India’s telecom industry has been through a paradigm shift over the last three decades. A brief overview of the telecommunications market structurereveals there are some dominant market players with their associated competition.
The industry has also undergone significant policy and regulatory changes through the years, in essence, leading to a control of market share of services by a few players. But it was not always so.
The early days — Department of Telecommunications (DoT)
The early 1990s saw the Telecom sector dominated by the Department of Telecommunications (DoT), which was the sole service provider. The first whiff of reform came about in 1994 when the sector began a transition from a monopoly to a competitive structure. During this period, beginning with the deregulation of the sector and followed by the issuance of two major policy instruments — the National Telecom Policy, 1994 (NTP94) and the New Telecom Policy 1999 (NTP99) — the transition to a competitive market based structure was successfully accomplished.
Market Players & Competition in the Sector
Competition in the fixed wire-line segment
The dominance of DoT, as the sole operator subsided with the entry of a number of private operators in various services such as fixed line, mobile telephony, international long distance and internet service providers. Telecom licenses were allocated by the DoT through auctions at a circle level with the country divided into 23 circles (in most cases each circle represented a state). Each circle was allotted two licensed operators.
The market for fixed telecom services was highly concentrated in all the telecom circles, although in seven of them the H. Herfindhal* Index had a value less than 0.8000. Apart from competition, the existence of a telecom regulator in the form of TRAI (Telecom Regulatory Authority of India) too has acted as a check on service providers abusing their dominant position. BSNL (Bharat Sanchar Nigam Limited) made substantial progress; reduced tariffs, improved efficiency and it can be argued that this was entirely due to the force of competition leading to efficiency gains.
The transition for BSNL from a monopolistic firm which had a previous history of being impervious to consumer demands to a firm that adapts and responds to market competition ultimately led to providing a surplus to its consumers. At a national level, after privatization the market for fixed telephone services was much more concentrated than the one for mobile services.
Competition in the mobile services industry
The growth of the mobile services industry was also phenomenal; it started from 1997 as one dominated by private sector enterprises. The government followed a policy of “managed competition” by licensing more than one service provider in a telecom circle. In fact, a majority of the 28 Telecom circles that were present at that time had at least four to six services providers.
The private mobile operators grew on new and latest state-of-the art technologies. Entry of a new player Reliance Infocomm Ltd. in 2002 saw introduction of CDMA (Code Division Multiple Services) services across 17 circles on a countrywide basis. CDMA has since been growing faster than GSM. The existences of the two standards have made both the markets for GSM and CDMA services very competitive. This is especially so when the market for CDMA services was highly concentrated with just two service providers accounting for almost the entire output.
Exploring the ‘Spectrum’
Every telecom operator has been assigned certain portions of spectrum to use in India through auctions and administrative allocations. Essentially, the spectrum “bands”, and frequencies around a particular band are then auctioned off.
The years of 1998 and 2004 saw 2 rounds of spectrum auctions with major share being grabbed by the existing players. Later in 2008 the government’s policy bypassed the spectrum auction process leading to controversies. The Government’s move of selling spectrum by way of a first come first serve basis rather than by auction and fixing of prices based on 2001 prices was alleged to be an outcome of the nexus between a few dominant players and government representatives. The result was that major frequencies was captured and held by a very few operators and in some cases even by few non-serious telecom players leading to hoarding of spectrum.
These controversial auctions lead to legal suits, investment pullbacks and eventually the cancellation of spectrum licenses. There was distrust leading to huge losses and stagnation in the sector for a while. All these led to upward revision of prices, consolidation and smaller players exiting from the industry.
Regulation, Government Intervention & Social Impact
The National Telecom Policy of 1994 and The New Telecom Policy of 1999 set up the blue print for opening up of the telecom sector in India. The pace of growth and the achievements in terms of statistics have been quite spectacular, with an average addition of 18 million subscribers every month, contributing nearly 2% to the Indian GDP and with a tele-density of 84% the Indian telecom industry is considered to be the second largest telecom market in the world.
Intense competition in the sector eventually led to government intervention in the form of setting up of a regulator TRAI (Telecom Regulatory Authority of India) by a special act of parliament. With more maturity in the sector and with an aim to provide stable and equal opportunities over disputes The Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) was set up.
Since all service providers were new and had the same vintage of technology, their competition was more in terms of price and conditions of sale and of late these two aspects are much in public scrutiny thanks to the timely intervention, on various occasions, by the regulator.
With penetration of mobile telephony in rural areas, the rural folk, especially the farming communities were the biggest beneficiaries. The farming community has access to the markets over phone wherein they can discover the right value and place for their products. Moving on, the community has access to various awareness programmes. Banking and other reforms like financial inclusion were also possible with the Telecom revolution.
The era of consolidation
The telecom industry in India started as a monopolistic regime controlled by the DoT and gradually transformed into an industry flooded by private players. Today it is in an era of consolidation and may likely see existence of only few players and if this indeed happens then the industry may have literally come a full circle. The consumers could feel the benefit by entry of private players to some extent but the true pricing revolution was noticed only after introduction of new technologies.
Government regulation has played a fairly meaningful role starting off as a market participant and transitioning to a facilitator and further donning the role of a regulator. The Telecom commission and the setting up of an independent regulator TRAI were significant. TRAI made it a mandatory provision for all the private players to provide a certain percentage of services in the rural areas under the USO (Universal Service Obligation), but in reality this did not bear any fruits as all the players concentrated on the market where it fetched good returns. Further opening of the sector and introduction of mobile telephony led to penetration in rural areas taking tele-density to a record level of 84% today.
The industry after witnessing intense competition in all sub-sectors is in a stage of consolidation today. The smaller and loss making entities are being taken over by bigger and established players. The entry of a new entity with disruptive technology again is making the merger and acquisition space active. The industry currently is at a very interesting stage and one has to see whether this consolidation will again lead to concentration of the market by a select few. However, it can be said without doubt that the consumer has been the biggest beneficiary.
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