no bids. In January 1996, the DOT
initiated a fresh rounding of bidding for thirteen circles in the basic sector. Caution
among the players and the lack of credibility about the outcome of auction led to
only six bids. Further, because the more lucrative (grade A) circles had been
awarded in the first round, the only circles left for bidding were the less lucrative
circles, and those in which HFCL reneged where the government specified a
minimum bid which was considered too high by the bidders. In seven circles the
earlier bids were too low or there were no takers. For six circles certain successful
bidders were eliminated by a subsequent change in DOT’s policy of limiting
licenses to three circles for each bidder. Finally, bidders for 13 circles were selected
with eight circles drawing no takers. In the telecom sector, the total foreign direct
investment was 43.13 billion rupees in the period 1993 to June 2000 or less than a
billion US dollars. The reticence of the private sector, especially foreign companies,
to invest large amounts of capital into infrastructure sectors like telecom can largely
be traced to failings of government and regulatory policy. But moving from a
control mindset to a regulatory one has not been easy for the Indian government.

2.3 Critical View of the Liberalization Efforts

A large part of problems in liberalizing India’s economy have arisen from the state’s
inability – even unwillingness - to give up control of the sectors it has liberalized.
Thus while more independent regulators have been set up in the last four years than
the number of general elections India has had, most regulators are independent only
in name.

The role of a regulator is to advise the ministry on policy, solve disputes among
service providers and ensure that the rules and regulations governing business are
followed. It is also the agency to intervene in case market failures take place and
protect consumer interests. The crux of the problem has been that the state and its
associated agencies like the bureaucracy, long used to exercising control, have been
unable to build a regulatory structure that provides credible commitment against the
exercise of arbitrary discretion by the state and changes in regulatory environment.
The Indian government has devised various methods to keep control over a
particular sector, even after an independent regulator has been appointed.
Legislation governing these new institutions has been often poorly worded,
ambiguously framed and open to legal challenge by the state entities. The telecom
sector has been in a mess till February 2000 because of inherent conflicts between
the Telecom Regulatory Authority Act, which was passed to create the independent
regulator for the sector, and the Indian Telegraph Act of 1885, which provides the
legal framework for the telecommunications sector.

In some sectors like capital market, decisions of independent regulators are appealed
to a government ministry. In the telecom sector, the state, that is, the Department of
Telecommunications, DoT, refused to submit to the jurisdiction of the regulator till
the judicial authority was removed from the regulator with the appointment of a
separate disputes and appellate tribunal. It did so by litigating against every decision
made by the regulator in the civil courts. The “independent regulators” are routinely
staffed with bureaucrats. None of the existing regulators are headed by anyone other
than former bureaucrats and judges, who help perpetuate the mind-set of control
over regulation. Besides, in areas like telecom and the Internet, keeping up with
technology changes is imperative, but there are few signs of technical experts or
private sector executives among the regulators. Many of the problems of the telecom
sector have arisen because of the multitude of roles played by the state. These
conflicts have been highlighted in the context of the sector switching from a regime
of government control to competitive and regulated one. The telecom sector, in
particular, has suffered from confused government policy and ineffective regulation,
not least because state-owned companies and departments remain the largest players
in this sector. These companies have not responded well to the threat of competition
and therefore policies have been seemingly framed or changed to further the
interests of the state. Though an independent regulator has been created, the
institution has already had a complete makeover because many of regulator’s
decisions went against the wishes of the state players. Indeed, at the end of a decade
of reforms, the state remains the largest player in the telecom industry and its role is
only increasing as state-owned companies enter new businesses like cellular
telephony, Internet access and broadband data networks. While many of the
problems associated with the telecom policy have been resolved with the NTP 99,
several questions about the role of the state-owned service provider cum policy
maker remain. These uncertainties and lack of a strong regulatory infrastructure
mean that the spread of private telecom services has been limited only to the more
populous urban clusters in the country.

Moreover, government policy has segmented the telecom sector into a series of
different services like basic, cellular, ISP, paging, Internet and radio-trunking. This
goes against the grain of the sector where convergence of voice data images and
video technologies is forcing regulators in other parts of the world to take a holistic
view.

2.4 Competition in Services

After having a consultation process for allowing competition in basic, cellular and
long-distance service TRAI had recommended unlimited competition in basic and
domestic long-distance service. However, taking into consideration spectrum
limitations, it recommended a fourth cellular player be introduced in the 21 circles.
On August 15, 2000, the government accepted TRAI's recommendations for
opening unlimited competition in domestic long-distance services. So far, apart from
the government's BSNL and VSNL companies, two private companies who received
a green signal from the government are Bharati Group and Reliance Industries
limited. These companies are dominant players in the basic, cellular and Internet and
are extensively deploying fiber optic infrastructure in various states.

2.5 The Role of the Private Sector

Many foreign telecommunications companies participated in the bidding for the

right to offer basic (wire line) telephony in India. The main attraction was the then
widely used number of 250 million “middle class” potential customers, and the
waiting list of more than 3 million. Companies that bid included multinational like
AT&T, US West, Bell Atlantic, Nynex (at that time a separate company), NTT, and
Bell Canada, and small ones like Bezeq of Israel, and Shinawatra of Thailand. Their
Indian partners included the Tatas, the Birlas, RPG, Reliance, BPL, Essar, Shyam
Telecom and Himachal Futuristic Communications Limited (HFCL). However,
disillusioned by the government’s terrible handling of the telecom services
deregulation, several international telecom giants had by 1999, pulled out of India.
While Bell Canada and Swisscom have withdrawn from India for good, US
companies like AT&T and US West have frozen fresh investments blaming
“unfriendly telecom policies”, particularly high license fee outflows and the lack of
a powerful regulator. Moreover, many south East Asian telecom operators also
pulled out after 1996 in the aftermath of the South East Asian currency crisis, which
reduced their ability to invest in other countries.

It is difficult to say who is to blame for the auctions fiasco, where firms bid huge
amounts and then realized that these fees did not match with their predictions of
demand and usage. The DoT itself gave indications as to the size of the market,
especially in regard to basic telephones, because it alone had knowledge of how
demand grew and how much it would be in the light of its experience of over 100
years. Nevertheless, the Indian firms participating in the auction had no prior
telecom experience, while the foreign partners knew the business, but little about
Indian market conditions or the usage patterns of consumers. For the government of
India, despite the problems of the auctions and the unrealistic high bids, the cellular
licenses raised over $7 billion. However, this method of licensing though a single
sealed bid auction without any information of the selection criteria has led to many
problems in the cellular sector. There is little doubt that the bidders overestimated
revenues and demand patterns. However, the high license fees, which formed 50 per
cent of the total rollout cost for a cellular operator, led to high tariffs for the
consumers. This in turn impacted demand for these services. Moreover, the license
fees had to be paid up front every year. That is, it did not matter whether the new
operators had a network, subscribers, traffic or revenues, but they had to pay an up
front fixed fee to the government every year. Given the high sunken cost of initial
investment, the lower than expected subscriber base and the high license fees,
cellular operators in India, with the exception of those in Mumbai and New Delhi
markets have been posting losses from the outset. In 1999, the cellular telephone
industry was posting losses worth $92 million every month. Industry experts say that
overestimation of market size and usage was the main culprit with companies, which
had projected 300 minutes of usage, could get subscribers to barely talk for 100
minutes in a month. Besides, average revenue per user was only $23 compared to
projections, which had ranged between $41 and $58 per month. As a result by July
1999 cellular companies and the six basic services license holders owed almost $900
million in license fees to the government and many had decided to exit the business
completely. One main problem of the telecom sector’s licensing policy that was
pointed out was that the licensor was the incumbent operator. By contrast, when the
electricity generating business was also thrown open to the private sector, operators
were not required to pay a license fee; some received guaranteed prices and fixed
quantities which the incumbent state electricity company would have to buy.
Moreover, the state electricity boards did not license the new producers of power. In
the telecom sector, the incumbent DoT, which was deprived of its lines of business
in the value added services, was entrusted to license rivals to itself, even for basic
telephone services.
 CHAPTER-3
REGULATORY FRAMEWORK
3.1 Introduction

It becomes immensely important to understand the regulatory framework in which

the telecom sector is entitled to operate. Although the pace of reform, now, have
gained momentum, the regulatory framework to deal with the increased level of
telecommunicationization of the Indian economy should not be found wanting to
deal with any such situation. It also becomes important from the point of view of
this study that this particular aspect should be mentioned in brief, since it provides
the basis for comment on the state of the present day realities in the telecom sector.

Following are the major governing laws for the telecom sector:

(a) The Indian Telegraph Act 1885.

(b) The Indian Wireless Telegraphy Act 1933.

(c) The Telegraph Wires (Unlawful possession) Act 1950.

(d) The Telecom Regulatory Authority of India Act 1997.

(e) The Cable Television Networks (Regulation) Act 1995.

The Regulatory framework consists of two bodies viz., Telecom Regulatory

Authority of India (TRAI) and Telecom Dispute Settlement and Appellants Tribunal
(TDSAT). The role of TRAI is to make recommendations, either suo motu or on a
request from the licensor, on the following matters, namely:-

i. Need and timing for introduction of new service provider;

ii. Terms and conditions of license to a service provider;

iii. Revocation of license for non-compliance of terms and conditions of license:

iv. Measures to facilitate competition and promote efficiency in the operation of

telecommunication services so as to facilitate growth in such services.

v. Technological improvements in the services provided by the service

providers.
 vi. Type of equipment to be used by the service providers after inspection of
equipment used in the network.

vii. Measures for the development of telecommunication technology and any

other matter relatable to telecommunication industry in general;

viii. Efficient management of available spectrum;

The role of the tribunal (TDSAT) shall be as follows:

a. Adjudicate any dispute -

b. Between a licensor and a licensee;

c. Between two or more service providers;

d. Between a service provider and a group of consumers:

e. Hear and dispose of appeal against any direction, decision or order of the

f. Authority under this Act.

3.2 The Telecom Regulatory Authority of India Act, 1997 (TRAI Act)

The enactment of the TRAI Act was also a long delayed legislative process. In the
view of an independent consultant who participated in the drafting exercise, Mahesh
Uppal: to suggest, even indirectly, that the government had, at that time [of drafting
the TRAI Act], a clear idea of what it was that it wanted the TRAI to achieve, is
stretching credibility.

India's telecom regime was schizophrenic during the period of drafting and
redrafting of the TRAI Act and indeed much of the period before that. At virtually
every stage of the process, there were controversies. The creation of the new
independent regulatory agency was a significant episode, perhaps ultimately a
defining one. TRAI was not given responsibility to issue and revoke licenses, but
only to recommend them. It had responsibility to fix tariffs and resolve disputes. The
DOT surrendered its regulatory role in principle, though it still retained policy-
making, licensing, and operative powers within the same organizational boundaries
3.3 Overhauling Legal and Regulatory Framework

3.3(a) Amendments to the TRAI Act of 1997

Soon after the GTCR was formed and the sub-groups were created, they sprang into
action to overhaul the legal and regulatory regime and to expedite the
implementation of the 1999 policy. On the recommendations of the sub-group
headed by Information and Broadcasting Minister Arun Jailey to amend the TRAI
Act of 1997, the parliament amended the Act in March 2000. TRAI's regulatory role
was split from dispute settlement.

The new TRAI, with two full time members and two part time, is responsible for
recommending the introduction of new service providers, technological
improvements, quality standards, and fixing the terms and conditions of licenses. It
is mandatory for the government to seek TRAI's recommendations, although it will
not necessarily accept them. The newly constituted Telecom Dispute Settlement and
Appellate Tribunal (TDSAT) is empowered by a chairperson to have a one or two
member bench to adjudicate disputes between a licensor and a licensee, service
providers and between a service provider and a group of consumers. Decisions of
the Tribunal can be challenged only in the Supreme Court

3.4 Main Functions Entrusted to Telecom Regulatory Authority of India

 To ensure technical compatibility and effective interconnection between

different operators and service providers

 Regulate the revenue sharing arrangement between different service

providers

 To lay down and ensure time frames for making available local and long –
distance DoT circuits between service providers

 To protect consumer interests through monitoring of service quality

standards

 To ensure compliance of license conditions, universal service obligations and

the stated

 Overall pricing policy by all operators and service providers

  To levy fees and other charges and to make regulations in that behalf

 To settle disputes between service providers

 To fix tariff for telecom service and ensure price regulation

 To render advice to the government in the national context on technology

options, service, provision and other allied matters concerned with telecom

 Any other matter referred to it by the government

TRAI is to exercise recommendatory functions on the need and timing for

introduction of new service provider and the terms and conditions of
license to a service provider. In the exercise of its powers and the
performance of its functions, TRAI shall be bound by directions on
questions of policy given by the Government. TRAI is vested with
judicial authority and powers. Appeals against its decisions will lie with
the High Court.

3.5 General Principles for Regulators

According to Noll, all regulatory processes are inherently conflictual and

participants in the regulatory process will seek to influence the process to their own
advantage in any way that is available to them. Submitting information that supports
a favorable decision is one way of exercising influence. Another is to seek
intervention by political allies.

There are primarily two problems for regulators in developing countries. One is the
problem of regulatory capture where the regulator allows the regulated firms to
charge high prices, earn high profits and provide low quality service. The other is
expropriation. This can arise from two reasons: user groups may either be well
organized in the regulatory process and cause service to be provided below cost or
an election may cause political pressure to be placed on regulators to favour users
against suppliers. Noll suggest that the solution to both capture and expropriation is
the same. This is to construct a regulatory agency that it unlikely to be influenced by
any particular interests. First, the personnel of regulatory agencies should be
heterogeneous and stable and short-term changes in the political control of
government should not cause dramatic swings in the composition of the agency.

Moreover, the careers of regulators should be secure and remunerative enough so

that regulators are not constantly seeking other employment. The British and
Japanese systems have professionals who are the regulatory authorities but policy
authority rests with cabinet of ministers, and seek to achieve independence by giving
more authority to civil servants. Second, the regulator can be given independent
authority to generate information and even resources to represent interests that
otherwise are not organized to participate in its processes. Third, the regulator
should be subject to openness requirements so that the agency conducts all business
in public, refrains from secret contacts with interested parties and not only gives
indications of decisions it is likely to make but the reasoning behind that decision.
“Openness forces regulators to reveal informational basis for their decision and is
therefore useful for revealing whether the agency’s decision is biased and
unsupported by facts.” Fourth, the decisions of the regulator can be subject to
review by another body that is freer of representation biases, especially biases
affecting participation in the agency’s processes, at the instigation of anyone who is
dissatisfied with a decision. Levy and Spiller suggested that the most common
reviewing body is a general-purpose court that itself is politically independent and
diverse in composition.

3.6 The Telecom Policy 1994

The 1994 policy totally dismissed privatization of incumbent companies and made it
clear that the much- needed private foreign investment will supplement DOT's
efforts in spreading basic telephony. The policy was unrealistic as it failed to clearly
define how universal access and service goals were to be achieved. On one hand, it
admitted that India had 0.8 per cent of teledensity; on the other, it stated that the
telephone would be provided on demand by 1997. It allowed competition in basic
services by way of duopoly in each state (called circles) and allowed foreign
companies to partner with Indian counterparts to compete with DOT in 20 circles.
However, implementation of the policy was left in the hands of the incumbent DOT.
In August 1995, the first eight cellular licensees in four metropolitan cities began
commercial services. In late 1995, the DOT and the Ministry issued about three
dozen licenses to cellular operators in all other provinces of India.

The controversy and delay in awarding basic service licenses led only six companies
to take licenses in offering services in only few states. For the remaining states there
was no company ready to match the unrealistic reserve- price, which the ministry
and DOT had fixed. Moreover, the companies who had taken licenses later failed to
fulfill their license conditions as their business plans were flawed. They also had
serious claims against the government and its agencies, especially DOT, for not
giving timely clearances in order for them to start their commercial operations on
time. Both cellular and basic service operators had committed to unrealistic license
fees and were struggling to survive in the Indian market. They owed almost $873
million to the government towards their outstanding license fees. By 1999, only two
basic service operators were able to offer services in two provinces and they had few
subscribers; the cellular operators had signed only one million subscribers.
Therefore, to a certain extent, these companies, in going along with government's
ineptitude to some extent were responsible for delaying needed reforms.

The National Telecom Policy, which was in the works since 1990 was finally
announced in May 1994. The National Telecom Policy of 1994, only envisaged a
supplementary role for the private sector to the DoT’s national efforts. However, the
NTP 1994 did take liberalization forward by introducing competition in basic
services and throwing the sector open to private sector firms. NTP 94 spelt out five
basic objectives of which two objectives of availability of telephone on demand and
universal service (connecting all villages) were targeted to be realized by 1997. Both
of these objectives have remained unrealized. In regard to quality of service,
matching "world standard" and providing "widest possible range of services" "at
reasonable prices" were stated aims. Two other objectives were to make the country
a major manufacturing base and exporter of telecom equipment and to ensure the
country's defense and security needs. (The powers of licensing and spectrum
management were retained by the Government on the ground that both need to be
strictly monitored in order to protect the strategic interests and security of the
country). There were serious gaps in the policy document as regards provision of a
suitable environment for entry of private service provider and on the issue of
regulation. The 1994 policy was designed with the approach that services should
continue to be provided largely by a strong incumbent that faced little competition..
In addition, while major targets were specified in NTP 94, an accurate assessment of
the underlying resource requirements was not done. For example, to realize the
enunciated objectives, an estimated Rs. 230 billion of additional resources were
required. A need for private sector contribution to the effort was clearly recognized,
but various implementation problems including incomplete reforms, mitigated the
efforts to achieve the targets. Meanwhile, convergence arising due to changes in
technology and the overall market structure for service provision had changed and
there was a need to provide fresh directions through another policy.

3.7 National Telecommunication Policy 1999

Faced with a situation where investments in the sector were at a standstill and
private companies were no longer interested unless the rules of the game were
changed and the role of the referee made clearer, the government embarked on a
series of policy changes aimed at solving the problems of the sector. The
government decided to implement a new National Telecom Policy in 1999, which
apart from setting the ambitious targets for universal coverage and tele - densities,
also allowed the private sector operators in the telecommunication service providers
to shift from a license fee regime to a revenue sharing one.

3.7(a) Primary Objectives Of The NTP’99:

 Provision of universal service to all uncovered areas, including rural areas

 Create a modern telecom infrastructure taking into account the convergence

of IT, media, telecom

 Transform telecom sector to a competitive environment providing equal

opportunities and level playing field for all players In the best traditions of
Indian planning, NTP’99 also set several landmarks and targets to be
achieved in the next ten years.

 Telephone on demand by the year 2002

 Tele-density of 7 by 2005 and 15 by 2010

  Telecom coverage of all villages by 2002 5

 Increase rural tele -density from 0.5 to 4 by 20105

 Internet access to all district head quarters by October 20005

 Internet access to all villages by 20025

(As per the available information, all the above targets have not been fully achieved,
except telephone on demand in metros, but considerable progress has been made in
other areas)

As per the revenue sharing regime, companies would have to pay 15 per cent of their
total revenues to the government. However, this is not the long-term share, as TRAI
has recommended that the percentage of revenue share to be paid by operators
should be 17 per cent of the adjusted gross revenue. The only caveat, which
companies accepted gladly, was that in order to qualify for the new revenue sharing
arrangement, all the entrants would have to withdraw their cases against the
government in the court. All the twenty-nine firms, including 22 cellular operators
decided to move to the new arrangement. However, even in the course of the new
telecom policy, the state-owned incumbents managed to further consolidate their
position and even extend it into other sectors. The government has managed to place
two government players – erstwhile DTS and now converted into a corporate entity
called Bharat Sanchar Nigam Limited (BSNL) and MTNL - as the third cellular
entrant in all the 24 markets. The decision of the incumbents to venture into a new
area may be because of the strong growth the market enjoyed during 1999, when the
cellular subscriber base grew by about 58 percent to 1.8 million subscribers.85 By
June 2000 it had crossed the two million mark.

Moreover, while DTS will have to pay the revenue share of 15 per cent like other
cellular operators, it is likely that DTS will get the money back to fund its
“developmental activities” of increasing rural penetration of telecom services. NTP
’99 also introduced one of the most progressive and liberal Internet Service Provider
Policies, where licenses for a token fee of Rs 1 have been granted to 340 ISPs. Of
these 70 ISPs have become operational. Moreover, the government has allowed 100
ISPs to set up international gateways to the Internet, by-passing the international
gateway of VSNL, the monopoly international long distance provider. To meet these
teledensity targets, an estimated capital expenditure of Rs. 4,000 billion for
installing about 130 million lines will be required. Recognizing the role of private
investment, NTP 99 envisages multiple operators in the market for various services.
Another major change has been a shift from the existing license fee system to one
based on one time entry fee combined with revenue share payments.

3.7(b) Notable Advances Marked By The NTP 99

1. Speeding up competition in long distance, including usage of existing

backbone network of public and private entities in Rail transport, Power and
Energy sectors for data (immediately) and for domestic long distance voice
communication.

2. The Fixed Service Providers (FSP) shall be freely permitted to establish 'last
mile' linkages to provide fixed services and carry long distance traffic within
their service area without seeking an additional licence.

3. Transforming in a time bound manner, the telecommunications sector to a

greater competitive environment in both urban and rural areas providing
equal opportunities and level playing field for all players.

4. Strengthening research and development efforts in the country and provide

an impetus to build world-class manufacturing capabilities.

5. Achieving efficiency and transparency in spectrum management.

6. Interconnect between private service providers in same Circle and between

services provider and VSNL along with introduction of competition in
Domestic Long Distance.

7. Undertaking to review interconnectivity between private service providers of

different service areas, in consultation with TRAI.

8. Permission for 'resale' of domestic telephony.

9. Clarity regarding number of licenses that each operator may be granted.

10. Emphasis on certain other issues including Standardisation, Human

Resource
NTP 99 proposes that the long-term policy will be to have uniform 20-year licenses
for both Basic and Cellular Mobile services. Extensions of license periods initially
by five years and subsequent ten-year extensions are also envisaged. These
provisions need to be used in a transparent manner, which again brings up the issue
of government divesting itself of the licensing powers in favour of the regulatory
Authority. Internet Telephony has not been permitted under NTP 99

3.8 Assessment of Regulatory Reform

Regulatory reform in Indian telecom can be seen as a two-step process. One, the
establishment of an independent regulator and, two, the regulatory Authority
implementing reform on the basis of its policy initiatives. A crucial concomitant of
this process is the separation of the incumbent service provider from the policy
maker. Since its establishment, the telecom regulator in India has taken a number of
initiatives pertaining to tariffs, interconnection charge and revenue sharing, and has
provided its recommendations on license conditions/license fee for certain service
segments. The regulator has also addressed a number of disputes under Section 14 of
the Act. An important feature of the TRAI Act 1999 is that the Authority has to
ensure transparency while exercising its powers and discharging its functions.
Hence, the TRAI has adopted a procedure of consultations, under which it prepares
consultation papers on the issues under consideration, seeks comments from the
general public and experts in the area, and provides an Explanatory Memorandum
along with its Tariff Orders, interconnection charge or revenue sharing Regulation,
and its recommendations. Such an exercise is being performed for the first time by
policy makers in India.

TRAI has also been vested with powers to frame regulations necessary for its
functioning, including for the levy of fees and charges for services. The TRAI Act
provides for a separate fund ('Telecom Regulatory Authority of India General
Fund'), which will be credited with all grants, fees and charges received by TRAI,
and funds from other approved sources. Provision has also been made for Central
Government grants towards meeting the expenses of the regulatory Authority. As
mentioned above, there is now a perception among the Government that the powers
of the regulator need to be increased. An overall perspective that would be important
in this regard is to emphasize a system which makes it possible to quickly
implement reform. Certain other features derived from the experience of regulatory
reform across countries would be of use. Instead, they will focus more on promoting
multiple outlets for voice telephony and ensuring that a reliable and universal virtual
public network is maintained across a crazy quilt of interconnected technologies and
applications. Overall, this will likely mean decreased reliance on individual
licensing of particular services and facilities and increased reliance on general rules.
It will also involve greater coordination among authorities in different industry
sectors. Telecommunications regulation will be less concerned with licensing and
pricing and more concerned and continuous efforts to adapt standards of reliability
and interoperability to unrelenting technology changes, as well as with frequency
allocation and assignment, dispute resolution and consumer protection. A lot more
of the telecommunication industry will probably end up being regulated by the
market.”
 CHAPTER - 4
INDIAN CELLULAR MARKET
4.1 Country Profile

India is the 7th largest country in the world and the second largest in Asia with a
land mass of 3.29 million square Km, and a population of over 900 million. The
second largest populous country, India is the home of 16 per cent of world's
population and accounts for 2.42 per cent of the total world area. One of the most
striking features of the Indian economy is the sheer size of the consumer market.
Private consumption expenditure grew at 13 per cent per annum (at current prices)
through the 1980s and was estimated at Rs. 3,418 billion (US $ 110 billion) in 1990-
91. The overall growth of 13 per cent is composed of widely differing growth rates
in the various sectors. Expenditure on transport and communication is increasing by
as high as 21 per cent per annum. This reflects a perceptible shift in consumer
spending from primary products to manufactured goods and services, which is also
borne out by the increasing share of manufactured goods and services in the
country's GDP. The spectacular increase in consumer spending has been
accompanied by increasing sophistication.

4.2 Some Facts About the Indian Telecom Market

 India has 1000 million people & 180 million households

 40 million fixed line telephones, 10 million mobile and four million Internet
connections

 Target for Growth: 100 million lines by 2005 and 200 million lines by 2010

 Major public confidence as ost of long distance calls in India reduces from
Rs 30 ($0.60) to Rs 9 ($0.18) per minute

 International Call charges reduce by 40%

 VoIP opened up for International calls

4.3 Telecommunications Network

India operates one of the largest telecom networks in Asia comprising over 21,718
telephone exchanges, 14.62 million telephone lines, an extensive local and long
distance transmission network with 132,022 route kms of terrestrial microwave
radio relay, coaxial cables and about 36,632 Km of optical fibre systems. The voice
and non-voice telecom services include data transmission, facsimile, mobile radio,
radio paging and leased line services to cater to a variety of needs, both residential
and business. A dedicated packet switched Public Data Network with international
access for Computer Communication services is also available. Tenders have been
invited for operation of Radio Paging Services. 95 licences have been issued for
operation of services in 27 cities. Services have commenced in all the 27 cities with
over 186,000 subscribers. Rest of the country has been divided in 19 circles and
licences are to be issued. The country has been divided into 18 telecom circles and 4
metro cities for operation of Cellular Mobile Service. Despite the sustained high
growth of telecom services in the last five years, the telephone to population ratio in
India has just reached 1.3 per hundred people. India's telecoms sector is carved into
22 circles or zones, classified as "metro" and "A", "B" and "C" circles, based on
subscriber potential, market lucrativeness and the state of already present
infrastructure.

The number of cellular subscribers in India grew at a scorching pace touching 10.48
million by 2002-end with the monthly addition from November to December 2002
rising to 7, 50,000. The all-India figures were up from 9.7 million in November
2002 to 10.4 million in December, a rise of 7.7 percent. This is a 92 percent increase
over the previous year's subscriber base of 5.4 million, according to the figures
released by the Cellular Operators Association of India (COAI). Cellular subscriber
base has been growing at a massive pace for the past three years. In 1999, the
announcement of the New Telecom Policy and the migration package from fixed
license fee to annual revenue share regime gave a boost to the mobile sector. The
result was that the cell subscriber base moved up from 790,000 in 1997 to 3.1
million in 2000.
4.4 Phenomenal Growth of the Indian Cellular Market

The four metro circles showed fewer additions to their total mobile users -registering
an increase of 4.4 percent from November to December 2002, Circles B and C saw
high growth of 11.52 percent and 11.14 per cent respectively. The less lucrative
circle C saw an increase of 8.58 for the one-month period. Metros recorded
additions of 172,000, circle A an addition of 277,000, circle B of 268,000 and circle
C an increase of 36,142. On a year on year basis, the numbers in metros topped the
list with 4.054 million representing a 38.69 percent rise; circle A-3.516 million,
registering a 33.54 percent increase; Circle B-2.550 million, a growth of 24.33
percent and circle C 360,000, witnessing a 3.44 percent rise.

The International Telecommunication Union feels India has the potential to become
No 1 in terms of the number of mobile phone users, considering the number of
people currently without mobile phones in the country. Currently, China has the
highest number of mobile phone subscribers. Michael Minges, head,
Telecommunications Data and Statistics Unit, ITU Telecommunication Bureau,
said: "India has the least mobile connectivity with only 10.1 million subscribers as
compared with China. India is the largest unserved market and therefore there is
huge potential." According to the ITU report, in the last 10 years the
telecommunication environment in the Asia-Pacific region has changed rapidly. The
rate of change has been the most dramatic in the mobile communication sector.

Dec' Dec' Dec' Dec' Dec'

City Service Provider Dec' 2002 Mar' 2003
1997 1998 1999 2000 2001

Bharti 123091 113259 153498 273262 484850 834269 902357

Sterling 96047 106201 126054 187617 343241 0 0

Delhi MTNL 0 0 0 0 45408 129809 132417

Idea 0 0 0 0 0 128306 165900

Hutchison Essar 0 0 0 0 0 580328 605485

Total 219138 219460 279552 460879 873499 1672712 1806159

Delhi Growth Rate YoY (%) 9.9 10.0 40.2 131.1 337.9 738.6 805.5

Mumbai BPL Mobile 92230 111241 155373 261654 378912 573877 621172

Hutchison Max 122772 91601 143371 218677 380835 615836 665086

 MTNL 0 0 0 0 73248 110279 159500

Bharti Cellular 0 0 0 0 0 212304 243278

Total 215002 202842 298744 480331 832995 1512296 1689036

Mumbai Growth RateYOY(%) 15.3 8.8 60.3 157.7 346.8 711.2 806.0

RPG Cellular 25491 16244 24041 57647 107979 166305 179284

SkyCell 23044 18450 22963 38577 0 0

Chennai
Bharti Mobinet 0 0 0 0 121036 200728 215109

Hutchison Essar 0 0 0 0 0 51832 55760

Total 48543 34694 47004 96224 229015 418865 450153

Chennai Growth Rate YoY(%) 5.9 -24.3 2.6 110.0 399.8 814.1 882.4

Modi 36664 20459 33126 90132 0 0 0

Bhari Mobitel 0 0 0 0 94077 188237 200736

Calcutta Hutchison Telecom 0 0 0 0 0 247327 274281

BSNL 0 0 0 0 0 14997 19159

Usha Martin 26640 22386 34904 67426 131528

Total 63304 42845 68030 157558 225605 450561 494176

Calcutta Growth Rate YoY(%) 6.3 -28.1 14.2 164.5 278.7 656.4 729.6

All Metro Total 545987 499841 693330 1194992 2161114 4054434 4439524

Metro Growth Rate YoY (%) 11.14 1.74 41.13 143.25 339.90 725.30 803.68

All India Total 794232 1070603 1599364 3107449 5478932 10480430 12687637

All India Growth Rate YoY(%) 20.01 61.76 141.66 369.52 727.85 1483.55 1817.05

Cellular Subscriber (GSM) Growth (Dec 97 to Mar2003)

The table on the preceding page describes the phenomenal increase in the cellular
subscriber base (The data is for GSM subscribers only, authenticated data for WLL
subscribers could not be found). The varied reasons for such a stupendous growth
have placed India in the right orbit for a rightful position as a major global player in
the world, in not so distant future. An increase of 1817%, could only be described as
envious and considering that not even a sizable potential of the Indian market has
been tapped, so far, makes the whole data much more meaningful, from investors
and companies point of view. It would be prudent to add at this juncture that this
bewildering growth rate has been achieved at the very nascent stages of Indian
telephony, and as the years progress and the base year for comparisons (Base year in
this study has been taken as 1997) shifts to some latter year, the developments
would look more sober as the market passes over from the initial stages of
introduction towards growth and maturity.

National Vs Metro Growth (%)

2000.00

1800.00

1600.00

1400.00

1200.00

1000.00

800.00

600.00

400.00

200.00

0.00
Dec'1997 Dec'1998 Dec'1999 Dec'2000 Dec'2001 Dec'2002 Mar'2003

Y ear

Metros National

Metro Cities Subscriber Grow th Rate

1000.0

800.0

600.0
Percentage

400.0

200.0

0.0

-200.0
Year
Delhi Mumbai Chennai Calcutta
 All India Growth Rate YoY(%)

2000
1800
1600
1400
Percentage

1200
1000
800
600
400
200
0
Dec '1 Dec '1 Dec '2 M ar'2
997 9 99 001 003

Year

There is a need to look at the various reasons that have contributed to the growth of
cellular sector in India. If one were to look at the figures above, it becomes clear that
the growth started from the metros to begin with and then caught up with the
national fancy. It would be imprudent to say that inclination towards being more
“mobile” was just a fad, or a passé. Instead there are certain deep rooted and well
explainable reasons thereto.

4.5 Reasons For Boom In Consumer Spending

The overall consumer attitude has resulted in the development of a very conducive
environment for industrial as well as economic growth. Needless to say, higher
disposable income, as a result of increased employment, better salary and wages
structure, have resulted in more spending power. Combining increased levels of
awareness and a paradigm shift towards value orientation rather than pure price
sensitivity has lead to an interesting environment for business, both services and
manufacturing activities

1. Sustained economic growth of 5.5 per cent per year through the 80s. and
more than 12% in case of Industrial growth till late 90’s.

2. Increase in urban population by 75 million in the last decade to touch over

235 million in 1993 and estimated to be over 550 million by 2003 .
 3. Drastic change in lifestyles with the emergence of multiple income urban
households.

4. Increase in awareness created by the media - television (including CNN,

STAR TV), radio (with many new FM channels) and print media.

5. Increasing literacy levels –The aggregate number of literates being 442

million, as per 1991 census.

Another notable development is that the perceptual shift of consumers towards the
need for better connectivity: from business and personal point of view, along with
westernization have contributed to the phenomenal increase in the demand for
cellular services. One should also bear in mind that this would not have been
possible, had the affordability of telecom services would not have come to today’s
level.

Telecom Affordability
35
30
Rates(Local/1 min)

25
Avg. Min. Call

20
15
10
5
0
97 98 99 00 01 02 03
Year

Indian customers have always been highly price sensitive and the price factor has a
great role to play in making a product/service/concept a success or a failure. Since
the initial charging for cellular services was very high, it was a niche product/service
rather than being a utility, but now with the call rate coming down to as low as 40
paise (Reliance Tariff Rates under the Dhirubhai Ambani Pioneer Offer), the cellular
sector has witnessed a revolution as the affordability increased, and at the samwe
time the utility has increased many folds, the result of which is a phenomenal
1817% growth (Dec 97 to March 2003).
Call Usage Pattern and Contribution towards Total Call Revenue (Aggregate)

Usage
Share Of Total Contribution towards Call
(Calls Bi- Monthly) Subscribers Revenue

>10,000 2.70% 47.10%

5001 to 10,000 2.50% 9.80%

2001 to 5000 7.90% 13.40%

1,001 to 2,000 14% 11.60%

501 to 1,000 21.30% 10%

0 to 500 51.60% 8.10%

Source: “Indian Telecom Review”, Business World, February, 2003

As the telecom affordability has gone up, the no. of users have experienced a
phenomenal growth, but as is evident, the maximum users are the least revenue
getters from a company’s perspective and curtail their telecom spending to the bare
requirement as stipulated by the service providers. So, the companies derive their
no’s. from here and their revenues from the top most category.
The change in perception also has helped the Indian customers venture into spending
over non-conventional items which had a negligible share in the early 90’s, this is a
macro effect and has its bearing on all the aspects of Consumer spending pattern and
not specifically on the spending on fulfilling telecom needs. But nevertheless
telecom sector is also one of the beneficiaries of this phenomenon.

4.6 Major Players in the Indian Cellular Sector

Besides the service providers in the metros (Please refer to Table 4a), the Indian
telecom market is divided into circles, the details of the service providers in the
various circles respectively is provided in the Annexure-3, A Note on Major Service
Providers
 CHAPTER-5

TECHNOLOGY IN USE AND THE CONTROVERSY

BETWEEN GSM & WLL OPERATORS
The technological aspect is undertaken in this study, because it becomes important
to understand the basic concept of underlying technology, by the virtue of which,
modern telephony (especially in the Indian context) is functioning. It also provides
the means of comparison and differentiation between the service offerings, their
limitations and advantages, which reside in the very fundamentals of the technology
that is being used. It also becomes Important to mention here that the battle between
wireline and wireless was the first taste of competition that the post liberalized
telecom sector had. Now, the tussle and the market share-bone of contention remains
between the CDMA and the GSM based operators.

Broadly, for the purpose of this study, we try to understand:

1. Wireline Technology & Wireless Technology

2. Distinction between WLL & GSM Technology

India today lacks the infrastructure required for high speed communication that is
imperative for the telecom revolution. Most of the present lines are copper cables
operating at (low) while the optical networks that have been laid by the DoT,
covering a distance of 31,771 km operate with a bandwidth of 51.84 Mbps. Looking
into the future, the current capacity of our communication networks will be far
outstripped by the demand.

5.1 Wireline Technology

The traditional wireline telephony to which India has been exposed to till recently,
had been the forte of state run MTNL & BSNL. The fundamental technology
behind this concept seems very rudimentary, if compared to the technological
options that are now available. It involves carrying of voice and data traffic
over co-axial copper wires, from the provider till the end user. For long
distance, there is the use of satellites and tie ups with other operators for which
there is a charge payable, and needless to say, this is passed on to the
customers. Besides, the underlying technology itself faces certain lacunae,
owing to the fact that the data suffers loss of transmission, leakages, stress,
and a very high “Last mile linkage cost”. The answer to this particular
problem lies in abandoning reliance on the physical medium of carrying
traffic, to the maximum extent possible. This brings the concept of wireless
connectivity into the picture.

5.2 Wireless Technology

The first mobile wireless phones utilized analog transmission technologies, the
dominant analog standard being known as “AMPS”, (Advanced Mobile Phone
System). Analog standards operated on bands of spectrum with a lower frequency
and greater wavelength than subsequent standards, providing a significant signal
range per cell along with a high propensity for interference. These networks were
based on digital, rather than analog technologies, and were circuit-switched. Circuit-
switched cellular data is still the most widely used mobile wireless data service.
Digital technology offered an appealing combination of performance and spectral
efficiency (in terms of management of scarce frequency bands), as well as the
development of features like speech security and data communications over high
quality transmissions. It is also compatible with Integrated Services Digital Network
(ISDN) technology, which was being developed for land-based telecommunication
systems throughout the world.

There are a variety of wireless technologies, for telecommunication purposes.

FDMA- Frequency Division Multiple Access.

TDMA- Time division Multiple Access.

CDMA- Code Division Multiple Access.

TDMA is a digital air interface that divides a single radio frequency channel into 6
unique time slots, allowing a number of users to access a single channel at one time
without interference. By dividing the channel into slots, three signals (two time slots
for each signal) can be transmitted over a single channel. In this way, TDMA
technology (also referred to as ANSI-136), provides a 3 to 1 gain in capacity over
analog technology. There are approximately about 120 million worldwide TDMA
subscriber for 2002.

CDMA is being used in India, which is a full-fledged cellular technology. It is in

fact being used in U.S, and Korea.

5.3 Limited Mobility for Voice

WLL means that a subscriber is linked to the nearest exchange through radio links
instead of copper wires.

 Unique government initiative for rapid phone expansion

 Mobile WLL CDMA phone connects to POTS system

 Allows data transfer rates of 144 Kbps

 20 Km radius of mobility from base station

 Extends POTS but encroaches on cellular networks

 Multiple conflicts: license fees, revenue fees, interconnect

agreements, urban-rural commitments

 Currently about 800,000 subscribers to WLL phones

5.3(a) Wireless Local Loop (WLL)

The Wireless Local Loop technology is India's indigenous technology. It was highly
appreciated by UNDP. This technology replaces the wires and copper in local loop
with a wireless system. It requires a compact base station, mounted on a rooftop or
poles in the streets, which is used for transmission on a wireless medium to homes
and offices. The technology is claimed to bring down the cost of per line telephone
connection from Rs. 40 000 to 10 000 and facilities both voice and data. It is suited
for both dense urban and sparse rural deployment scenarios. India and other nations
such as Fiji, Tunisia, Nigeria and Madagascar have already started to deploy.

Frost & Sullivan forecasts that WLL transmission equipment will eventually
constitute nearly 30% of all new lines. This technology will assist in more rapid
installation of the network and is ideal for both urban and rural areas. Very small
aperture terminals (VSATs) and low earth orbiting satellites (LEOs) are also being
touted as intriguing technological solutions for rural telecommunications. None of
these technologies is a panacea, but each of them will satisfy the demands of rural
telecommunications. Different technologies will be more or less appropriate based
on specific circumstances. It is most likely that a mix of these technologies will
provide the ultimate solution.

5.3(b) Advantages Of WLL Over Traditional Wireline Connectivity

WLL is cheaper and quicker than copper lines. As the cost of copper rises over time,
so does the cost of acquisition, and set up of traditional system for wireline
connectivity. In a traditional set up the most costly part is the “last mile”, especially
in the rural and far flung areas.

WLL is economical in this respect. Close to 90% of faults in telephonic lines occur
in this “last mile”. With radio links replacing copper wires, the faults become almost
negligible.

5.4 GSM Technology

The idea of cell-based mobile radio systems appeared at Bell Laboratories in the
United States in the early 1970s. However, mobile cellular systems were not
introduced for commercial use until a decade later. During the early 1980’s, analog
cellular telephone systems experienced very rapid growth in Europe, particularly in
Scandinavia and the United Kingdom. The most prevalent wireless technology in the
world today, is GSM. The GSM MoU (Global System for Mobile Communications)
was instituted in 1987 to promote and expedite the adoption, development and
deployment and evolution of the GSM standard for digital wireless communications.
The GSM membership has grown exponentially since 1992. The membership now
extends to 323 members from over 125 countries. (table given below) The GSM
network now services over 125 million customers world-wide. The world's satellite
operators have also joined the GSM community, which further adds to its strength
and impact on world markets. GSM is today, the world's leading digital standard
accounting for 64% of the global digital wireless market.

Countries / Customers
Year Membership Networks on Air
Areas (millions)

1992 54 31 13 0.25

1993 78 48 34 1.4

1994 102 60 65 4.5

1995 156 86 113 12.5

1996 208 105 189 30

1997 256 110 233 70.3

1998 291 120 298 108

1998 323 128 300 125

2000 400 140 380 300

Today's GSM platform is a hugely successful wireless technology and an

unprecedented story of global achievement. In less than ten years since the first
GSM network was commercially launched, it became the world's leading and fastest
growing mobile standard, spanning over 190 countries. Today, GSM technology is
in use by more than one in ten of the world's population and it is estimated that at the
end of 2002 there were 787 million GSM subscribers across the 190 countries of the
world.

The digital nature of GSM allows the transmission of data (both synchronous and
asynchronous) to or from ISDN terminals, although the most basic service support
by GSM is telephony. Speech, which is inherently analog, has to be digitized. The
method employed by ISDN, and by current telephone systems for multiplexing
voice lines over high-speed trunks and optical fiber lines, is Pulse Coded
Modulation (PCM). From the start, planners of GSM wanted to ensure ISDN
compatibility in services offered, although the attainment of the standard ISDN bit
rate of 64 Kbit/s was difficult to achieve, thereby belying some of the limitations of
a radio link. The 64 Kbit/s signal, although simple to implement, contains significant
redundancy. Since its inception, GSM was destined to employ digital rather than
analog technology and operate in the 900 MHz frequency band. Most GSM systems
operate in the 900 MHz and 1.8 GHz frequency bands, except in North America
where they operate in the 1.9 GHz band. GSM divides up the radio spectrum
bandwidth by using a combination of Time- and Frequency Division Multiple
Access (TDMA/FDMA) schemes on its 25 MHz wide frequency spectrum, dividing
it into 124 carrier frequencies (spaced 200 Khz apart).

The most novel and far-reaching feature of GSM is that it provides most of cellular
phone users with a choice – choice of network and choice of operator. Also,
international roaming was and continues to be the cornerstone of GSM. For this to
be possible, all networks and handsets have to be identical. With many
manufacturers creating many different products in many different countries, each
type of terminal has been put through a rigorous approval regime. However, at the
time, no approval process was available, and it took nearly a year before the
handheld terminals were tested and fit for market entry. Another of GSM’s most
attractive features is the extent to which its network is considered to be secure. All
communications, both speech and data, are encrypted to prevent eavesdropping, and
GSM subscribers are identified by their Subscriber Identity Module (SIM) card
(which holds their identity number and authentication key and algorithm). While the
choice of algorithm is the responsibility of individual GSM operators, they all work
closely together through the Memorandum of Understanding (MoU) to ensure
security of authentication. This smartcard technology minimizes the necessity for
owning terminals - as travelers can simply rent GSM phones at the airport and insert
their SIM card. Since it’s the card rather than the terminal that enables network
access, feature access and billing, the user is immediately on-line.
The growth of GSM continues unabated with more than 160 million new customers
in the last 12 months. Since 1997, the number of GSM subscribers has increased by
a staggering 10 fold. During late 2003 or early 2004, it is predicted that global GSM
subscribers will smash through the one billion mark.

5.5 Controversy between WLL and GSM operators

The cellular operators are complaining that the new services did not have to go
through the license bidding process and that no interconnection will be given to
them unless access charges are paid. The question is whether the new service offered
by Reliance and Tatas is really WLL or not. If it is cellular then it is fair that all
operators are equally treated. The WLL operators should also pay for the spectrum
that they are using. Further, everyone should be allowed to bid for the spectrum to
provide WLL service, interconnect agreements should be the same as, or very close
to, that which the cellular operators signed.

Conversely, if WLL is truly fixed wireless, then to provide local communication

access to countless number of Indians should be encouraged as a low cost
alternative. Both GSM and WLL are wireless technologies whereby electromagnetic
signals are sent through air between user’s handsets and access switches which then
connect the signals into a network, usually wired. The concept of “cellular” wireless
network came about because during the initial design different regions were divided
into “cells”, each to be serviced by a different base station. Those moving from one
cell to another would be handed of to the corresponding base station servicing the
new cell. The network of base station could provide access to those moving around
in a large region. Different protocols have been used in digital cellular telephony
including TDMA, CDMA and GSM. Once the wireless call of a subscriber with
cellular phone reached the base station servicing him, it would route the call to the
nearest wired network. Thus the cellular network mostly provided only wireless
access. Without interconnect provided by the wired network, the mobile operator
would not be able to fully service their customer. As a norm, wireless operator pay
interconnect charges (IUC) to the operators of the wired operators, further , because
cellular operators use the airways at specific frequency ,it has to sought permission
from Government . In the last two decades, in almost every country including India,
spectrum license were given to companies through auction /bidding process. The
main motivation for this is to use these spectrum auctions to add money to the public
coffers. The rationale was that airways are public properties.

Most implementations of WLL do not provide much mobility regardless of the

technology being used .WLL is used in low and medium demand density areas and
used proprietary systems that are not available on public wireless networks.
Generally, these systems do not provide mobility. WLL implementations is what is
known as PCS/PCN standards, which uses low power antennas and light weight
inexpensive handsets and offer low mobility, not much more than 1 –2 kms. then ,of
course, there is CT-2/DECT standards which is simply an extension of the cordless
phones. all of these technologies use spectrum that is readily available and can be
deployed without any additional licensing agreements with the government. To
extend the mobility of the fixed wireless system, one can always set up a system of
WLL switches that can hand-off calls to each other. This then becomes “cellular” for
all intends and purposes.

In recent years, two other fixed wireless services have been deployed in many
countries : multi-channel multipoint distribution services(MMDS) and local
multipoint distribution services(LMDS). In the US MMDS operates in the 2 –GHz
frequency band and can provide access over a distance of about 50 Km from central-
transmitters site. LMDS uses transmitters operating in the 28-GHz frequency band
with each transmitter covering a distance of about 5 km. Clearly, there is
significantly more mobility in these technologies than in traditional fixed wireless.
In the US and many European countries, LMDS and MMDS spectrum are provided
only after bidding process.

In all the implementation of WLL, as in the case of cellular, the WLL operators will
not able to fully service their customers without inter-connect providers by both
wired operators and also mobiles ones. There should b some fair way of handling
the charges for this interconnect.

Truly fixed wireless can be deployed very quickly. It generally has a much lower
incremental cost than copper, and it is much cheaper than to deploy at a lower
subscribed density. Given the fixed nature of the technology, the switches also have
to do very little work to provide wireless access. Thus, the WLL switches are also
less costly than the cellular switches. Further, using CDMA or DECT for WLL
service is less costly than using GSM. The GSM architecture was designed to handle
international roaming and as such the switches have to deal with a large amount of
overhead work. The lower the mobility the lower the cost of antennas, switches and
handsets. On the top of this, there are no license fees and the interconnect charges
are low. No wonders that such a service could be offered much cheaply.

Conversely, if there is going to be significant, i.e., 10 km and above, mobility

attached to the new wireless technology being pushed by Reliance and Tatas, and
the transmission is going to be at 2 GHz and above, perhaps it is simply “cellular” in
WLL’s clothing.

To place the controversy in its international perspective, in much of telecom

development in the United States has centered on landline. Europeans took to the
wireless far more aggressively. The GSM (global system of mobile
communications) is a technology perfected primarily by the European nation to offer
a global system of telecommunications. With “universal roaming” as it is
cornerstone, GSM gives a unique number and a hand set that the user can seamlessly
cross the continents without losing a single call.
CDMA is a technology that was perfected and launched into the market place by a
single US vendor Quall Comm. The US as a country is far behind in mobile phone
adoption compared to the rest of the world, thanks to universal availability of
landlines in the abundance through out the country. CDMA came as a more superior
band with optimizing alternatives and a large reach south Korea is one country that
has adopted CDMA extensively. Many Asian countries including Australia, China,
Singapore and India are at various stages of adopting CDMA. Like every late entrant
in the technology space, CDMA has several better advantages over GSM- CDMA is
a better on radio, radiates less and has better reach. Because of its wider reach, for a
population that is sparsely populated over a larger area CDMA is likely to be more
cost effective. Because of global roaming feature if USP for GSM there are larger
overheads for GSM. CDMA does not have such high overheads. GSM technology
was perfected in late 80’s and widely adopted in 90’s. CDMA is relatively new- its it
a 1995 vintage technology.

However GSM today enjoys incumbent advantage, 400+ million installed base v/s
over 100 million-user base of CDMA. For international roaming GSM is the best
bet; CDMA is far from being available globally. Most CDMA operates globally
provide hand sent and lock in the customers.

Reliance is able to offer by far an inexpensive “mobile service” by combining a

series of limited mobility options at every circle and carrying inter circle traffic
using a nation wide fiber optic backbone. It is able to offer the promised service at a
cost that has taken everyone by surprise. True, the Reliance offer violates the “ letter
of the law” but in the “ spirit of the laws “ it offers far superior option to millions of
customers. This fact should lost sight of. It is true that the GSM operators do not get
a level-playing feel they should be compensated for the exorbitant license fee that
they had paid earlier (but only for the post 1999 period as they had charged the
public equally exorbitant tariff till then).

The real benefit to the cellular phone customers when the cellular phone operators
who have licenses over several circles could offer calling options across the circles
at the cost of a local call, no one complaint about extending” limited mobility”
within a cell “ full mobility” across the circles! While Reliance offer for “full
mobility” may be perceived as backdoor entry. The fact that it benefits large number
of customers should not be lost sight off. Every cell operators can and will offer
inexpensive phone service to match, if not better, the Reliance offering. TRAI did
not block such moves that are customer benefiting.

As for level playing field, a committee of experts may go into the compensation that
will have to be made to the GSM operators to ensure a level playing field. It should
not be missed out that if such a move was initiated in time, MTNL could have
played the role that Reliance is likely to play

One company, Qualcomm, controls CDMA; a consortium, similar to Windows

being controlled by Microsoft, controls GSM though pioneered by Nokia and
Ericcson. Many users do not want to be at the mercy of one company; this being
one of the latent reasons for resistance to CDMA, rather than any technological
merits or demerits. There are no clear winners in this tussle, though for some time
one “camp” might seem to be dominant. Ultimately price, phone instruments,
display, coverage and range, reputation and service quality would decide the market
success and not technology; it will never be CDMA or GSM; it will be CDMA and
GSM for a reasonable amount of time. Only the proportions could vary over the next
couple of years.

5.6 Why WLL Being Opposed By Cellular Operators?

It is not an opposition to the WLL but the concept but to the concept of limited
mobility. Cellular operators work on the GSM technology, which is the dominant
cellular mobile worldwide. Cellular operators object to the farcical concept of
limited mobility, firstly because it would be difficult to ensure that the mobility stays
“limited”, Secondly, they point out that 90% of cellular subscribers do not move out
of their SDCA, i.e. they do not use roaming facilities. This on the surface should
not be opposed. But the reasons for a stiff opposition is that, firstly it amounts to
giving entry to another mobile operator in a circle, and most importantly,. There is
no level playing field, in terms of license fees, access charges and so on.
5.7 How WLL Can Offer Lower Tariffs?

This again is a cause of dispute. Cellular Operators initially argued that WLL tariffs
were set so low because basic service providers could cross subsidize these from
higher revenue share from long distance calls. Subsequently, the revenue shares
from long distance calls were made the same for basic and cellular operators.
Cellular Operators now allege that the WLL tariffs (which are the same as fixed line
tariffs)are being maintained low as a “predatory Pricing” tactic. Basic service
providers, on the other hand, insist that the tariffs involved no subsidy and that they
have established this with the telecom regulator.

5.8 Some More Issues in the Tussle

There, however are certain more issues that need to be looked into, for
understanding the root of tussle between the GSM & WLL operators:

1. Issues in permitting limited mobility : Proponents of full mobility argued that

it did not make sense to impose artificial constraints on services that provide
benefits to consumers (TRAI 2001b). The proponents noted that the government
itself had asked for full mobility. Further, they argued that allowing full mobility
would ensure that competition and deregulation of the mobile telephony sector kept
pace with trends in national long-distance, international long-distance, and basic
service sectors. TRAI (2001a) maintained that while consumers should not be
denied a facility that can be made available to them through technological
advancement, specially if any adverse impacts to other service providers can be
mitigated through policy initiatives, full mobility ‘would pose a number of techno-
economic and regulatory problems’. In its recommendations TRAI (2001b),
provided the following reasons for limiting mobility.

First, TRAI asserted that allowing full mobility would make basic service
comparable to mobile service and thus essentially remove the distinction between
the two services. Because these services are provided under two different licenses,
TRAI contended that the distinction between these two services must be retained.
Second, TRAI stated that the frequency spectrum available for WLL is limited.
Currently, the available spectrum is 20 MHz (paired). Because the number of
subscribers that can be served is proportional to the frequency spectrum available,
the number of subscribers that can be served by WLL is also limited. TRAI asserted
that it would be difficult for a basic service provider to cover the entire circle and
provide service to all those who requested it, and, therefore, full mobility would
pose serious problems. Third, TRAI argued that if full mobility was allowed,
incumbent BSOs would be able to price intra-circle long-distance calls as local calls.
TRAI maintained that this would amount to heavy subsidization of the intra-circle
long-distance calls ‘in the garb of WLL services’. Further the incumbent, BSNL
(Bharat Sanchar Nigam Limited) or MTNL (Mahanagar Telephone Nigam Limited),
would be able to cross-subsidize WLL service from the profits from the ‘near
monopoly markets’ it enjoys in most of the telecom circles. TRAI further argued
that if full mobility were allowed, mobile service would become almost similar to
WLL service with full mobility and, therefore, the growth of the cellular service
market would be adversely affected.

Opponents of allowing any mobility with WLL contended that basic service
providers would get frequency spectrum for mobile service for almost nothing while
mobile service operators paid considerable amounts for the frequency spectrum—
almost 8.5 billion rupees per MHz, according to one estimate (Thomas 2001). In
addition, some of them argued that the technology used by Basic Service Providers
and the frequency spectrum allocated to them allowed them to provide WLL up to a
range of 15 to 25 km, and it would be impossible to restrict the Basic Service
Providers to a range lower than that (TRAI 2001b). Therefore, even with limited
mobility the Basic Service Providers would be able to provide service that would
compete with that provided by mobile service providers. Opponents of allowing any
mobility argued that this would be unfair because Basic Service Providers would be
able to provide the same service but under different license terms, service area
classification, and different levels of entry fee.

2. Unified, Technology-Neutral Licenses: The debate around the issue of limited

mobility with WLL highlights how the current regulatory and policy framework
limits customers’ access to a technology that has considerable potential for
providing them with low-cost service. These constraining aspects of the current
regulatory structure will become more pronounced with greater convergence of
markets and technologies in telecommunications. In addition to the blurring of wire-
line and wireless services, telephony and broadcasting are beginning to enter into
each other’s markets. As operators in one service area use their facilities to deliver
services reserved for other services, the existing policy framework will need to be
revised. One possible solution is to issue unified, technology-neutral licenses. Such
licenses with unrestricted entry provide a platform for better competition and allow
new entrants to find their niches more effectively. The Draft Communications
Convergence Bill (DoT 2001) addresses this issue. According to the Draft Bill, the
proposed Communications Commission is required to grant licenses in four
categories:

(1) Network infrastructure facilities,

(2) Network services,

(3) Application services, and

(4) Content application services.

This licensing regime will result in unified, technology-neutral licenses for various
application services such as telephony. However, the move to unified, technology-
neutral licensing cannot be accomplished without considering several issues
associated with changing the licensing regime. First, the licenses that are currently
issued for different services, for example basic and mobile telephony, need to be
revised to make them uniform, and that includes making uniform the fees being
charged to the providers. While this may be easy to do for future payments – as was
done by TRAI in its recommendations on limited mobility with WLL by reducing
the revenue share for mobile service from 17% to 12% to make it consistent with the
share Basic Service Providers were being charged – it may be harder to decide
equitable treatment of previous payments. For example, if mobile service providers
have been paying a higher license fee in the past for the same service that Basic
Service Providers can provide with a lower license fee, is there a need to
compensate mobile operators for these higher payments in the past? If so, how
should the required amounts be determined?

Second, until now the numbering plan was such that exchanges could distinguish
between long-distance calls and local calls. However, if with full mobility, a Basic
Service Providers can provide a long-distance call at the same tariff as a local call,
then the distinction between a long-distance call and local call disappears. This will
require a change in the numbering plan.

Third, if the government does allow a unified license for telephony, it must
reconsider its decision to not allow telephony over the Internet. Telephony over the
Internet is another technology that would compete with basic service because it may
be able to provide this service at lower costs. If the government is considering a
technology-neutral license, then it must allow all potential technologies, including
Internet telephony, to compete.

Last, some stakeholders have argued that the use of unified licenses may eliminate
small players in the markets. According to these stakeholders, separate licenses
enable a large number of small players to enter the various markets. Some of the
markets such as those for ISPs (Internet service providers) allow the presence of
many players while others such cause of limitations of the frequency spectrum or the
requirement for large investments in infrastructure, respectively. By removing the
distinction between these markets, we may also remove small players because they
may not be able to compete with other players with deep pockets. Thus, as
convergence is likely to reduce the number of viable players in the sector, it will be
important to monitor the market to ensure that there is no abuse of market power by
the players. Thus, there may be benefits from the move to a unified license regime,
in particular to provide a regulatory framework that is compatible with the growing
convergence of technologies and services in telecommunications. However, there
are several issues that need to be addressed before such a licensing regime can be
successfully implemented.

On 8th January 2001, TRAI recommended for Basic Service Providers that it was
not treating the provision of limited mobility with WLL as a service outside the
ambit of their service provision. It said to do otherwise would be to prevent
consumers from benefiting from the fruits of the technological progress. It noted that
the quality of service provided by cellular operators was superior to what will be
provided by Basic Service Providers by using WLL and, hence, it will not effect the
cellular operators' business, it also stated that it is a different service. It said it views
WLL with limited mobility similar to a supplementary or value- added service for
basic service. In that sense, this service would be similar to the supplementary
services and roaming services that are presently allowed for cellular mobiles. The
Authority further said that there is no reason to reconsider the issue of an entry fee
for Basic Service Providers particularly because the purpose of an entry fee was
mainly to deter non-serious entry of service providers. Likewise, the license fee and
revenue share percentages need not be altered for Basic Service Providers. Though
their revenue streams will now be higher, the amount of revenue share license fee
will also be higher as a consequence. The Authority does not favor imposing a
greater license fee burden on the service providers, as it will pass these high fees on
to the consumer. It also said the charge made from WLL handsets should be same as
the local call set at Rs. 1.20 per 3 min.

5.9 Some Concluding Observations

Telecommunications reforms policies everywhere have recognized the need to have

many more participants than the incumbent operator in the process of
telecommunications network expansion and service development. It is generally
accepted that these new participants will stimulate development of the sector and
provide a degree of competition to the incumbent public telephone operator thus
positively influencing the efficiency of service provision. Thus the question is no
longer to have competition- the traditional arguments for exclusivity no longer hold.
Instead, it is how fast competition should be ushered in.
 CHAPTER-6
RESEARCH METHODOLOGY, FINDINGS & ANALYSIS
6.1 Objective of Thesis

To understand what are the opportunities and scope of telecom sector. Moreover
what they are doing in order to serve their customers, clients as well as future
prospects in better and in most effective manner, which in turn help them in
increasing their market share, and profitability by providing value for money &
desired quality of service to their customers. Moreover projection of customer’s
need well in advance and using proper medium to communicate & educate their
customers to make maximum use of available services and offers..

Studying how telecom sector is generating revenue by providing various value

added service such as GPRS, Caller tunes, ring tones, wallpapers, and other value
added services. To study and review the various marketing strategies of various
players present in the telecom industry. Also to compare and contrast the profiles of
companies and market segment captured by them.

6.2 Scope of your thesis work:

The reason for selecting the topic is that I am working in the telecom sector &
moreover this sector is one of the fastest growing sectors of service industry in
India. This sector is growing very fast as compared to the other sectors, & at the
same time lot of opportunities, and expectation came from the customers to provide
excellent service in less cost.

6.3 Sample Summary

Area New Delhi

Size 224 Respondents

Technique Random Sampling done across New Delhi.

Selection The respondents were selected at random and were

approached mostly in public places, in various areas
of New Delhi; Lajpat Nagar, Ashok Vihar, Dwarka,
Greater Kailash, Connaught Place.
6.4 Modes of Data Collection

Questionnaires

Primary Reliance Infocom

On The Job Training
KSA Technopak
Observation

Secondary
Newspapers, Books Magazines

Internet, Journals

6.5 Questionnaire Design

The questionnaire design is close ended, and carries information pertaining to

aspects relevant to the scope of the study. Since, the impetus of the study is towards
perception mapping: hence questions pertaining to this particular aspect are designed
to measure responses on a Scaled Basis

6.5.1 Rationale of the questions asked

 Question No. 1 to 5ha

(Please refer to the Annexure-for a Sample of the questionnaire)

6.6 Primary Data Analysis & Project Work Flow

Data Collection

Coding & Arranging

SPSS

MS Excel

Decoding

Statistical Reports

Interpretations

Findings, Conclusions
& Recommendations
6.7 Findings

6.7 .1 Overview

The sample survey done was in New Delhi, and care was taken that respondents
should adequately represent all possible demographics permutations. Hence the data
collected could be relied upon as being an ample representation for the purpose of
this study. However, the author feels it prudent to admit certain shortcomings that
were observed during data analysis:

 The sample size chosen was, as best permitted by the constraints of time and
resources and the practicality of conducting genuine research and not
arbitrarily collected or fudged data.

 It is felt that the categories of “Housewives” & respondents from the higher
income group (40,000 and above per month) remain underrepresented.

 The entire questionnaire was not filled up by explaining each and every
question to the respondents.

 Although the data converted into digital format for analysis was double
checked for any errors of omission and/or commission, it is assumed with a
confidence of 99.99% that there were no errors of the described nature.

6.7.2 Data Reflected Findings

Respondents Age Group

Age Freq. %age

15 to 20 30 13.4
20 to 25 47 21
25 to 30 56 25
30 to 35 20 8.9
35 to 40 14 6.3
40 to 45 19 8.5
45 to 50 13 5.8
50 to 55 7 3.1
55 to 60 2 0.9
60 & Above 2 0.9
Missing 14 6.3
Total 224 100
Respondents Occupation

Occupation Freq. %age

Service 71 31.7
Business 49 21.9
Student 56 25
Housewife 2 0.9

Professional 32 14.3

Missing 14 6.3

Total 224 100

The respondents vary in age from 17 years to 79 years. The average age of the
respondents is 24 years and the age groups 15 to 30 are found to be the maximum,
59.4%, in the sample. While the single most dominant group in the sample are the
respondents in the age group of 25 to 30.

The maximum respondents are engaged in Service as an occupation (31.7%),

followed by Students (25%). The expectations of various groups vary, if we
permeate the basic level of requirements, that is call receiving and sending. As the
data to follow shows, the usage parameters, expectations from the service providers,
the level of satisfaction attained, and the willingness to sacrifice (in terms of
charges/price payable) are governed by two basic parameters:

1. Monthly Income &

2. Occupation

Although Social group to which the respondents belong also has a bearing on his
telecom expectations and the level of sacrifice, but lack of conclusive data and a
great number of ambiguities in the data do not qualify this particular aspect to be
remarked on, in this study.
Education Level

Education Freq. %age

Under Graduate 40 17.9

Graduate 67 29.9

Post Graduate 41 18.3

Professional 60 26.8

Missing 16 7.1

Total 224 100

Social Group

Social Group Freq. %age

A 64 28.6

B 31 13.8

C 114 50.9

Missing 15 6.7

Total 224 100

To develop the demographics, the respondents were to asked to tick whichever items
they owned, out of a given 7 items. On the basis of the responses, the total sample
segregated into three categories:

Category A- Respondents in the topmost social group, possessing 5 to 7 items

mentioned in the questionnaire, out of which, Club Membership, Car, and Credit
Card is a must.

Category B- Respondents in this group possess 3 to 5 items mentioned in the

questionnaire, out of which Personal Computer and Music System is a must.
Category C- Respondents who do not belong to either of the above groups.

The above categorization becomes important in the context of developing the

demographic profile of the respondents and to have a better understanding of the
customers’ needs and expectations by developing an empathic view on the customer
profile.

Monthly Income

Monthly Income Freq. %age

Below 10,000 64 28.6
10-20,000 61 27.2
20-30,000 47 21
30-40,000 14 6.3
40-50,000 6 2.7
Above 50,000 11 4.9
Missing 21 9.4
Total 224 100

More than 55% of the respondents have their monthly income from Rs. 0 to 20,000,
while the higher income group (Rs. 30,000 and over) only constitutes about 14% of
the total respondent base. The important thing to bear in mind here however is the
fact that these respondents are the highest contributor to the company’s revenue as
these are the highest users in terms of minutes of usage.

Duration Of Usage

Since When? Freq. %age

Less than 1 yr. 57 25.4

1 to 2 years 60 26.8

More than 3 yrs 73 32.6

Missing 34 15.2

Total 224 100

Type Of Connection

Type Of Connection Freq. %age

Prepaid 87 38.8

Postpaid 104 46.4

Missing 33 14.7

Total 224 100

Respondents who have been using cellular services more than three years constitute
about 32%, while those using it for less than one year and more than one year but
less than two years are 25.4% and 26.8% respectively. The length of usage, again
has a bearing on various aspects of a cellular customer profile, mainly:

1. The loyalty increases with the term of usage.

2. The respondents who have been using cellular for more than
one year are in a better position to comment objectively on the various
experiences that they have had with the service providers. So keeping this in
mind, weightage has been attached in increasing order with respect to the
length of usage, for the purpose of mapping the level of
satisfaction/dissatisfaction.

3. The expectations of the users increase with the passage of

time.

Above table represents the type of connection and as it is evident there is no drastic
difference between the two, yet the no. of subscribers who have opted for post-paid
plans outweigh the prepaid plan users by about 7.4%. This is not a very strong
enough difference to make any conclusive statement, but it should be borne in mind
that the type of connection may have some influence over the usage pattern and the
experience of the subscribers mainly on the account that:

1. Prepaid subscribers have the flexibility of

curtailing their minimum expenditure on their mobiles, while the post paid
 subscribers are bound to pay a minimum amount regardless of their usage or no
usage for that matter.

2. Post paid subscribers have certain benefits like

reduced call rates and no of free calls, SMS charges and other benefits that vary
from service providers to service providers.

Usage of Services (%)

Usage SMS/ Internet Call

Incoming Outgoing Voicemail
Frequency MMS / WAP Forwarding

Most 58.5 21.9 27.7 0.4 2.7 3.1

Frequent 22.3 33.9 20.5 8.5 14.7 4

Occasionally 3.1 24.1 21.4 10.3 6.3 8.9

Rarely 0.9 4.9 6.3 8.9 11.2 12.9

Never 0 0 5.8 53.1 46.4 52.2

Missing 15.2 15.2 18.3 18.8 18.8 18.8

Total 100 100 100 100 100 100

The data given in table above is an attempt to map the various categories of services,
that a subscriber has an option of using, that are being offered by the service
provider. The respondent’s views on the same have been presented in above table.
The following are the major findings from the data collected:

1. Incoming Call facility is being utilized maximum by all the categories of

subscribers, and as much as 80.8% (Most & Frequent together) use this facility,
the most. This facility is being utilized the most, especially after the TRAI ruling
in January, this year, making all incoming calls free on the general principle of
CPP (Calling Party Pays).

Outgoing calls on the other hand have a more humble figure owing to the fact
that these are charged and users are expected to be more prudent in the usage.
The subscribers, per data, depicts that the respondents attach a different degree
of importance to this facility. Although there could be little doubt as to the fact
 that all users primarily enter the cellular circle due to the twin advantages: Make
and receive calls from anywhere(Subject to the network presence, of course), yet
the facility of making calls is utilized to a great extent based on two factors:
Price to be paid and the Urgency/Importance of the call to be made.

2. SMS, and now MMS have revolutionized the way we communicate today.
This could be substantiated from the fact that on the eve of Diwali (an Indian
festival), as much as 10 million SMS messages, truncated through a single
service provider- Airtel, and that too originating only from New Delhi. It has
evolved as a cheaper and an innovative medium of communication in lieu of
voice. Although this concept is not very popular in the United States, and
Europe, yet it has one of the largest users in the South-East Asia, where
Philippines is recognized as the heaviest user of SMS facility per user.

3. Facilities like Internet, Call Forwarding and Voicemail have the least no. of
users who are either actively using it or derive some kind of benefit in using
them. Almost 50% of the respondents, on an average have never even used these
three facilities.

Satisfaction Index
70
60
Percentage

50
40
30
20
10
0
Tariff Plans

Fulfilling Of
Customer

Experience
After Sale
Billing

Promises
Service

Overall
Care

Satisfaction Parameters

Very Satisfied Satisfied Dissatisfied Highly Dissatisfied

On an average 55.4 % respondents are satisfied on the various parameters. 59% of

the respondents are satisfied on the parameters of Billing, Tariff Plans and Overall
Experience. While the highest level of dissatisfaction (14%) is observed, while the
respondents feel that the service provider has not been to fulfill all the promises that
were made to the subscriber at the time of his purchase, followed by unsatisfactory
performance of the provider in case of Customer Care and After Sales Service
(10.8% and 9.3% respectively). On the whole it could be commented here that their
respective service provider satisfies the subscribers. About 10 years back, this
particular index could hardly have had any meaning, as there was only state
controlled DoT, and the monopoly over the telecom sector, hardly left any space for
customer sensitivity, responsiveness, or customer care for that matter. However, in
todays time, with the competetion level driving companies to the limit, it makes
sense that no ground is left uncovered, to make sure that even dissatisfaction of
3.5% (Billing) and 8% (Tariff Plans) is reduced to a minimum.

Users Importance Index

90
80
70
60
Percentage

50
40
30
20
10
0
Importance Parameters
cy

es
s
y
e
nd

es
g

n
lit
ic
in

en

ur
la
bi
rv
a

em
ic

fP
Br

at
ila

ci
Se
Pr

f fi

Fe
va

r if
Sc

tE
es

Ta
fA

n
al

ec

O
O
rS

nn

d
e

Ad
te

on
Ea
Af

Very Important Important Not Important

Least Important Not At All Imp

The level of importance that users attach to each parameter is different and although
each user has a different set of view as to the importance he would like to attach to a
particular attribute, yet, on the study of data, the following observation were made:

1. 76% of the respondent attach the maximum importance to pricing, which

is not a surprise, given the price sensitive nature of Indian customers. But on the
other hand, there are 9.8% respondents who do not attach importance to pricing,
but are more conscious of the service that they expect from their providers.
 2. 67.8% of the respondents attach importance to the Brand of the serfvice
provider, but on the other hand, 16.5% consider brand as totally unimportant, but
would rather base their decision of choosing a service provider on the basis of
the value that they perceive, they can derive, by such a choice.

3. The maximum importance attached to any parameter is in the case of

Connectivity efficiency, because of a simple reason, that no matter how low the
price become, but unless a minimum level of customer’s basic need ( and the
entire value proposition of cellular services) is Connectivity, without which,
other features loose any kind of attraction.

4. The least importance attached to is , Add on Features., which would

entail: Call forwarding, CLIP service, Voicemails, SMS based information
services and plethora of others. As much as 62.5% respondents feel that this
particular parameter has the least influence on their decision making, while
choosing their service provider.

Analysis and Cross Category Comparisons

Level of Understanding

Customer's Plan Rating

50

40

30
Frequency
20

10
0
Very Easy Easy Cant Say Difficult Very
Difficult
Parameters

Type Of Connection Prepaid Type Of Connection PostPaid

Understanding of the tariff plans offer an area where there could be a lot of
confusion and miscommunication between the provider and the user, due to the very
fact that there are a lot of complications involved, in tabulation of tariff plans, so
that the user perceives the maximum possible benefit, gets a choice to choose his
provider and also at the same time, the tariff plan should be viable for the
companies. Such a comparison becomes more meaningful and enriched, if there is
an in-depth study of the demographical categories that find the understanding of
plans easy or difficult, so to enrich the level of our knowledge of customer
understanding, this particular aspect is being analyzed from the point of correlations
between the following:

Social Group Vs Plan Understanding

100%

80%

60%

40%

20%

0%
Very Easy Easy Cant Say Difficult Very Difficult
Param eters

Social Group A Social Group B Social Group C

The respondents were asked to rate the tariff plans that were being offered to them,
on a scale of 5, where 1 is the most easily understood and 5 is the rating for most
confusing. On the study of the responses, following observations were made:

1. 52.6 % of the post paid subscribers find the tariff structure very easy to
understand, while only 31.5 % of the prepaid subscribers find the plans very
easy to understand,. The reason for this could be attributed to the fact that post
paid subscribers get a detailed bill after each billing cycle, which has the
description of the usage and price break-offs, while the pre paid subscriber does
not have this facility and his balance is debited every time he avails any paid
facility.
2. On the other side , the prepaid subscribers find the tariffs more difficult to
understand than their post paid counterparts, mainly on account of the reason
mentioned above, but at the same time, it should be noted that only a total of
11%(Both Pre and Post paid) rate the plans as difficult, so it could be concluded
that understanding of the tariffs, per se do not pose any serious barrier in the
customer’s perception regarding the providers.

Another important thing to keep in mind here is to understand, who finds these
difficult and which group of customers is comfortable. Such an analysis on part
of the company would make understanding of their respective customer base
more enriched and these could be take into consideration while designing tariff
plans. As the data shows, Respondents belonging to Social Group C, find the
plans the most difficult to understand, hence the designing of tariff plans should
be done, keeping in view the demographics of this particular section( More
Importantly, as this group represents about 51% of the total respondent base)

The level of understanding of the tariffs plans is not influenced by the level of
education (Figure given below), hence nothing concrete or conclusive could be
commented upon this matter, the reason being that there is no obvious
relationship trend that emerges between the two.
 EducationVs Plan Understanding

100%

80%

60%

40%

20%

0%
Very Easy Easy Cant Say Difficult Very Difficult

Plan Rating

Under Graduate Graduate Post Graduate Professional

The study of sample shows that there is no major correlation between education and
level of comfort that the subscribers may have in the understanding of the tariff
plans, yet it should be borne in mind that education does have an important bearing
on the expectations of the subscribers
 Age Vs Plan Understanding

100%

80% Very Difficult

Difficult
60% Cant Say
Easy
40% Very Easy

20%

0%
15 to 20 20 to 25 25 to 30 30 to 35 35 to 40 40 to 45 45 to 50 50 to 55
Age

There again, no conclusive remark could be made, since there is no observable

correlation between age and understanding of the tariff plans.

Service Provider and Plan Understanding

Very
Difficult

Difficult
100%
90%
80% Cant Say
70%
60%
50%
Easy
40%
30%
20%
10% Very
0% Easy
Hutch Airtel Idea Reliance
Levels

Reliance scores the highest in terms of ease of understanding of the tariff plans,
followed by Idea and Airtel, and Hutch. Idea, interestingly ,also has the highest no.
of users who have difficulty in understanding the tariff plans. The author would like
to mention here that while studying data, it was observed that there is ambiguity in
the data collected from the respondents who are using Reliance. More than 80% of
the respondents had marked their type of connection as Prepaid, while Reliance does
not have a prepaid plan, and operqates only on postpaid plans which are in the form
of monthly billing cycle

6.6.2 Customers Spending Pattern

Every business is interested in knowing their customer’s spending pattern, because

based on this information, holistic policies of strategic importance like pricing and
target markets are devised. It also acts as a competetion benchmarking parameter.
To understand the customers spending pattern, this study entails:

1. The study of customers Income patterns

2. The study of customers spending pattern (specific to telecom)

Monthly Income
Social Group Total
Below 40- Above
10,000 10-20,000 20-30,000 30-40,000 50,000 50,000

A 14 7 28 2 5 8 64

B 7 7 6 8 1 2 31

C 43 47 13 4 1 108

Total 64 61 47 14 6 11 203

Income levels and social groups are in direct proportion and as the income rises, so
does the no. of respondents in the social group. This would definitely have an impact
on the spending in general and telecom spending in particular and as discussed in the
later part of the study, Income-Social group has a great impact on the actual needs
and the level of importance that is attached to various parameters in choosing a
service provider.
 Monthly Spending- Type Of Connection

3000 & Above 15

Monthly Spending

1500 to 3000 3 15
Prepaid
800 to 1500 7 20
Postpaid
500 to 800 39 38

250 to 500 38 16

0 20 40 60 80 100
Number of Subscribers

Customer’s who spend up to Rs. 500 per month, opt for a pre paid connection
(70.3%) while in the higher spending group, 90% and above opt for a postpaid
connection,. The reason for this kind of pattern is that heavy users opt for post paid
due to ease of payment and also that the call charges are comparably lower in this
type of connection. There however, is equilibrium attained in the moderate spending
per month (Rs. 500 to 800 per month), where the prepaid and post paid customers
are almost equal. This could also be identified as the demarcation line of customer’s
who are in the transition phase of either promoting themselves from a lower
spending level to a higher one or on the contrary, are deciding on curtailing their
expenditure , so that they come move from a higher spending level to a lower one. In
otrher words, this could be an important zone for providers to identify and base their
strategy to maximize upward transition rather than the other way.

Monthly Incom e-Monthly Spending

60

50

40 3000 & Above

1500 to 3000
Frequency 30
800 to 1500
20 500 to 800
10 250 to 500

0
Below 10- 20- 30- 40- Above
10,000 20,000 30,000 40,000 50,000 50,000

M onthly Income
There is a direct relationship that exists between income and spending; the data in
the graph above substantiates this statement. As the income level rises, so does the
monthly expense of respondents on their telecom needs. Although the subscriber
base is the widest at the lowest income level, yet the service providers derive the
bulk of their revenues from the low in numbers, but high in spending; the upper
income- spending group from where the bulk of the revenue is drawn by the service
providers

Service Provider wise -Spending Pattern

3000 & Above

70

60 1500 to 3000

50 800 to 1500

40
500 to 800
30
250 to 500
20

10

0
Airtel Hutch Idea Reliance Trump

As evident, Airtel has the largest subscriber base, followed by Reliance, Idea, Hutch
and Trump (As per the sample). Airtel has the maximum no. of subscribers(34.3% in
the spending range of 250 to 500.

Followed by 29.9% in the range of 500- 800. The “Cash Cow”, i.e. the top most
category of 3000 and above contribute only 6% to the company topline. In this
respect, Hutch is the leader in the premium segment, by cornering 14% of the total
premium market share. Reliance also has done well by establishing its presence in a
strong manner, in a short span of time, inspite of the fact that it had launched a new
technology, in a nouvelle marketing strategy and against a very stiff competition.
(Exact data for Reliance market share is not available).
6.6.3 Customer Perception of the Service Provider

Usage Wise Ranking

Usage Airtel Hutch Idea Reliance

Outgoing Calls Rank 3 Rank 4 Rank 2 Rank 1

Incoming Calls Rank 2 Rank 4 Rank 3 Rank 1

SMS/MMS Rank 4 Rank 3 Rank 1 Rank 2

By a careful analysis of the data of the customer’s usage pattern, the above ranking
has been awarded to the respective Service provider and the data warrants the
following comments:

Understandably, Reliance is ranked no. 1 in the usage of Outgoing Calls,

by the users, for a simple reason that under the introductory offer by Reliance, it
offered its customers a never before call charge of 40 paise per minute* (0.80 cents
approximately at the rate of US $=Rs.46.5), while the prevalent rate charged by
other service provider, on, an average was approximately Rs. 2.40* (5.16 cents).
Idea is ranked no. 2 for the same category due to its tariff structure, which unlike
other providers (except Trump), offers Off-Peak hour discounts to its customers.

Reliance is ranked no.1 in the terms Incoming calls as well; this again is
due to the fact that Reliance, being a WLL technology oriented provider is able to
offer cheaper rates and that too on it’s own network. Idea is ranked no. 1 in the
usage of SMS /MMS. There could not be any generic comment on this particular
achievement by Idea, due to the fact that there is no visible difference between the
SMS/MMS service provided by Idea and others (with the exception of Reliance,
which has arrangements with only two service providers for exchange of messages
on each other’s networks; Airtel and Idea)
 Income Level And Importance attached to the Services Offered

Level of
Below 10,000 10-20,000 20-30,000 30-40,000 40-50,000 Above 50,000
Importance

Connectivity/
Pricing/
Pricing/After Brand/Ease of Brand/After Availability/
Very Important Pricing Availability/Co
Sale Service Availability Sales Service After Sales
nnectivity
Service

Schemes/Conne Brand/After Tariff Plans/ After Sale Availability/Co Add On

Important
ctivity Sales Service Connectivity Service nnectivity Features

Tariff
Ease of Plans/Pricing/
Not Important Schemes Brand/Schemes Tariff Plans
Availability Add On
Features
Least Add On Add- On
Schemes Tariff Plans Schemes
Important Features Features
Add -On
Not At All Imp Price
Features

The importance that each income group attaches to the various Services offered as a
basis of choosing a service provider is presented in the form of a matrix in the table
above. And the following observations are made:

 Pricing, although is a very important parameter for almost all the income group.
Yet it could be said that it is not the only yardstick that the customer has, while
making a decision of choosing the service provider. The income groups of
30,000 and above, for instance, as visible from the matrix, do not consider
Pricing as a very important measure, they instead would appreciate value,
service and quality and would be willing to pay the price for it.

 The matrix again exemplifies the age –old marketing concept of segmentation
and targeting. As the needs and the limitations of each category vary so, there
needs to be a customization of the services, in the sense that there needs to be a
package of offerings, which fulfills the value proposition of each segment
respectively.
 CHAPTER-7
CONCLUSIONS AND RECOMMENDATIONS
There are two facets to a service: The user and the Provider. Both of them have a
different perspective towards each other, and rightly so, owing to a difference in the
needs, aspirations, level of commitment and the degree of sacrifice that each makes.
The binding factor, nevertheless, remains the product/ service.

One of the fundamental issues in marketing has been communication: which in itself
is not just a singular, one time activity, but in fact a set of carefully designed
package that is projection of a company’s image, product, values and commitments
towards its customers. While , on the other hand, customers communication is a
rather subdued one and has to be deciphered into understanding of the needs, the
need fulfilled and communicated to the customer that a solution exists for the
deficiency of a need.

The study in the project has lead to an understanding of the environment that
encompasses, influences and shapes the telecom sector in India. The study of
consumer groups in the form of data collected through the questionnaires, in turn has
lead to many unexpected findings, which , restricted to the scope of the study could
be useful in understanding the dynamics of consumers.

The primary questions to be answered, from a customer’s point of view, while

initiating this study were (as proposed in the Project Proposal)

1. What exactly are my telecom needs?

2. The telecom company is offering so many services, do I need them?

3. The charges being levied on me are for so many services that I do not use
and do not want to use either, why should I pay for them?

4. Billing structure is very complex; can’t they make it a little easier?

In addition to the above, there are certain recommendations, based on the findings,
for the benefit of the Service providers.
Defining needs for an individual becomes difficult, owing to the fact that these are
very subjective and can not be easily quantified, yet an attempt is made to identify
the needs of customers as a whole, based on the primary research conducted.

Primary User Specific

Secondary Needs
Needs Needs
(Subjective)
(Absolutes) (Customized)

Internet/WAP
Call Forwarding
Voicemail

SMS
Affordability
Roaming
Connectivity

With the advent of the competition, especially after government allowing full
Foreign Equity participation, the number of options available to the customers is
manifolds: Firstly there is a choice of the Technology (WLL or GSM), Secondly
there is a choice of service provider and Thirdly, there are a no. of tariff plans
available to the customers to choose from. From the customer’s point of view, this a
choice but from the companies point of view, it is the intensifying competition,
wherein the high cost (Entry, Infrastructure, Network), can be recovered only
through volumes (in manufacturing parlance and Large numbers in Service
parlance). The competition also demands a Para-price strategy, to enrich the offer,
hence a constant value addition is being done in innovative ways. For example,
Dial-A-Pizza or Car or Mechanic service by Hutch, Ringtones downloading by all
the providers, Automatic Voicemail and optional Retrieval Service by Airtel , to
name a few. Now customizing such a wide array of service is not a cost effective
solution and ultimately the customer would have to pay for it, hence the package of
value added services is little to unbundle and price it piecemeal.
Certain problems arose out of a Focused Group discussion, one of them was that
there was an inherent difficulty of the participants in understanding the tariff plans
being offered. But contrary to the initial belief, 53% of the respondents found it
easy to understand the tariff plans being offered to them.

Recommendations for the Service Providers

1. Clear Needs Identifcation: Customer feedback and constant

up gradation to understand the needs of the customer has to be an on going
activity. This gains further importance in the light of the fact that the rate of
change is quite rapid nowadays an hence the needs of the customers are
reinvented and become obsolete at a very fast pace. During the data analysis it
was observed that although the services provided by companies are quite
technological advanced and the users can benefit a lot from them, yet a majority
of the users are not availing the benefits of it. So it should be left at the
discretion of the users which services he would use.

2. Personal Touch : Personal touch is being lost and telecom

services are becoming mass services in nature. With the advent of technology, of
course personal touch could be introduced at certain aspects of customer
relationship. For example, instead of seending notifications to the customers
through SMS and addressing as “Dear Subscriber”, could be easily replaced with
“ Dear John” or “Dear Paul” etc. also, despite the facty that tghere are customer
service centers, yet the users (especially Airtel and Reliance subscribers) find it
difficulot quite frequently to get through the Customer Service Centres.

3. Degree of Customization: The users feel that they are

paying for services that they are not using. Now, from a provider’ view it
becomes very cost inefficient to have highly customized services for their
subscribers when the subscriber base could be as large as a million (Airtel’s
Delhi subscriber base). But at the same time efforts could be made, so that there
is enough room/option available at the time of subscription. It should be done in
a such a way that a bare minimum package should be offered and the customer
can himself add on whatever services he thinks could be useful to him. There is a
twin advantage in this kind of an approach:
 a. The package would be more useful, customized and cost friendly for the
subscriber.

b. The customer attrition rate would be lesser in this case because the
premium would be placed on a self chosen bundle of services that may not
be matched by competition.

4. Educating the Customers: Customers per se need to be

educated about the various services, their usage , the charges levied upon them
etc. in a proactive way. Which would mean that the initiative should lie with the
providers to constantly educate customers. A more enlightened customer is
inclined to use the services in a beneficial manner and enhance the fundamental
for which services are introduced in the very first place; Value Addition.

5. Simplification of tariff plans and cosostency: There is little

doubt that the tariff plans are complex, and as such there are constant changes in
them. Although this is notentirely under the purview of the companies, since
regulatory authorities determine and revise the tariff plans from time to time, yet
there needs to be some sort o fconsisitency , such that the user has clear
understandingof his financial commitments.

Recommendations For The Users

1. Need and FIT analysis: the customer needs to be clear on his requirements
and the level of financial commitment that he is willing to make. The FIT
analysis would entail the degree to which the subscriber feels that his needs
could match with the services being offered to him. This proactive approach
would benefit the customer both in terms of choosing the right service provider
for him and also save on his time and resources in case of choosing the best
suited provider.

2. Survey: The user need to look beyond the advertisement and promotional
gimmicks of the companies and should conduct a survey of various service
providers and do a comparative analysis, specific to his own needs to identify the
most suited package for himself.
 3. Proactive: although it is expected that the companies would be
communicating to the customers in detail regarding their service offering, yet the
customers themselves should be proactively engaged in asking relevant doubts
clarified before they commit.

LIST OF REFERENCES
1. Bagchi, Pradipta: “Telecommunication Reforms and the State in India: The
Contradiction of Private Control and Government Competetion”, CASI
Ocassional Paper#13, December 1996
2. Singh Harsha Vardhan, Soni Anita and Kathuria Rajat: “Telecom Policy
Reforms in India”, Convention on Telecom Reform, New Delhi, March 1998.
3. Arthreya, M.B., “India’s Telecommunication Policy, A Paradigm Shift”,
Vol.20, No.1, Edition 1996.
4. Dr. Komandhur, Sowri Rajan: “Telecom Issues in India”, Ph.d, Head
Telecom Division, Indian Telecom, Journal of Indian Telecom, April 96.
5. Taneja, Abhinav, “A Phone in Every Village:Taking Telecom to Rural
India”, New Telecom Quarterly, September, 2001.
6. “Procedure for Allocation of Spectrum on First Come First Served Basis”,
Government of India, Ministry of Communications, Department of
Telecommunications(23 March 2001), available at www.dotindia.com
7. Srinivas,S, Kaushik, “Liberalisation Of Telecommunications Services And
Norms Relating To Interconnection In India”, Faculty of Law, McGill
University, Montreal, January,1999,
http://www.law.mcgill.ca/institutes/csri/paper-kaushik.
8. Recommendations on the Introduction on competition in long distance
telephony: Telecom Regulatory Authority of India; December 13, 1999;
http://www.trai.gov.in/dldrecomn.htm
9. Noll, Roger, “Telecommunications Reform in Developing Countries”; AEI-
Brookings Joint Center for Regulatory Studies; Working paper 99-10, November
1999
 10. Hasan, Shahid, “End of VSNL’s Monopoly in 2002”, TERI, New Delhi,
India.
11. Government of India, Press Information Bureau, National Telecom Policy
1994
12. ITU, 1999, “Trends in Telecommunication Reform 1999”, page 129
13. Statement of Vinod Vaish, Chairman, Telecom Commission of India, at the
Asian Regional Conference of WSIS (Tokyo 13-15th January, 2003
14. Report by Randall Heaton, Product Marketing Senior Consultant,
International Engineering Consortium, Available on
http://www.orcnet.ca/docs/wll.pdf
15. Michael Lee, “WLL In Emerging Markets: Key Deployment Issues” ,
Intelecon’s Wireless Market Analyst, available on
http://www.inteleconresearch.com/pdf/WLLForum.pdf
16. Alan Sicher “GPRS Technology Overview”, , Communications& Product
Planning Manager, Dell, available on
http://www.dell.com/downloads/global/vectors/2002-gprs_overview.pdf

17. “When there is a WLL there is a way” The Economic Times, 7 March, 2003

18. Report of The Group On Telecom & IT Conevergence On Limited Mobility,

Ministry of Finance, 13 th December, 2001

Others
1. Department of Telecommunications (DoT): Annual Telecom Statistics
(various years)
2. ICICI (1992): International Experiences in Telecommunications Reforms
and its Relevance to India. Background Papers to Seminar, November
1992.
3. India Infrastructure Report - Expert Group (1996): - Policy Imperatives for
Growth and Welfare, NCAER, New Delhi.
4. Planning Commission (1999): Ninth Five Year Plan, Planning Commission,
India.
 5. Telecom Regulatory Authority of India (TRAI 1998): Consultation Paper on
Framework and Proposals for Telecom Pricing.
6. Telecom Regulatory Authority of India Act (1997)
7. Utton M.A. -(Basil Blackwell 1986) - The Economics of Regulating Industry
World Bank (1997) Telecommunications and Economic Development, Johns
Hopkins University Press.
ANNEXURE
 QUESTIONNAIRE

Do You use a mobile? YES NO

Since When Are You a Subscriber Less Than 1 Yr. 1 to 2 Yrs.

More Than 3Yrs.

Your Service Provider Is.. Airtel Hutch Idea

Reliance Trump/Dolphin Garuda

Tata Indicom Other_______ (Please Specify)

Your Average Monthly Spending On Mobile Is….

250-500 500-800 800-1500

1500-3000 3000 & above

Which type of Connection are you using at present?

Prepaid Post-Paid

On a scale 1 to 5, please rate your comfort level in understanding the current

tariff plans offered to you?

(1 representing absolute clarity in understanding & 5 being the most

confusing.)

_________ (Your Rating)

Please Rate your usage of the various services on the scale given below

Most Frequent Occasionally Rarely Never

a. Outgoing Calls

b. Incoming

c. SMS/ MMS

d. Internet/ WAP

e. Voicemail
 f. Call Forwarding

In choosing the service provider, what matters to you the most, in

importance?

V.Imp Imp Not Imp Least Imp Not At All Imp

Price/Charges

Brand

Schemes/Plans

After Sales Service

Ease of Availability

Tariff Plans

Connectivity Efficiency

Add-On Features

(Voicemail, MMS Etc.)

Please Rate your satisfaction on the parameters given below

Very Satisfied Satisfied Dissatisfied Highly Dissatisfied

Billing

Tariff Plans

After Sale Service

Customer Care

Fulfilling Of Promises

(Made at time of Purchase)

Overall Experience

Your Name__________________ Age_____ years

Occupation: Service Business Student Housewife Professional

Education : Under Graduate Graduate Post Graduate Professional

Your Average monthly income is..

Below 10,000 10-20,000 20-30,000

30-40,000 40-50,000 Above 50,000

Which of the Following do you own? (Please Tick )

Credit Card Car Microwave Club Membership

Two Wheeler Personal Computer Music System

Thank You
 Annexure- 2

Category wise List of Service Providers

Area Category Area Of Operation Service Provider

A.P. J.T. Mobile
A.P. Tata Cellular
Gujarat Birla AT&T
Gujarat Fascel
Karnataka Modicom
Category A Karnataka J.T. Mobile
Maharashtra Birla AT&T
Maharashtra BPL Cellular
Tamil Nadu BPL Cellular
Tamil Nadu Srinivas Cellcom
Haryana Aircel Digilink
Haryana Escotel
Kerala BPL Cellular
Kerala Escotel
M.P. RPG Cellcom
M.P. Reliance Telecom
Punjab Modicom
Punjab J.T. Mobile
Category B
Rajasthan Aircel Digilink
Rajasthan Hexacom
Rajasthan Modicom
U.P. (E) Koshika Telecom
U.P. (E) Aircel Digilink
U.P. (W) Escotel
U.P. (W) Koshika Telecom
West Bengal Reliance Telecom
Assam Reliance Telecom
Bihar Koshika Telecom
Bihar Reliance Telecom
H.P Bharti Telnet
Category C H.P Reliance Telecom
Orissa Koshika Telecom
Orissa Reliance Telecom
North East Hexacom
North East Reliance Telecom

Annexure-1 QUESTIONNAIRE
1. Do You use a mobile? YES NO

2. Since When Are You a Subscriber Less Than 1 Yr. 1 to 2 Yrs.

More Than 3Yrs.

3. Your Service Provider Is.. Airtel Hutch Idea

Reliance Trump/Dolphin Garuda

Tata Indicom Other_______ (Please Specify)

4. Your Average Monthly Spending On Mobile Is….

250-500 500-800 800-1500

1500-3000 3000 & above

5. Which type of Connection are you using at present?

Prepaid Post-Paid

6. On a scale 1 to 5, please rate your comfort level in understanding the current tariff
plans offered to you?

(1 representing absolute clarity in understanding & 5 being the most confusing.)

_________ (Your Rating)

7. Please Rate your usage of the various services on the scale given below

Most Frequent Occasionally Rarely Never

b. Outgoing Calls

c. Incoming

d. SMS/ MMS

e. Internet/ WAP

f. Voicemail

g. Call Forwarding
8. In choosing the service provider, what matters to you the most, in importance?

V.Imp Imp Not Imp Least Imp Not At All Imp

Price/Charges

Brand

Schemes/Plans

After Sales Service

Ease of Availability

Tariff Plans

Connectivity Efficiency

Add-On Features

(Voicemail, MMS Etc.)

9. Please Rate your satisfaction on the parameters given below

Very Satisfied Satisfied Dissatisfied Highly

Dissatisfied

Billing

Tariff Plans

After Sale Service

Customer Care

Fulfilling Of Promises

(Made at time of Purchase)

Overall Experience

10. Your Name__________________ Age_____ years

11. Occupation: Service Business Student Housewife Professional

12. Education : Under Graduate Graduate Post Graduate
Professional

13. Your Average monthly income is..

Below 10,000 10-20,000 20-30,000

30-40,000 40-50,000 Above 50,000

14. Which of the Following do you own? (Please Tick )

Credit Card Car Microwave Club Membership

Two Wheeler Personal Computer Music System

Thank You
 Annexure- 3

Major Players in the Indian Mobile Sector

Orange / Hutchison Max Telecom

Orange is one of the world's leading communications companies. To date, Orange

group companies operate in many European and Asian countries such as UK,
France, the Netherlands, Germany, Italy, India, and China. The company is the
fastest growing GSM operator in Asia. It is also one of the first to introduce new
services such as SMS (Short Messaging Service) and VMS (Voice Mail Service)
into the Asian market. Orange was formed in the UK in 1989, with the launch of
Hutchison Telecom, to target the growing telecommunications industry. Hutchison
Max Telecom is the largest cellular provider in India covering Mumbai, Delhi,
Calcutta, and Gujarat state and the markets its services under the Orange brand.
Hutchison Max Telecom is a part of the Hutchison Whampoa group. It covers
Mumbai under the brand Orange.

Command / Hutchison Telecom

Operating under the Command brand name in Kolkata, Usha Martin Telekom
Limited is part of the Hutchison Telecom group in India. It is a fully digital cellular
phone service that has brought together world leaders in various technologies to
establish itself as a leading operator in Kolkata. Command has already acquired a
subscriber base of over 90,000 and has plans for aggressive growth ahead. It is
known for its superior coverage and services, including various value added services
such as e-mail alerts, mobile banking, and WAP.

Essar / Hutchison Telecom

Hutchison Essar, one of the major cellular service providers in Delhi, is a joint
venture of Hutchison Telecom and Essar Group. In Delhi, Hutchison Essar offers
cellular service under two brand names - Speed and Essar Cellphone. The company
also offers a host of premier value added services including national and
international roaming spanning in over 87 countries in 206 networks, Wireless
Application Protocol (WAP) and Short Messaging Services (SMS), Voice Mail
Service (VMS), Autoroam, Fax and Data, etc. The company has been a prime mover
in introducing these value added services in Delhi. At present, Hutchison Essar has a
subscriber base in excess of 360,000 and has the largest pre-paid subscriber base in
Delhi.

Spice / SpiceCorp / Bharti Telecom

SpiceCorp operates its cellular services under its subsidiary - Spice Communications
- in the states of Punjab and Karnataka. Spice Communications is a joint venture
between SpiceCorp (India) and DISTACOM (Hong Kong). Spice Communications
is on a rapid growth trajectory. Both the Spice Punjab and Spice Karnataka networks
have the highest ARPUs (Average Revenue Per User) in the country as well as
dominant market shares. The combined subscriber base of Spice is around 493,000
(as of January 2002) and is growing at an average rate of 70% with extensive
coverage of both urban and rural areas.

In 2001, Bharti Mobiltel, a subsidiary of Bharti Televentures, acquired the Spice

brand from Spice Cell (Kolkata) in 2001. Bharti Mobitel Ltd, markets its mobile
services under the brand Airtel and is part of the biggest private integrated telecom
conglomerates, Bharti Enterprises. Bharti is a leading cellular service provider, with
a footprint in 16 states covering all four Indian metros. It has over one million
satisfied customers. Established in 1976, Bharti has been a pioneering force in the
telecom sector with many firsts and innovations to its credit. Bharti has many joint
ventures with world leaders like

Singtel (Singapore Telecom); Warburg Pincus, USA; Telia, Sweden; Asian

infrastructure find, Mauritius; International Finance Corporation, USA; and New
York Life International, USA.

Tata Indicom/ Idea

Tata is aanother major player and has presence in both basic and mobile telephony,
it has a wider array of product as it has both GSM and CDMA technology to be
offered to the users

Reliance Infocomm
Reliance entered the sector on 28th December’ 2002. It has laid down fibre optic
network in about 673 cities and is providing mobile (CDMA based) , basic wireless
phones and it has plans to enter the data transmission business also.
 ANNEXURE 4

GSM and CDMA

GSM and CDMA are the two main competing network technologies deployed by
cellular service providers world over. Understanding the pros and cons of both the
technologies will help you make right decision according to your requirement.

GSM (Global System for Mobile Communications) originated in Europe in 1990.

The GSM Association is an international organization founded in 1987, dedicated to
developing, providing and overseeing the worldwide wireless standard of GSM.

While CDMA (Code Division Multiple Access ) is a proprietary standard designed

by Qualcomm Inc in United States and has been the dominant network standard for
North America and parts of Asia. It became an international standard in 1995.

However now, GSM networks have penetrated the United States and the CDMA
networks have spread in other parts of the world. People of both the camps claim
that their architecture is superior to the other.

The Technology:

Mobile personal communication systems use microwave frequencies above 800

MHz for transmission and reception. All service providers operate in some pre
allocated frequency bands according to international standards. For operatig in these
mocrowave frequencies there are following access methods:

• FDMA ( Frequency Division Multiple Access) - FDMA puts each call on a

seperate frequency.

• TDMA ( Time Division Multiple Access) - TDMA assigns each call a

certain portion of time on a designated frequency.

• CDMA ( Code Division Multiple Access) - CDMA gives a uique code to

each call and speards it over available frequencies.

GSM is a global standard based on TDMA. It is very popular in entire Europe,

Middle East and Asia while CDMA is the dominant technology in United States and
some parts of Asia.
But how does it effects the ultimate consumer ? I hope following considerations may
be helpful.

GSM CDMA

1.In case of GSM you can choose a

handset seperately from a wide variety
available in the market. It should be
GSM 900/1800 compatible for use in
India.
Then buy a pre-paid or post-paid SIM
card (Subscriber Identity Module that
contains user account information)
from any of the GSM Service
Providers like Airtel, Hutch, Idea,
MTNL, BSNL, Aircel, Spice etc. Just
insert this SIM into your handset and
start talking.
1. Handset is network locked. You buy
a package from the Service Provider
like Reliance or Tata Indicom that
includes a handset and a pre-paid or
post-paid plan.
Earlier it was difficult to change the
handset and keep the same number but
now to change a Reliance handset in
future, you just need a handset change
card costing a nominal amount.
T-SIM enabled handsets of Tata
Indicom can be changed easily.

2. A very large range of handsets to

2. Choice of handsets is limited to the
choose from as the big handset
models offered by the Service
companies like Nokia, Motorola,
Provider. Although both Reliance and
SonyEricsson, LG, Samsung etc. are
Tata have now a range of entry level,
marketing their products through
mid-segment and features rich advance
independent distribution and retail
handsets available with them.
network.

3. You can't change service provider

3. You can easily change the service
and continue with the same handset. It
provider and continue with the same
could be technically possible but not
handset.
easy.

4.In GSM different frequencies are

used across different cells but that does
4.Voice clarity is supposed to be better
not mean that voice clarity is
in CDMA network as it uses same
necessarily compromised. Actually it
frequency across all cells.
depends upon the location and network
traffic too.

5. EDGE (Enhanced Data Rates for 5. Data Transfer Speed is traditionally

GSM Evolution) enabled GSM more in case of CDMA.
networks are comparable in terms of BREW(Binary Runtime Environment
download speed. Please note an EDGE for Wireless) technology which is
enabled handset is also required. exclusive to CDMA networks enables
 faster data downloads.

6. GSM service providers are better
networked globally to offer
international roaming. But you must
check for roaming call rates and
coverage in the regions or countries
where you visit frequently.
6. Check for International roaming tie
ups if you travel abroad frequently.
Also check for the coverage in the
region where you intend to use your
cellphone within India.
Tata is soon launching T-SIM to
enable international roaming with one
world one number concept.

7. If you travel to other countries you

can even use your same GSM cell
phone abroad if it is a quad-band
phone (850/900/1800/1900 MHz). By 7. CDMA phones that are not card-
purchasing a local SIM card with call enabled do not have this capability.
value and a local number in the
country you are visiting, you can make
calls against the card to save yourself
international roaming charges from
your home service provider.

Also you must consider the following while selecting a Service Provider:

1. First of all you must check which Service Providers are providing
services in the areas where you will be using your phone.

2. If you want National or International Roaming then also check

whether the Service Provider you have chosen facilitates roaming in the regions
or countries where you visit frequently.

3. Cost of owning a handset

4. Cost of having a connection

5. Fixed monthly expenses

6. Usage charges.

7. Also it is helpful to check with the people using mobile in your area
for the quality of service.
 Annexure 5

India has been able to provide state of art world-class telecom infrastructure at
globally competitive tariffs and to reduce digital divide by extending connectivity to
the unconnected areas. Renowned telecom companies setting up their manufacturing
bases in India. Mobile telephone has now become the highest selling consumer
good.

Reforms Growth / Opportunities

1991 - Mobile sector opened to private 150 million telephone subscribers

participation (Metros) 75 million new subscribers added in
1994 - Mobile (Circles) and Basic services the last two years
opened up About 5 million subscribers being
1997 - TRAI established added every month since Dec. 2005

1999 - Migration to revenue share Highest growth rate in the world, for

2000 - Formation of BSNL NLD sector the first time surpassing China
opened up This growth has facilitated the

2002 - BSNL launches nation-wide cellular expansion of BPO industry which

employs 5 lakh people - 400
services, ILD sector opened up
employees added per day
2003 - Calling party pays introduced
45 MHz of additional spectrum from
Unified access license introduced
defence to be made available for
2004 - Rationalization and further
growth of mobile services in the
reduction of license fees, Broadband policy
beginning of the year 2007
announced
GSM spectrum between 15 MHz and
2005 - FDI limit increased to 74% ILD /
37 MHZ allotted in different service
NLD regime liberalized
areas
2006 - One India introduced, ADC regime
CDMA spectrum between 2.5 MHz
changed to revenue sharing
and 15 MHz allotted in different
service areas
 Nokia, LG, Ericsson have set up their
manufacturing facilities in India

% Motorola, Foxconn, Aspocomn etc.,

Tele have also decided to set up their

Den manufacturing base with an investment

sity of about US$ 650 million

Years FDI of US$ 2 billion in telecom

manufacturing by 2007

A center of excellence in telecom

technology in Public Private
Partnership (PPP) mode by 2007

Handset for Rs. 1,500 launched,

expected to go further down to Rs.
1,000

Targets

2007 - 250 million telephone connections by 2007 taking the tele - density to 22
- Targets translate into an invetment requirement of US$ 15 billion
- Revenue of Rs. 10,50,000 million @ Rs. 350 ARPU telephone
connections is expected to be 500 million telephones

2010 - Requirement of additional investment about US$ 25 billion

- Revenue of Rs. 21,00,000 million

2015 - Telephone connections would be about 800 million

- Additional investment would be about US$ 30 billion
- Revenue of Rs. 33,60,000 million

India to be positioned as a "Regional Hub" for telecom manufacturing

Creation of additional 0.5 million jobs by 2010 and 1.5 million jobs by 2015

Opportunities in SAARC Region

 • Telephone system in Sri Lanka is very inadequate particularly in rural areas
with a teledensity of just 16.64 percent.

• The teledensity in Pakistan has reached 17.84 percent, with at least 27

million telephone connections in the country.

• The Teledensity level in Bhutan is very low, domestic service is very poor
especially in rural areas at an estimated figure of just 4.3%.

• Maldives has a 100 per cent digital switching and transmission network. The
teledensity in the capital (urban) area is 29.9 while in the atolls (rural) it is
3.6. The overall teledensity including mobile is 35.7.

• Bangladesh has a low teledensity of 0.79 phones per 100 people. This is due
to the fact that telephone services are still limited in the villagesTeledensity
in Nepal is estimated at 1.8 phones per 1000 inhabitants, making it a country
with one of the lowest telephone connectivity rates in the world.

This year's India Mobile Service Usage and Satisfaction Survey conducted by IDC
India had a surprise for everyone - there are different service providers at the top
position in the overall satisfaction ratings across the Metro and category A, B and C
telecom circles.

"Though the industry average of satisfaction score for all the telecom players has
gone up by two percentage points, Spice Telecom is the only service provider that
has been able to cross the TRAI recommended benchmark of 95% on overall
satisfaction”, said Shailendra Gupta, Manager, User Research, IDC India.

Is it good enough to have satisfied consumers?

No! seems to be the answer as per the recent India Mobile Service Usage and
Satisfaction Survey, 2006. One of the key findings of the study was that a high 28%
of mobile users, even though satisfied with their current service provider are likely
to shift for a better service or offer. Though the percentage of such disloyal
customers/opportunists has come down from last year's figure of 30%, it is still a
large number to tackle.

This trend can be associated with the lack of loyalty, which is primarily contributed
by the fact that no service provider is perceived to be very strong on Quality of
Service (QoS). "Since customers are unable to distinguish between service providers
on Quality of Service, scheme and offer become the key factors while selecting or
shifting to a new service provider", Shailendra added.

Looking closely at specific touch points of user satisfaction, two concern issues
continue to bother customers - Customer Care and Billing. However, there are
positive signs of improvement on both as compared to last year. The average waiting
time while speaking to a customer care executive was a little below 3 minutes.
“Across studies we have seen none of the brands being strongly associated with
customer care in the consumer mind space. This could be one of the vacant
positioning slots for mobile service operators", Shailendra further opined.

When probed on billing, nearly one in every six (18%) mobile user was dissatisfied
with the billing system of his/her service provider. This is way off the TRAI
guideline that billing errors should be less than 0.1% (though not strictly
comparable, this is a benchmark that service providers should follow). The scenario
has, however, improved slightly with lower numbers of customers reporting being
dissatisfied compared to last year (23%).

More than half the users with a billing related problem perceive 'wrong amount
being charged by the operator' as the prime reason for dissatisfaction.

The perception on ‘complaint resolution by the operator within 3 days’ has

improved significantly from 57% last year to 75% this year.

VAS (Value-added Services), the buzzword in the telecom space was one of the key
focus areas of the India Mobile Usage and Satisfaction Survey, 2006.

SMS, roaming, and SMS-based VAS (ring tones and picture downloads) were the
key VAS uses. The only area seeing growth in VAS usage is in the category B
circles where users have taken heavily to downloading games, call forwarding and
information services.

The India Mobile Usage and Satisfaction Survey, 2006 was conducted on a sample
of 3,743 mobile users spread across Metro and category A, B and C telecom circles.
The study covered all the four metros and 10 other major cities from a representative
set of category A, B and C circles.
 Annexure 6

City/Circle

Metros
Delhi
Operators Oct'2004 Nov'2004 Dec'2004
Bharti Cellular 1545600 1551052 1554429
Hutchison Essar 1316939 1362043 1407243
MTNL 218180 241857 273450
Idea Cellular 571171 568368 603336
Mumbai
BPL Mobile 1169335 1179435 1189750
Hutchison Max 1329416 1384493 1439568
MTNL 224564 271634 321292
Bharti Cellular 612170 633870 646528
Chennai
Aircel Cellular 479967 485277 492504
Bharti Mobinet 442928 456872 445817
Hutchison Essar 228828 223184 219624
BSNL 305282 306001 309757
Kolkata
Bharti Mobitel 415184 429905 501123
Hutchison 591403 602615 616640
Telecom
BSNL 216220 226017 238648
All Metros
Total 9667187 9922623 10259709
A' Circle
Maharashtra
BPL Cellular 502197 512197 518244
Idea Cellular 1181552 1203472 1213459
Bharti Cellular 560053 576376 597322
BSNL 690277 690277 690277
Gujarat
Fascel 1094874 1124967 1152211
Idea Cellular 532481 549774 583392
Bharti Cellular 369813 379997 409513
BSNL 520235 520505 520505
A.P.
Idea Cellular 524362 526768 562215
Bharti Mobile 792328 821110 870977
Hutchison Essar 323824 341106 360605
BSNL 763486 755867 775988
Karnataka
Bharti Mobile 1058595 1096989 1136502
Spice Comm 340629 338704 338951
Hutchison Essar 473193 480263 501159
BSNL 591334 619408 639812
T.N.
BPL Cellular 369657 382657 389791
Aircel Limited 1032829 1076258 1154764
BSNL 671193 692380 764524
Bharti Cellular 326105 333347 325169
A' Circle Total 12719107 13022422 13505380
B' Circle
Kerala
Idea Mobile 523246 535610 545406
BPL Cellular 361508 366508 370565
Bharti Cellular 323631 332953 332126
BSNL 576866 612405 670083
Punjab
Spice Comm. 1117252 1147087 1158767
Bharti Mobile 1173590 1210169 1250846
BSNL 303595 314063 328568
Hutchison Essar 120609 145747 160922
Haryana
Idea Mobile 133698 147292 158408
Aircel Digilink 115897 128174 142703
Bharti Cellular 209146 219280 225954
BSNL 272099 275825 283751
U.P.(W)
Ideal Mobile 525729 534938 561430
Bharti Cellular 321798 334327 345388
BSNL 532020 512601 524715
Hutchison Essar 36333 79920
U.P.(E)
Aircel Digilink 718560 733665 744121
BSNL 644873 691002 715993
Bharti Cellular 125698 157910 171229
Rajasthan
Aircel Digilink 252469 272697 296425
Hexacom 354573 383815 413660
BSNL 372810 375561 376687
M.P.
Idea Cellular 426908 447444 468826
Reliance Telecom 272171 279030 287890
Bharti Cellular 203028 209988 215720
BSNL 158165 158218 158459
W.B. & A&N
Reliance Telecom 144208 145946 148110
BSNL 285355 288294 290040
Bharti Cellular 35684 61671 96122
Hutchison 23055 58451
Telecom
B' Circle Total 10605186 11081608 11581285
C' Circle
H.P.
Bharti Telenet 155872 167737 176550
Reliance Telecom 17447 19361 22906
BSNL 100115 101354 101679
Bihar
Reliance Telecom 308918 323062 339637
BSNL 373823 389949 398728
Orissa
Reliance Telecom 126795 126910 124330
BSNL 278001 287465 291449
Bharti Cellular Ltd 40505
Assam
Reliance Telecom 78190 82344 88062
BSNL 128248 136818 145205
N.E.
Reliance Telecom 16523 18500 19766
Hexacom nil nil nil
BSNL 56677 64281 72580
Jammu &
Kashmir
BSNL 124864 133595 140360
Bharti Cellular 37078 59461 70676
C' Circle Total 1802551 1910837 2032433
All India Total 34794031
 ECONOMIC REFORMS IN INDIA

• Government of India’s liberalization and economic reforms program aims at

rapid economic growth and its integration with the global economy in a

harmonized manner. Telecom sector reform, therefore, was given high

priority.

• The new policies have made government procedures transparent and

eliminated licensing in many sectors.

• The policy measures

– encourage entrepreneurship through market friendly systems;

– facilitate easy access to foreign technology and foreign investment;

– do away with the complex pre-entry approvals.

• Approvals for all foreign direct investment proposals relating to the

electronics and information technology hardware manufacturing, software

development and ITES Sector, are under the automatic route.

 TELECOM SECTOR RESTRUCTURING

• The new Telecom Policy 1999 has set the sector on the fast track. Open

market competition has been established in all basic and value-added

services;

• The TRAI ensures a level playing field amongst the competing service

providers including the incumbents, BSNL and MTNL;

• In the private sector, Reliance, Tata and Bharti have emerged as major

(vertically integrated) operators providing all telecommunication services

including Internet and Broadband access;

• A separate Telecom Disputes Settlement Appellate tribunal has been set up

for dispute resolution.

 TELECOM SERVICES

• India has one of the fastest growing telecommunication systems in the

world with an average growth of about 22% for fixed and over 72% for

Mobile telephone services - as witnessed recently in 2005/ 06 .

• At end March 2006, the Telecom scenario was as follows:

- Fixed Subscribers 50.18 million

- Mobile Subscribers 90.14 million

- Teledensity: Urban 24.62%; Rural 1.67% (2004);

- Internet Subscribers: 6.94 million (including 1.34 million Broadband)

- Village public phones: 0.549 million (89% of all villages*)

- Microwave/UHF (Route Kms.): 166,450 (2004)

- Optical Fibre (Route Kms.): 550,000 (2004)

*The Government aims to provide access to telecom services to all villages by

November 2007 and has fixed Internet and Broadband targets for 2010 at 40 million

and 20 million respectively.

 INVESTMENT IN TELECOM SECTOR

• The total investment in Telecom sector stood (2005) at US$ 34.2 billion,

which includes the private sector share of US$ 13.33 billion.

• The total Telecom sector revenue during 2005-06 was US$ 19.3 billion with

public to private sector ratio of 52:48;

• Of the total roll out of telephone connections (basic fixed plus cellular

mobile) at the end of 2005, private sector accounted for 53 per cent, while

the public sector share stood at 47 per cent. For cellular the ratio of

private/public was 3.67.

Source: TRAI

• According to a study, the estimated investment in the Telecom sector during

the period 2004-2015 is expected to be of the order of US$ 49 billion for

cellular mobile network (mobile teledensity 69%) and US$ 14 billion for the

basic services fixed network for the SAARC countries. India’s share would

be around 85%.

Source: UN ESCAP
 STATUS ON POLICY AND REGULATORY ISSUES

The year witnessed many landmark policy initiatives taken by the Government to

spur the growth of the sector so that it performs to its true potential and significantly

contributes to the tele density and affordability objectives of the Nation. The need of

the hour is to make long distance telephony affordable for the masses. The first step

taken in this direction corrected a long-standing anomaly of long distance calling in

4 states. In May 2005, it was decided that henceforth calls within UP (East) & UP

(West); Maharashtra & Mumbai; Tamil Nadu & Chennai & West Bengal & Kolkata

would be treated as local calls. This will benefit all the consumers and thus help in

addressing the regional interests of the communities. Another step in the demolition

of anomalous entry barriers was the decision of the Government to open up and

simplify long distance licenses. Entry fees was reduced by 97.5% for NLD licenses

and by 90% for ILD licenses in a bid to encourage operators to become national

players and achieve economies of scale that would ultimately benefit the consumers

through lower tariffs. This would not only bring India in line with international

practices but also deliver improved benefits to consumers and increased revenues to

the Government. Further, from January 1, 2006, Access Providers have been

allowed to provide Internet telephony, Internet services and Broadband services. All

these initiatives will lead to the death of distance and ensure that the ‘long distance’

revolution filters down to the common man in each and every corner of the country.

Further with these initiatives, the Government has in fact ushered in a virtual

convergent regime.

Another important step forward has been in the relaxation of the FDI limit from 49%

to 74%. This policy initiative has brought in much clarity in the regulatory
environment and has yielded immediate benefits with the entry of reputed global

giants like Vodafone and Maxis into the country.

2005 has also witnessed a growing influx of global players like Ericsson, Alcatel,

Motorola, Nokia, Samsung, LG Electronics, etc into the country to set up

manufacturing and research facilities. Over the last 18 months, more than 10 MNCs

have committed nearly Rs. 23,000 crores to telecom manufacturing in India and

another Rs 9,000 crores is expected to be committed soon. Never before have so

many telecom giants entered the country in such a short period of time. This

encouraging trend is indicative of India’s growing importance in the global telecom

landscape.

On the anvil are many more such revolutionary measures/ initiatives, which are

expected to be finalized in 2006. The most important one is the extension of USO

subsidy support for shared wireless infrastructure in rural and remote areas. It was

recognized that given the vastness of country the cost of rolling out networks

especially to rural and remote areas could prove to be prohibitively expensive for

service providers, which would ultimately translate into high tariffs for consumers.

Thus, the Government proposed for shared infrastructure using USO subsidy to

ensure expeditious rollout of mobile networks in the most cost effective manner and

deliver both affordability and choice for consumers. Government proposal has

elicited

enormous interest from all quarters, access providers as well as independent

infrastructure providers. Government is in the process of finalizing the details of this

proposal and it is hoped that the initiative will be underway by the end of this fiscal.
Another issue where the industry is awaiting an announcement by the Government

pertains to the Access Deficit Charge Regime. The industry has far long been

seeking the introduction of a revenue share regime for ADC as this regime would be

simple, fair, transparent and easy to implement and enforce. It appears that the

government too is of the same view and it is hoped that a decision will soon be taken

in this regard. 2005 has seen a significant growth in Value Added Services (VAS).

In India this year, voice has increasingly become a commodity and the focus has

shifted to data services. Revenues from the VAS segment are growing at a rate of

30-40% annually. This high take up of VAS indicates that the environment is

conducive for the introduction of 3G services. 3G facilitate far higher speeds and

data throughputs and enable the delivery of a wide range of multimedia services

including video telephony, television, etc and offer a content rich broadband

experience to Indian customers. Many operators have started preparations for

upgrading their networks for 3G and are awaiting an announcement by the

Government on the pricing and allocation of 3G spectrum. This year the industry

took strong initiatives to advocate India’s path to 3G through the international

consensus globally harmonized WRC-92 2.1 GHz band. The final spectrum

allocation policy of the Government is expected to be announced by the end of this

fiscal. In the light of international trends, there is an urgent need to expedite the

process so that Indian operators are able to rollout 3G by the end of 2006.

However, there are still some issues that need to be addressed for further

accelerating the growth of the sector. The first issue is to improve the PoI

connectivity. The industry has made several representations to TRAI and

Government as regards the delay in provisioning of interconnection facilities to

private players. Improving PoI connectivity will help in providing seamless

connectivity throughout the Licensed Service area.

Another issue which will help exploit the potential of the sector is lowering the high

level of levies and duties. The levies and duties on the Indian telecom sector are one

of the highest in the world. As per the findings of TRAI, the total levies on the

telecom sector including license fee, service tax and spectrum charges was at around

21% of AGR in 2005-06. Lower levies and duties can be a critical tool in the hands

of policy makers to improve Tele-density. The sector has a burden of both sales tax

and service tax. The financial implication of this double taxation is formidable and is

estimated to be to the tune of Rs 4,900 crores for private GSM players. The

Government may therefore consider bringing down the level of duties and levies on

the telecom sector to enable higher penetration and growth. With this there will be

effective increase in subscriber take up which would result in overall increase of

productivity. With increase in volumes there will also be an increase in the revenues

to the Government thus, it will be a win-win situation for all.

On the legal front, in 2005 many problematic issues were settled. COAI’s stand was

vindicated by judicial decisions in issues such as ADC on Roaming, Pulse Petition,

Tata Walky and Direct Connectivity. The resolution of these issues has not only

helped provide level playing field among the players but also carved a path for

further

Proliferation and growth of mobile services in the country.

Subscriber base

The Growth of mobile services in India over the past few years has been

phenomenal. Mobile subscribers are growing at a CAGR of around 85% since 1999

but fixed line subscribers are not growing at a similar pace. Now over 4 million

mobile subscribers are added every month.

Year Fixed Line (Mn) Cellular Line (Mn)

1997 14.54 0.34

1998 17.8 0.88
1999 21.59 1.2
2000 26.51 1.88
2001 32.44 3.58
2002 37.94 6.43
2003 40.62 12.69
2004 42.58 33.6
2005 45.91 52.21
2006 46.78 93.04
Source: TRAI
Telecom Revenue

Telecom revenue in India during 2005-06 was $19.50 billion.

Average Revenue Per User (ARPU)

2004-2005 2005-2006
ARPU –Basic 15 14.5
ARPU Mobile –CDMA 5.74 5.56
ARPU Mobile –GSM 8.8 98
ARPU Mobile -GSM-Post 20.34 14

paid
ARPU Mobile -GSM- 5.25 6

Prepaid
Source: TRAI

Minutes of Usage per subscriber (MOU)

Year Units 2004 2005 2005-06

MOU-GSM Total Minutes 330 393
MOU-GSM Pre- Minutes 233 308

paid
MOU-GSM Post- Minutes 599 675

paid
MOU-CDMA Minutes N.A. 470

Total
Source: TRAI

Performance

 The private GSM Mobile Operators have recorded a rise of 14% in the

revenues in the first quarter of the current financial year (Apr. to June 06).

The Adjusted gross revenue has increased from Rs 4,942 crs for quarter ending

March 06 to Rs 5,621 crs for the quarter ending June 06.

 On a year on year basis, the first quarter of the current financial year (Apr. to

June 06) has witnessed a 49% rise in revenues as compared to the first

quarter of the previous financial year (Apr. to June 05). The revenues of

private GSM mobile operators have risen from Rs 3,760 crs for Apr. to June 05

quarter to Rs 5,621 crs for Apr. to June 06 quarter.

 In spite of a rise in the Adjusted Gross Revenue, the private GSM industry has

witnessed a fall in ARPU since the September 05 quarter. The average industry

ARPU has fallen from Rs 375 for Sept. 05 quarter to Rs 347 for June 2006

quarter; a fall in ARPU of Rs 28 per subscriber since Sept. 05 (a decline of

7%).

 Thus, although the revenues have risen consistently over the four quarters (since

Sept. 05), the private GSM Service providers have witnessed a continuous

decline in ARPU.
Bharti Airtel continues to be the leader as far as revenues are concerned with Rs

2,621 crore during the quarter July-September 2006 compared to Rs 2,310 crore in

the previous quarter of the same year. The company's ARPU has however fallen

from Rs 361 to Rs 348. Hutchison Essar has earned Rs 2,126 crore compared to Rs

1841 crore in the previous quarter. Hutch's ARPU has remained constant at Rs 373.

Idea Cellular has reported revenue of Rs 848 crore.