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The last fiscal saw very important policy decisions being taken by the
Government of India. The pending Broadband Policy and the FDI ceiling revision
were the changes that the telecom sector was most looking forward to. But these
were not the only highlights of the year for telecom. In the following pages, we
recount the important milestones for telecom policy in the past year.
More Open to Foreign Investment
Perhaps one of the most important decisions taken this year was to raise the
FDI ceiling in telecom from 49 to 74 percent. While that does not mean that the
telecom market will be swamped with foreign investment, it is an event that will
bear positive impact on the industry in the long run. While it will make things
easier for the companies that have stakes in Hutch, Bharti, Tata Tele, and Idea
to increase their share; it will also help companies like BPL Mobile, Spice,
HFCL Infotel, and Shyam Telelink get a better deal from foreign investors,
should they decide attract them.
The
licence fee for catagory II infrastructure providers was also reduced to six
percent of the adjusted gross revenue (AGR) in June 2004, from the 15 percent
earlier.
More Telephones, Lower Tariffs
On 13 April 2005, India crossed the 100-million telephone mark to become the
fifth largest telecom network (in terms of subscribers) in the world after
China, the US, Japan, and Germany. The next milestone for this sector is to
cross the 250-million telephone mark by 2007, along with reaching a tele-density
of 22 percent. The current tele-density of India is 9 percent, as against 55
percent in China and over 100 percent in the US, Germany, and Japan.
National long distance services (NLDS) got a boost when the performance bank
guarantee for it was reduced from Rs 100 crore to Rs 50 crore for each phase.
And then earlier this year in February, the access deficit charges were revised,
which resulted in a further decrease in tariff for long distance calls.
Rural Thrust
The past year saw a lot of initiatives taking shape in the rural telephony
area. The Universal Service Obligation Fund (USOF), which was set up to pay for
the installation of basic fixed-line telephones in villages, will now be amended
to fund installation of wireless telephones too. The fund had earlier been set
up to give thrust to rural telephony. Rs 1,200 crore was made available to
operators, selected through a bidding process, to install telephones in rural
areas during 2005-06.
So far, Rs1,814.50 crore have been made available to the operators for rural
telephony, of which Rs.1,314.50 crore were provided during FY 2004–05. With
this, all villages will be covered with village public telephones by November
2007, except the very thinly populated villages and those located in
insurgency-prone areas.
| Broadband
Policy Estimates |
| Broadband
would be the key to growth of Internet access in India |
| Year
Ending |
Internet
Subscribers in millions |
Broadband
Subscribers in millions |
| 2005 |
6 |
3 |
| 2007 |
18 |
9 |
| 2010 |
40 |
20 |
|
The recent steps taken for rural telephony under the USOF are:
About 87 percent of the villages have already been covered in
the rural telephony plan, most of these by BSNL. There are also about 133 lakh
rural direct exchange lines (DELs) in the country, which have also been largely
provided by the BSNL.
A Broad Policy for Broadband
The year 2004 saw announcement of the Broadband Policy-an announcement
eagerly awaited by the industry. When it came out, the policy was received with
mixed reactions. While most agreed that the policy was a step in the right
direction, there was still work to be done on it.
The policy defines broadband connectivity as an always-on
data connection that is able to support interactive services including Internet
access and has the capability of the minimum download speed of 256 kilo bits per
second (kbps) to an individual subscriber from the point of presence (POP) of
the service provider intending to provide broadband service where multiple such
individual broadband connections are aggregated and the subscriber is able to
access these interactive services including the Internet through this
POP. The interactive services will exclude any services for which a
separate licence is specifically required (for example, real-time voice
transmission) except to the extent that it is presently permitted under ISP
licence with Internet telephony.
The policy's estimates for the growth of broadband and
Internet subscribers in the country, as envisaged through various technologies,
are as follows.
To achieve this growth, private operators feel that the
policy should have been a little less protectionist towards the state-owned BSNL.
The last mile access continues to be a niggling problem in the way of increasing
penetration, because the policy did not accept TRAI's proposal of unbundling
BSNL's last-mile link.
The policy also advocated a significant decision to permit
use of Wi-Fi on the 2.4 GHz band outdoors as against the earlier regime of
restricting it to closed areas only. BSNL plans to invest Rs 3 to 5 billion in
2005 towards upgrading its network. This is a clear sign that changes are ahead
in the Indian adoption of broadband technology. Early this year, BSNL and MTNL
launched their nationwide broadband services in 200 cities. The move into
broadband by BSNL and its private-sector rivals is part of the search for higher
revenue in a market that till now has been driven mainly by fast-growing but
low-margin, voice-dominated, mobile-phone services.
In other recent moves in the area of Internet services, ISPs
were allowed to set up submarine cable landing stations for international
gateways for Internet. They have also been permitted to provide VPN services to
organizations as well as individuals. C-DOT signed an MoU with Alcatel to
establish a Broadband Wireless Global Research Centre in India. Thanks to
computerization of the Wireless Planning and Co-ordination Committee, measures
to streamline the frequency allocation system and other clearances seem to be in
the pipeline. There was some relief coming the VSAT operators' way too. The
government decided to exclude the profits from sale of hardware when determining
the license fee. However, the open sky policy for VSAT companies, suggested by
TRAI, was grounded and that may prove a blow to the VSAT companies.
Mobility Multiplied
Mobile connectivity received a fillip when the government announced
de-licensing of low power Wi-Fi and WiMax applications for outdoor usage in the
2.4 GHz band and for indoor use in the 5.15 to 5.35 GHz band. The former
spectrum houses popular applications such Bluetooth and the 802.11b standards
(an Institute of Electrical and Electronics Engineers standard). Industry
welcomed the move to de-license and regarded it as a milestone in the country's
wireless policy. Earlier, the access to Wi-Fi services was restricted to
campuses and closed units only like offices, airports and schools. The opening
up can mean massive mushrooming of hotspots around India. Eventually, it can
mean 100 percent Internet access to any laptop holder with wireless technology.
As far as mobile telephony is concerned, the Union Budget was
forthcoming with a few concessions. To begin with, the mobile phone was let off
the hook as one of the six criteria for income tax returns evaluation. India so
far has one of the lowest mobile penetration figures. In 2004, South Korea led
the pack with 75 per 100 persons followed by Malaysia which has 43.9 out of 100
persons mobile. China ranked third with 18.3 mobile phone lines per 100 persons
while in the case of India the number was just 2.6 per 100 persons. However, the
good news is that India is expected to catch up with China by 2008.
The budget opened new markets in the country for mobile
telephony by allowing post-paid and pre-paid mobile services in the
insurgency-affected states of Jammu and Kashmir, Assam, and states in the
northeastern part of the country. In another move, components for the
manufacture of cellphones exempted from the four percent countervailing duty.
Unified access service providers also got a reprieve in the
last budget in the form of exemption of customs duty on mobile switching centres
for unified access. The duty exemption was also extended to optical fiber cable
as well as the raw material required for optical fiber cables. This would
benefit operators such as BSNL, RailTel, Reliance Infocomm, and Bharti
Tele-Ventures who are rolling out countrywide cable network.
Manufacturing Gets a Leg Up
Attracting investment in the area of manufacturing is something that almost
every industry is working towards, and telecom is no different. The government
gave a lot of thrust to boost the telecom-manufacturing sector. Customs duty was
reduced to zero on the import of components and raw material required for
manufacturing telecom equipment. Additionally, customs duty on all the 217 ITA-1
items was reduced to zero. Similarly, for the inputs and capital goods required
to manufacture these items the duty has been reduced to zero.
These measures had an almost immediate effect. A number of
equipment makers headed towards India to set up manufacturing units.
-
Ericsson set up the first manufacturing unit in India for
radio base stations at Jaipur. The company is also planning to set up a
software development centre in India. This project is at a nascent stage.
The exact location of the centre has not been decided.
-
One of the largest European electronics manufacturing
service (EMS) providers, Elcoteq Network recently unveiled its telecom
equipment and handset manufacturing facility in the Electronic Hardware
Technology Park of India at Bangalore. Elcoteq manufactures telecom
equipment and handsets for global telecom companies like Nokia and Sony
Ericsson. Elcoteq said it would invest up to $100 million and hire 1,000
people for the unit by 2006.
-
Nokia chose Sriperumbudur near Chennai as the location
for its first handset manufacturing unit in India. The plant, on which the
company expects to invest between $100 and $150 million, will be its fourth
such facility in the Asia-Pacific region.
-
LG Electronics started operations in the country's
first GSM plant for making mobile handsets at Ranjangaon near Pune in March
2005. The company is also in the process of setting up another facility to
produce GSM handsets exclusively, which would be ready by August.
-
Alcatel, along with CDOT, will set up a global R&D
centre in Chennai for wireless broadband services.
Apart from this, the government itself jumped into the fray
when it approved a Rs 1,032 crore revival plan for the Indian Telephone
Industries (ITI), Bangalore. The company has entered into a technical tie up
with Alcatel for the manufacture of three million telephone lines.
Legal Angles
In its continued struggle against gray market telecom operators, the telecom
industry welcomed the move by the DoT that the Telegraph Act be amended so that
the legal provision are more stringent for these operators. The estimated loss
caused by gray market operators in the country since 1998 was Rs 400 crore.
Hyderabad had the highest number of cases pertaining to gray market operations
followed by Chennai, Gujarat, Punjab, and Mumbai. With the increased number of
telecom operators, the government set up vigilance telecom monitoring (VTM)
cells in Delhi, Mumbai, Hyderabad, and Chennai and these were working as
extended wings of the DoT's vigilance. These centers would be especially
equipped to curb illegal international call rackets.
The past year saw a lot of plans take shape in the telecom
sector, but the industry is looking for more. For instance, tax breaks suggested
by the telecom regulator to promote broadband usage has not been addressed. Even
so, the coming year will be interesting to watch as the impact of the decisions
taken earlier will begin to be felt.
Nupur Chaturvedi
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