8/12/2019 Indian Telecom Industry Anaysis

1/4

Evolution of Telecommunication Industry

Until the 1980s, the Department of Posts and Telegraphs (under the Ministry of the same

name) had the mandate of regulating and offering telecommunications services. It was

governed by the Indian Telegraph Act 1885 and the Wireless Act of 1933. In 1985, the

Department of Posts and Telegraph was split up into the Department of Telecommunications

(DoT) and the Department of Posts. The DoT was established as the state operator, regulator

and licensor. It was only in October 1999 that the activities of the operator and licensor were

somewhat separated, by the creation of the Department of Telecommunications Services

(DTS). This separation, however, was a largely artificial one. Although the DoT had been

charged with operating telecommunications services, its efforts were seen as insufficient.

Initial steps towards corporatisation saw the creation of Mahanagar Telephone Nigam

Limited (MTNL), which started offering basic fixed services in Mumbai and Delhi

in1987. MTNL still holds a monopoly in those cities, where DoT/DTS is not present at the

local level. MTNL is wholly owned by the Government of India and the DoT. Videsh

Sanchar Nigam Limited (VSNL) was set up in 1986 as the monopoly operator for

international gateway services. In 1986, the Telecom Commission was setup with

the mandate to accelerate the deployment of telecommunications services and to implement

new telecommunication policy. On May 13, 1994, the government opened local basic and

value-added telecommunications services to competition. Mobile services were introduced on

a commercial basis in November 1994. India was thus divided into 21 "Telecom

Circles". Circles correspond approximately to 7 states and are categorized as either "A", "B"

or "C" according to size and importance. Category A includes the heaviest volume areas such

as Delhi, Uttar Pradesh, Maharashtra, Gujarat, Andhra, Karnataka and Tamil Nadu. Licenses

for mobile services were also issued for the four metros (Delhi, Mumbai, Chennai, and

Calcutta). As part of the license conditions, traffic could be routed to VSNL's international

gateway only by passing through DoT/DTS's network.

A bill passed in 1995 envisaged the creation of an independent and

autonomous agency for the regulation of telecommunications, the Telecommunications

Regulatory Authority of India (TRAI). Set up in 1997,

the TRAI is responsible facilitating interconnection and technical

interconnectivity between operators, regulating revenue sharing,ensuring compliance with

license conditions, facilitating competition and settling disputes between service

8/12/2019 Indian Telecom Industry Anaysis

2/4

providers. The TRAI cannot grant or renew licenses and this remains the DoT's

responsibility. The TRAI may also set the rates for telecommunications services. Its decisions

can only be challenged by the High Courts or Supreme Courts of India.

The Department of Posts and Telegraphs till mid 1980s was responsible for regulating

and offering telecommunication services. The department was mainly regulated by the

Indian Telegraph Act, 1885 and the Wireless Act, 1933. It was in 1985 that the

Department of Post and Telegraph was separated into two departments- Department of

Telecommunications (DoT) and the Department of Posts.The DoT was established with

the main of functioning as the State operator, regulator, and licensor. In October 1999,

the DoTs operation and activities of operator and licensor was separated somewhat by

the creation of the Department of Telecommunications Services (DTS). However, this

division of functions has mainly been an artificial one. Also, the DoTs endeavours have

been held to be inadequate, especially regarding the operations of telecommunications

services.

Initial efforts by the DoT towards commercialization of the Telecom industry saw the

conception of the Mahanagar Telephone Nigam Limited (MTNL). MTNL wasconceptualized specifically for Mumbai and Delhi, and is wholly owned by the DoT/

Government of India. It started its operations from 1987; it offered telecom services-

both wireless and wire-line. As DoT/DTS is not present at the local level in Delhi and

Mumbai, MTNL is has monopoly in both of these metros. The Videsh Sanchar Nigam

Limited (VSNL) was created as the monopoly of international gateway services.

Additionally in 1986, the Government set up the Telecom Commission with the aim of

accelerating the operations of telecom services and to implement the incoming new

telecom policies. The Union Government on May 13th

1994 opened basic, local and

value-added telecom services to private communications. November 1994 marked the

introduction of mobile services on a commercial basis. Initially, the country was divided

into 21 telecom circles (now I think it i s 22- please check the intr o). In most cases, the

telecom circles correspond to approximately the State borders and they are categorized

as A, B or C according to the size and importance. Separate licences for mobile

telecommunication services were provided for the four metro cities- Delhi, Bombay,

Calcutta and Chennai. As a condition precedent for licensing, all traffics were routed to

8/12/2019 Indian Telecom Industry Anaysis

3/4

VSNLs international gateway only after passing through the DTS/ DoT

network/server.

The Telecom Regulatory Authority of India Act, 1997 set up the Telecom Regulatory

Authority of India (TRAI). This move by the Government of India was long awaited as

the need for an independent and autonomous agency for regulating and the whole of the

telecom sector. The TRAI is responsible for assisting various telecom operators in

forming interconnections and technical interconnectivity. Apart from this, the TRAI

also regulates the sharing of revenue and settle disputes between the service providers

and can also set rates for various telecom services provided. A limitation to TRAIs

power includes its inability to either re-new or issue telecom licences. This particular

function is still done by the DoT.

The Telecom Regulatory Authority of India Act, 1997 also provides for remedy if

certain parties are aggrieved by the decision of TRAI. The Telecom Disputes Settlement

and Appellate Tribunal, set up by Sec.14 of the said act provides that the tribunal has

powers to adjudicate matters related to dispute between operators, or between operator

and group of consumers, or between a licensor and licensee. Sec. 18 provides that if the

parties are aggrieved by the decision of the honourable tribunal, they can approach the

honourable Supreme Court of India 90 days of the order or decision passed by the

tribunal.

Market Size, Players & Trends

India boasts of 300 million telephone subscribers today and has become the second largest

telecom network in the world, after China. Also, the number of new mobile subscribers is

growing by 8.5 to 10 million every

month, making it one of the fastest growing telecom markets of the world. In 2006-

07, the telecom industry also saw an estimated $8.5 bn in

investment flow, out of which 6% or $550 million was in the form of foreign direct

investment (FDI). According to a report by RNCOS, a market research consulting Services

Company, mobile phones account for 80.2%of the subscriber base in India, at the end of

March 2007. The growth of telecom in India can be attributed to liberalization, reforms and

competition. The telecom policy of 1999 envisaged a tele-density of 15 percent by the year

2010. The overall tele-density of the country is already over 26 percent now.Out of 300 million telephone subscribers today, 13% are wire-line subscribers. These

8/12/2019 Indian Telecom Industry Anaysis

4/4

developments in telecomsector have resulted in massive investments and explosion in supply,

which are signs of a vigorous, competitive and fast-growing sector. The major players in the

Indian telecom industry, excluding Reliance and Tata Teleservices, are operating in the GSM

market. After the release

of TRAI recommendations in September 2007, there was a flood of applications for UASL

(Unified Access License Seekers). This was probablybecause of the hope of pan-India start-

up GSM allocation at a veryeconomical price (US$240m). The armed forces are expected to

vacate20MHz of GSM spectrum. This would be around 70% of average GSM allocation

currently.

India currently has about 300 million telephone subscribers today and the number of

subscribers increases on an average of 8.5 to 10 million customers a month. It boasts of

being the second largest telecom sector after China and it is considered as the fastest

growing telecom market in the world. In FY 2006-2007, the telecom industry saw the

flow of $8.5 billion from which foreign direct investments (FDI) accounted for 6% of it

i.e. $550 million.

As per the survey by RNCOS, 80.2% of the total telecom customer base is accounted for

mobile phone connections. Of all the customers today, only 13% are wire-line

subscribers. The developments in the telecom sector due to the economic liberalization

of the country and various reforms introduced by the Government has resulted in many

developments in the telecom industry which in turn has resulted in massive investments

and explosion in both demand and supply, all which are signs of a competitive, vigorous

and highly-competitive industry. Except Tata Teleservices and Reliance, all major

telecom operators are present in the GSM market. It is almost irrelevant to mention

that all the operators are present and operate in the CDMA market segment.

After the release of the recommendation of TRAI in September 2007, the DoT faced a

flood of applications for Unified Access Licence Seekers (UALS) after the armed forces

announced that they would leave or vacate 20 MHz of GSM Spectrum. This move by

the armed forces would account for approximately 70% of the average GSM allocation.

One major factor for this phenomenon could be because there was hope that the pan-

India GSM allocation would be at a very economical price which would allow

companies to make larger profits in the huge run (companies had expected prices to be

in the range of $240 million).