INTRODUCTION
Telecommunication is transmission of signals over a distance for the purpose of communication. In earlier times, this may have involved the use of smoke signals, drums, semaphore, flags or heliograph. In modern times, telecommunication typically involves the use of electronic devices such as the telephone, television, radio or computer. Early inventors in the field of telecommunication include Alexander Graham Bell, Guglielmo Marconi and John Logie Baird. Telecommunication is an important part of the world economy and the telecommunication industry's revenue was estimated to be $1.2 trillion in 2006.
Telecommunications is concerned with the devices, systems, and techniques that enable people to communicate with each over distances.Since the earliest periods of civilisation, when drums, signal fires, and smoke signals were used to link tribal communities, the means of telecommunications has been a defining element of human society that helps identify who we are and how we interact.Today telecommunications technology is revolutionising the organisation of business enterprises, society at large, and, indeed, the very way we live. During the past half century the sector that has been the principal driving force in industrialised economies has shifted from the transportation industry to the telecommunications industry, and this is reflected in the fact that some of the richest corporations in the world today belong to the information and telecommunications sector. This is not surprising when we consider that whereas new developments in transportation reduce the time it takes us to get from here to there, the new developments in telecommunications are making us practically ubiquitous.
Today the rate of change and innovation in the telecommunications industry is accelerating at a breakneck pace.New telecommunications technology is dramatically lowering barriers to marketplace entry and, by eliminating middle-men, enabling companies to interface directly with their customers wherever on the globe they happen to be. The coming convergence of voice, data, and video technologies means that the media, entertainment, computer, and telecommunications organisations are all going to be merging and interoperating their activities.Even something so small as an individual strand of optical fibre today has the capacity to carry 10 million television channels simultaneously
Many countries have enacted legislation which conform to the International Telecommunication Regulations establish by the International Telecommunication Union (ITU), which is the "leading United Nations agency for information and communication technology issues."[38] In 1947, at the Atlantic City Conference, the ITU decided to "afford international protection to all frequencies registered in a new international frequency list and used in conformity with the Radio Regulation." According to the ITU's Radio Regulations adopted in Atlantic City, all frequencies referenced in the International Frequency Registration Board, examined by the board and registered on the International Frequency List "shall have the right to international protection from harmful interference.
HISTORY
History of Indian Telecommunications has its roots in the dawn of the independence era. India gained independence in 1947, when India had around 84,000 telephone lines for its population of 350 million. After thirty-three years later, by 1980, India`s telephone service increased with only 2.5 million telephones and 12,000 public phones for a population of 700 million. Only 3 percent of India`s 600,000 villages enjoyed telephone service. However, in the late 1990s, a vast change was seen in the telecommunications scenario. By 1999, India had an installed network of more than 25 million telephone lines that spread across 300 cities, 4869 towns, and 310,897 villages, making India`s telecommunications network the ninth largest in the world. Especially notable is the fact that more than 80 percent of this national telecommunications infrastructure, counting up to approximately 20 million telephone lines, was added in the 1990s alone.
Telecommunications services, in true sense, began in India in 1851 when a telegraph service became operational between Kolkata, then the seat of the British colonial government, and Diamond Harbor 21 miles away, a trading post of the British East India Company. The telegraph, and later the telephone were introduced in India in 1882 and were viewed by the British as tools of command and control that were essential to maintain law and order in the country. For example, India`s attempt at challenging British rule in 1857, referred to as the "Sepoy Mutiny," was covered up through the use of telegraph lines connecting the British rulers in India and their armies. In Runners, stationed at telegraph offices, carried telegrams to remote post offices, thereby linking the British rulers with even the most distant pockets of India. After gaining independence from Britain in" 1947, the national government continued the colonial legacy, organizing post and telegraph services exclusively in the domain of the state. Jawaharlal Nehru`s post-independence socialist policies dedicated India to state-run, state-owned monopolies in various sectors, including Indian telecommunication as well. Managed by slow-moving, overstaffed government machinery under the aegis of the Ministry of Posts and Telegraphs, the performance of India`s telecommunications sector was slow until the mid-1980s.
The main reasons for this poor performance included an official view that telephones were a "luxury" rather than a "necessity". The main reasons for this poor performance were stated by an official record, saying that people still believed telephones to be a "luxury" rather than a "necessity". Moreover, the dominance of the state-run telecommunications with no competitive pressures for originality in telecommunications products, services, and their pricing; the processes of the government telecommunications operations, pressure of the shareholders for effectiveness; profitability; sales growth; market capitalization and many more accounted for the reason of slow development.However, a bureaucratic, top-down telecommunications organisation without delegation, initiative, or accountability, and an overcrowded structure of tens of thousands of telecommunications employees with inadequate job challenges or training also contributed as reasons for slow development of Indian Telecommunication sectors.
In India, the Ministry of Posts and Telegraphs focused on improving the delivery of telegrams and telexes while other countries were embracing digital telephony and facsimile machines. India missed the opportunity of bypassing old-fashioned technologies. In 1880, two telephone companies namely The Oriental Telephone Company Ltd. and The Anglo-Indian Telephone Company Ltd. approached the Government of India to establish telephone exchanges in India. The permission was refused on the grounds that the founding of telephones was a Government monopoly and that the Government itself would commence the work. By 1881, the Government changed its earlier decision and eventually a licence was granted to the Oriental Telephone Company Limited of England for opening telephone exchanges at Kolkata, Mumbai, Chennai (Madras) and Ahmedabad. January 28, 1882, is a Red Letter Day in the history of Indian Telecommunications. On this day Major E. Baring, Member of the Governor General of India`s Council confirmed the opening of Telephone Exchange in Kolkata, Chennai and Mumbai. The exchange at Kolkata named "Central Exchange" was opened at third floor of the building at 7, Council House Street. The Central Telephone Exchange carried 93 subscribers. Bombay (now Mumbai) also witnessed the opening of Telephone Exchange in 1882.
The statistics in the history of Indian telecommunications show that there has been a mammoth revolution in this sector of India. Between 1988 and 1998, the number of villages with some kind of telephone facility increased from around 27,316 to 300,000 villages. By 2000, around 650,000 public call offices provided reliable telephone service, where people could simply walk in, make a call, and pay the metered charges, had mushroomed all over India, including the remote, rural, hilly, and tribal areas as well.
The emergence of PCOs satisfied the strong Indian socio-cultural need of keeping in touch with family members. Much like train travel in India which is often undertaken to celebrate marriages, visit relatives, or attend funerals, the telephone is also viewed as a way of maintaining close family ties. Thus, looking into these requirements, most advertisements for telephony services feature mothers talking to their sons and daughters, or grandparents talking to grandchildren. Telephone expansion in India thus serves a strong socio-cultural function for its users, in addition to a commercial one.
A stunning 117 billion metered calls were made in India from these PCOs in 1998. Revenues of the Department of Telecommunications (DoT), the state-run telecommunications operator, increased from $790 million in 1988 to $4.3 billion in 1998, simply a five-fold increase in 10 years. Over the next several years, India planned to add four to five million digital telephone lines to increase its telephone density from 2.5 per 100 people in 1999, to 7 per 100 people by 2005, and to 15 by 2010. So, by 2005, the number of telephones in India will rise to 75 million; projections for 2010 are pegged at 150 million. Massive investments running into billions of dollars (installing each telephone line costs about $750) were needed for this expansion, so private sector involvement intensified. Mobile telephony represented one telecommunications sector where private sector involvement is particularly important.
REVIEW OF LITERATURE
Fixed-line incumbent operators around Europe have been relying upon a legacy network that in
the last 30 years has served them well without the need for major technological upgrades and
investments.
When, in the mid-nineties, the Internet world came to life, the emergence of xDSL technologies
has allowed incumbent operators to offer internet access using the traditional twisted copper pair,
and very scalable DSLAMs, providing most customers with the desired level of service, given
their bandwidth demand. In the so-called access network (the “last mile”), copper cables that had
been laid down forty-fifty years ago discovered a second rush of life.
On their side, incumbent operators have been successful, to different extents, fencing off
competition (thanks to their first-mover advantage) and have managed to build a solid broadband
customer base, and a windfall of profits in the process. The Unbundling of the Local Loop (LLU)
has only now started bringing the benefits (in terms of competition in the retail sector) that
regulators originally hoped for when they started the process at the beginning of the century.
Wireless technologies and co-axial cables have been the other platforms, mainly used by
alternative operators, to compete on the wholesale and retail market of broadband connection.
On the traffic side, customers have benefited from substantial real price reductions, mainly due to:
1 the re-balancing of tariffs from subsidising traffic charges, especially for international calls, to
subsidised access charges, i.e. the monthly line rental; and
2 effective regulation, which in turn has favoured the introduction of competition. The setting of
efficiency-enhancing price caps for wholesale interconnection charges and pro-competition
measures like Carrier (Pre-) Selection and Number Portability have played the lion share in this
respect.
However, traffic has mainly stayed (and being charged for) on the incumbent operators’ networks,
with a constant stream of revenues assured.
All this up until now. Today, things are changing, and they are changing thick and fast. In
particular:
1. Customers seem more and more hungry for bandwidth and the traditional copper pair might
soon start struggling. This might take the first-mover advantage away from the incumbents;
they, as anybody else in the business, will need to dig the roads again.
2. VoIP applications like Skype are taking revenues away from the incumbents by the buckets
and the situation is only deemed to get worse (for the incumbents) by the day.
3. Packet-switching technologies are gradually substituting the traditional circuit switching ones,
implying substantial cost reductions. All traffic, including voice traffic, will soon (perhaps over
the next 5-10 years) travel entirely in packets (voice traffic has so far traditionally travelled
over the network on end-to-end circuits, held alive for the duration of the conversation).
4. Platforms are becoming more and more integrated and convergence seems, finally, to be a
real working, prospect.
In this literature review we have examined a considerable number of news clips, documents
produced by regulatory bodies and international organisations and industry papers. In a world
dominated by the speed of change, we have not drawn on academic papers. We hope that we
have made up for this by relying on our economic know-how and experience. We have also held
talks with industry experts.
GENERAL PRINCIPLES IN COMPETITION POLICY
Business competition is essentially a rivalry among businesses for sales to potential customers. In a free market economy, competition works to ensure the efficient and effective operation of business. Competition also ensures that a firm will survive only if it serves its customers well. Economists recognise four different degrees of competition, ranging from ideal, complete competition to no competition at all. These are pure competition, monopolistic competition, oligopoly and monopoly.
- Pure Competition - the market situation in which there are many buyers and sellers of a product where no single buyer or seller is powerful enough to affect the price of that product.
- Monopolistic Competition - a market situation in which there are many buyers along with a relatively large number of sellers who differentiate their products from the products of competitors. The various products available in a monopolistically competitive market are very similar in nature and are intended to satisfy the same need. However each seller attempts to make its products somewhat different from the others by providing unique product features; an “attention – getting” brand name, unique packaging or services such as free delivery or a "lifetime" warranty. Product differentiation is a fact of life, in our case, for providers of Telecommunication and Internet services.
- Oligopoly - a market situation (or industry) in which there are few sellers. Generally these sellers are quite large and sizeable investments are required to enter into their market. Examples of oligopolies are American Automobile car rental and farm implement industries.
- Monopoly - a market with only one seller. Because only one firm is the supplier of a product, it would seem that it has complete control over price. However, no firm can set its price at some astronomical figure just because there is no competition. The firm would soon find it had no customers or sales revenue. Instead, the firm in a monopoly position must consider the demand for its product and set the price at the most profitable level. Classic examples are public utilities. Each utility firm operates in a natural monopoly, a situation where a particular industry requires a huge investment in capital and within which any duplication of facilities would be wasteful.
The Rationale for Competition Policy
· In a competitive market, individual suppliers lack market power. They cannot dictate market terms, but must respond to the rivalry of their competitors in order to stay in business. Market power is generally defined as the power to unilaterally set and maintain prices or other key terms and conditions of sales; that is without reference to the market or to the actions of competitors.
· Imperfect Competition
· Imperfect competition gives rise to an inefficient allocation of resources. Imperfect competition is an important source of market failure. Market failure occurs when resources are misallocated or allocated inefficiently. The result is waste or lost value.
· Monopoly
· Monopoly can be the result of market failure. A monopolistic market is often associated with excessively high product prices, reduced supply levels or other behaviour that reduces consumer welfare. Collusive agreements among suppliers are another example of market failure. Supplier collusion can be directed to increasing prices or restricting output. This behaviour is similar to the exercise of monopoly power.
· Telecommunications has, in most jurisdictions, developed in a monopoly environment. As competition is introduced into telecommunications markets, there are typically concerns about the continuing exercise of market power. This constitutes a special form of market failure that must be addressed by regulators and competition authorities in many countries.
Economic Structure
It has been observed that ‘growth in the number of new telephone subscribers has far exceeded the growth in the global economy’ in the last twenty years[1]. This shows that aggregate growth alone does not determine telecom expansion and there may be need to look at composition of growth as well. However, influence of economic structure on telecom expansion (or for that matter on achievable level of tele-density) does not find explicit consideration in today’s literature on telecom economics as much as the other two factors, i.e., competition and technology. One plausible reason could be because of the importance that has been attached to income gap as a factor explaining digital divide. Moreover, income gap, by itself subsumes differences in certain structural characteristics and therefore diverts the focus of attention from structural gap to income gap[2]. Proponents of ‘income determinism’ may stop short of addressing structural factors because of their primary concern regarding income transfer between the developed to the developing countries as the only way to address the problems of digital divide. Structural issues, on the other hand, are more pertinent to the believers of ‘leapfrogging’ capabilities of the countries who are on the wrong
side of the divide[3]. It is for them that the present paper goes on to prove that the effectiveness of direct promotion of telecommunications as a complementary policy to overall macroeconomic reforms will be determined in an important way by how structural issues in the economy are addressed.
In the first place, it is noteworthy that there are countries with per capita income less than that of India but with higher tele-density. As for instance, Bolivia had per capita income of US$ 2380 in 2000[4] compared to US$ 2390 for India. Bolivia’s tele-density[5] was 6.05 in that year against 3.20 for India. Moldova had a tele-density of 13.33 with a per capita income of US$ 2240. Georgia, with a per capita income of US$ 2470 had a much higher tele-density of 13.86. Though Ecuador had a little higher per capita income of US$ 2920 compared to India, tele-density was significantly higher at 10.00. It was also noted that these countries had either more equitable income distribution than India (measured in terms of percentage of population living on less than $2 a day) or had a higher weightage of value added by the service sector in the Gross Domestic product (GDP) or both.
TELECOMM. IN MONOPOLISTIC COMPETION
In a monopoly scenario, a single supplier supplies the whole market. Traditional view of the telecommunications sector is that the telecommunications market was monopolistic in nature. Telecommunications industry was traditionally a natural monopoly, where the telecom services and the collection of products were supplied by one telecommunication company. In a monopolistic market structure, the company and the industry are identical. The single company makes all the output and price decisions, it has complete control over the market (Gerber & Braun 1998). Traditionally, the telecom service providers, or operators have been government-owned monopolies.
One major problem with telecom monopoly is that monopolist may exploit its market position by charging excessive prices and compromise quality of service. With the reforms in the telecom industry, came a series of restructuring of the telecom industry. Today most developed countries are or have introduced competition in the telecom market that was once monopolistic in nature. Driven by technological developments, competition has come to dominate a market that was once a monopoly. For instance, in 1976 in the U.S, the traditional monopoly service provider was faced with competition in the long-distance market from use of microwave technology (Gerber & Braun 1998). The development of wireless technology has brought in competition in the telephony market, with fixed line subscribers migrating to cellular markets where there are competitive services. In Africa, most fixed line operators are still monopoly in nature, however there is competition in the cellular market. The South African government is in the process of introducing a Second National Operator to compete with Telkom, the monopoly fixed line service provider.
Privatization and Liberalization
Amongst the wave of reforms that characterized the global telecom markets in the 80’s and 90’s, was the privatization of national companies. Privatization and liberalization are two telecom reforms that improve the public treasury. Since the processes of liberalization and privatization have been taken into consideration by countries such as India, Malaysia and South Africa, their telecommunication infrastructures have improved drastically. Malaysian government has developed its telecommunication infrastructure by privatizing the former RTT, which is presently known as Telkom Malaysia, and most of its shares are sold in the stock exchange.
Privatization and liberalization cut the existence of monopoly and promote competition. The privatization of national companies comes in either public stock floatation or private sales to strategic investors. In the telecom sector, it could also include the opening up of market to private investment in the thriving telecom market. In developing countries, the realization that investment in the telecom infrastructure is a necessary foundation for economic growth, has further spurred the need for privatization. Developing countries identify that massive investment is required to address the low teledensity and poor service typical of the telecom market. Such investments, in most cases, are far beyond the reach of many governments that have other social development projects to fund. Subsequently “private sector investment – through privatization of national carrier or other forms of private sector involvement – is often the only recourse” (Pisciotta, 1997). Another reason for privation is also to tap into the advantages that modern technology offers through foreign investment into the local telecom infrastructure.
Definition of the Two Concepts
Privatization
Privatization can be defined as the selling and transferring of at least part of the state ownership of a corporation to private owners. It can be defined as the process where by the government handover its management or assets of services to private interest.
It can also be defined as a transfer of government (public) agency to a non-government (private) body. Privatization is the transfer of public functions and resources to the private sector. This transfer can entail the operation, management, or actual ownership of publicly owned facilities.
Liberalization
Liberalization usually means the process of transferring monopolistic market to a free market environment, which will expand trade relation and also promote competition. Liberalization encourages the lifting of barrier to entry to accommodate many players in the market and hence transform a market into a free and open market. The World Trade Organization has prescribed liberalization of the telecom market. Many countries have endorsed the WTO’s liberalization guideline and subsequently open their telecom market, leading to open and competitive market. Specifically, it has brought about an era of competition in the telecom sector. Privatization without liberalization is possible: a monopoly merely becomes a private one. In most cases of telecommunications privatization, however, some element of liberalization is involved
The other reason why private companies are more efficient is that, shareholders in large private firms give managers real incentives to produce results, which are good for customer and generally good for the public. As a result of incentives the companies satisfy their customers and this leads to a more internationally competitive economy. Privatization also gives companies the opportunity to contribute towards development of the economy by paying regular taxes, which will benefit the country. The main advantage of privatization is the extension of capacity and world-class technology and it is also has a potential for global alliances because it develops the local expertise. It is also raises the funds for improvement of telecommunication infrastructure.
Model of Privatization
- Privatization with full competition
In this model, a policy of full and open competition is implemented at the same time as privatization. All restrictions on entry into all sections of the telecom market are removed. This model was utilized by New Zealand in 1990, Chile the first Latin American country to open its telecom markets to private sector is another example of a privatized and fully liberalized market. - Privatization with phased-in competition
In model two, privatization of national carriers is accompanied by a period of exclusivity rights, or limited competition, in basic telephone services. In some instances only fringe services are liberalized at the outset. In this model, national carriers are privatized with a gradual and measured implementation of competition with exclusivity in the provision of basic services guaranteed for a certain period of years. Several countries in Europe have followed the process of partial privatization. South Africa followed this model with the privatization of the national carrier with exclusivity for fixed operation that was meant to lapse in May 2002. - Liberalization without privatization
Government may introduce liberalization into the telecom market without actually privatizing the national carrier. “One reason for pursuing this approach is to gain the advantages of foreign investment, technology and management expertise without suffering the political disadvantages and disruptions of a privatization transaction” (Pissciotta, 1997: 339). Some of these disruptions include opposition from workers’ union based on fear of job loss, military and defence interest based on fear of loss of control and security over critical communication facilities and in some instances, constitutional prohibition against foreign ownership. - Private Sector Participation without Privatization and Liberalization
This is an innovative way of attracting private sector investment and expertise without actually privatizing and introducing competition. Ways of doing this include the granting of concessions by national operators to private industry to build and/or operate certain facilities or services. The national operator then enters into a management contract to improve operations and enhance profitability. In this model, foreign investments are invited in the form of build, transfer and operate (BTO) arrangements. In these arrangements, private companies invest capital to develop a project and operate the system for a period of time, ownership rights are eventually transferred to the government company. Examples of these arrangements are in Saudi Arabia and China- where “private sector participation in telecom is not permitted. Private company involvement is limited to consultant services and supply contracts” (Pissciotta, 1997: 339).
Competition
The increasing competition in the global telecom market has greatly impacted on the telecom revolution. The liberalization of the telecom industry opened the doors to competition and brought an end to a period when telecom was considered a natural monopoly. Coupled with technological development in the telecom sector, competition has revolutionized the sector remarkably. It has increasingly led to the expansion of telecom market and this expansion of market has increased access rate to telecommunication services.
The evolving nature of competition in telecommunications and information activities in general is interwoven with different issue: the technological trajectories; changes in the institutional arrangements; investment in information-handling capabilities and general infrastructure; shift in demand for information goods and services and policy fashions (Lamberton, 1995: 6). Two major issues are essential to the advent of competition in the telecom sector:
- Liberalization and
- Technology
Liberalization of the telecom market which leads to removal of barrier to entry, coupled with privatization of telecom corporation which encouraged private investment are precursors to the advent of full competition in the telecom sector. The introduction of competition means that a well-established telecom monopoly operator has to compete with new entrants in the different segments of the market. Competitors are diverse in their operations; they are not only limited to telecommunications operators. Telecommunications operators have to compete with providers in parallel markets and vice-versa. An example is a telecom company providing internet service and competing in the internet service provision market. With adoption of the liberalization programme, many countries opened up their telecom market by issuing licenses to operators. In South Africa, the first phase of liberalization of this sector took place in 1997, when two cellular providers, Vodacom and Mobile Telephone Networks (MTN), were licensed to offer cellular services. Liberalization of the ICT sector encourages the entry of new telecommunications companies and fosters greater competition in the sector. Today there are three cellular providers competing in the South African market. The liberalization of the telecom sector in Nigeria and the concomitant issuance of operating licenses have brought immense competition into the market. Today Nigeria has four cellular providers.
The growing development in communication technology has increasingly made it impossible for a monopoly telecommunication corporation to provide the varieties of services available in the telecom sector. Traditionally telecommunications services were limited to basic voice transmission; today we witness the availability of a gamut of telecommunication services brought about by innovations in communication technology. For instance the introduction of commercial Internet into the telecom market brought in an era of competing internet service providers and development in wireless technology-specifically cellular technology- has resulted in the era of cellular service providers.
Competition in the telecom industry has stimulated growth in the sector. Amongst numerous benefits, competition encourages:
- Choice: Customers are provided with varieties of products and services to choose from.
- Good quality: competing suppliers strive to out-do each other and invariably strive for good quality product and service in order to beat the competitor. This also ensures that the customers get quality products.
- Accessibility: products and services are provided in close proximity of the customers. Customers do not to have to ‘go extra miles’ to have access to products and services.
- Prices: competing suppliers attract customers by attaching affordable and low prices to their products. Price is a strong tool used by competing firms to attract considerable customer base
- Improves and maintain standard: Competition encourages the improvement and maintenance of standards of products and services. This will help in attracting new customers and also gives satisfaction to current customers
- Stimulate growth: Competition stimulate the growth of the market and the economy in general
| Monopoly in telecom sector cited as obstacle to innovation |
| Due to the monopolistic control of the Ethiopian Telecommunications Corporation (ETC), the whole telecom services in the country has stifled innovation and retarded expansion, a new report launched this week said. The Ethiopian telecom, mobile, broadband and forecasts report, which was prepared by Dublin Research and Markets, an international firm, indicated that Ethiopia is the last country in Africa allowing ETC a monopoly on all telecom services, including fixed, mobile, Internet and data communication. |
INDIA’S TELECOMMUNICATION
India's telecommunication sector has undergone a spectacular transformation during the last decade emerging from a highly regulated, stat-owned monopoly to a moderately competitive fairly deregulated sector. Today, India possesses the world's fifth largest public sector telecommunications network and Asia's third larges, behind only China and South Korea. India's telecommunications sector continues to grow at a rapid pace and government officials, regardless of party, acknowledge that India needs a modern telecommunications network to sustain high levels of economic growth and create the proper environment for its IT sector to grow and prosper. Given its size and population, India possesses one of the most under penetrated and least developed telecommunications services markets in the world. India's fixed-line service sector has suffered from decades of under investment, the absence of competition, government protection, and monopoly. Much of the country's telecommunications infrastructure is archaic by international standards and the introduction of new technologies has rendered it obsolete. By the late 1980s, recurring fiscal deficits and negative balances of payments encourage the Indian government to initiate an economic reforms ended the government's monopoly over telecommunications services and in the manufacture of telecommunications equipment and opened the sector to private sector participation and foreign investment. Many of the world's leading multinational telecommunications firms have been drawn to India because of its enormous market potential. The opening of the telecommunications sector created one of the fastest growing and hottest markets for equipment and services in the world. Today vendors from the United States and other countries dominate India's $12.3 billion annual equipment market. To meet the ambitious goals set by the government in the National Telecom Policy of 1994 and 1999, India will need to install approximately 250 million telephones by 2010 at a cost of $106 billion. Most of the funds needed for the expansion are expected to come from the United States and other foreign investors.
FUTURE ASPECTS OF TELECOMMUNICATION
Continuing turmoil throughout the worldwide telecommunications industry warrants a systematic look forward at the possible repercussions of the forces that are now pushing the industry forward: the end user’s demand for more bandwidth; increased reliance on mobility services; and the end users’ assessment of cost versus performance.
In this study, INSIGHT will develop several scenarios to model the future shape of telecommunications. Thus far, the industry has reacted to the forces driving major structural change through consolidation, as carriers merge and equipment suppliers struggle to survive. Both on the domestic level and internationally, regulators and government agencies are struggling to cope with rapid, profound structural change in an industry that had been predictable for more than 100 years.
The technologies spurring the industry’s transformation can be clearly delineated: IP transport’s ability to merge voice, video and data; the long-haul fiber glut and the resulting price wars dropping the cost of bandwidth; the variety of local broadband wired and wireless solutions; increasing security requirements; and the corresponding decrease in the ability to protect users on the Internet.
In this study, INSIGHT will present possible future scenarios for how these forces and technologies will reshape the worldwide telecommunications industry and the impact each scenario will have on the industry’s existing revenue models.
1. Redistribution. In a democratic system, a majority always wants something from the minority. Many people believe that somehow the efficiency of competition will shrink the subsidy slice of the pie to zero. But that assumes that the definition of the pie does not grow. With telecommunications becoming ever more important, not having the right connectivity becomes a major disadvantage. That’s why we hear about the info poor, the digital divide, the fourth world, the schools and hospitals, and that’s why we will expand our definition of what is covered. For example, Subcommittee Chairman Seen Burns announced that his legislative priority for this session is to accelerate advanced services and fiber to rural areas. This legislature does not seem to be exactly very deregulatory. And all this will be extended, in time, to DSL, cable modems, video server access, and mobile telephony.
Part of the problem is that the old sources for subsidies are being competed away, while demands for new subsidies grow. In consequence, new ways to raise money and to cross-subsidize will inevitably be pushed.
This will be a major battlefield of the future.
2. E- commerce and consumer protection. In the past, the Internet confronted little resistance in the political sphere. It faced public fascination, and rightfully so. Eyebrows were raised over porn and privacy, both politically very correct targets of complaints. But, this will inevitably change. As the Internet moves from a nerd preserve to shopping mall and mass medium, it is unrealistic to expect that it will be treated differently than the rest of society’s transactions. Which means that it is unrealistic to expect it to be left alone.
Inevitably, there will be problems of fraud, misrepresentation, and theft. And therefore there will be pressures for consumer protective regulation. Now a lot of people say that one cannot regulate the Internet, even if one wanted to. After all, don’t high school kids run electronic circles around flat-footed government rules? Sure. But that only proves that it is difficult to go after the electronic part of a transaction. But that’s not the end of the story. If you can’t reach the bits, you can go after the physical parts. If you can’t block mobile elements, you can try to reach the static ones. Such as Networks, they can’t hide or people. Assets. Land. Customers. This might not be elegant, but neither is the tax code. There are plenty of ways to do so. And many of them involve the carriers and service providers, which puts them into the laps of telecom regulation. And here, states have traditionally played the major role in consumer protection. So, as consumer protection problems emerge, there will be public deviance for telecom regulators to “do something.” Carriers and ISPs will become responsible for the use of their networks.
3. The problem of e-commerce trade wars. This is more of a federal issue, but inevitably the states will also be drawn into it. Zero cost global transmission leads to a realignment of commercial transactions. And here, US firms will dominate globally. They are technologically at the leading edge, with risk capital at their disposal, with the advantage of early entrant, and a large home market. Once they establish a successful model for the US market, and once transmission price is near zero, there is no reason to stop at the border.
But this success will lead to backlash. Big losers are usually good in at least one thing, organizing themselves. Inevitably, they will use the domestic and international regulatory apparatus to slow things down. One can see it already: in the transatlantic fights over privacy; in the Anational culture quotas, in the fights over domain name registration, in the fights over electronic signatures and authentication. Right now, the Clinton administration is going around the world, preaching the Internet free trade zone.
But who are we to complain? Imagine how the tune will be different when we face a serious influx of Mexican tele-doctors. Monaco tele-gambling. Bahamian tax dodges. Thai child tele-pornography. Nigerian securities deals. There is no way we’d let this happen without protective regulation. And here, too, telecom providers and ISPs will be force to patrol their systems. And the states will do much of the regulating.
4. Monopoly power.
Many people believe that issues of market power do not apply to the Internet, because it is so wide open that any dog can start it’s own business. We are told that the bit economy plays by different economic rules than the atom economy, that silicon-based transactions are different from this based on carbon, and similar nonsense.
Conclusions
Whereas it still not clear whether end-users will eventually ask for bundled products at a discount
that will make three- or even four-play operators emerge, there are clear indications that demand
for broadband is increasing and will steadily, if not exponentially, do so in the next decade.
With customers hungry for more and more bandwidth, taking fibre cable closer to the consumer
seems to make more and more sense (at least up until now in Europe, when wireless
technologies have not proven their mettle yet and where cable operators are less widespread
than in the US).
In the core part of the networks, packet switching technologies provide incentives, in terms of long
run cost reductions, that are too strong for incumbents, and alternative operators as well, to miss.
All in all, it is potentially the right time in the EU for huge investments.
So, if governments around Europe want to keep maintaining control of their incumbent
telecommunications operators and, at the same time, develop them into 21st century
infrastructure operators crucial to the economic development of their countries, they will have to
be ready to:
• Invest considerable financial resources in order to undergo significant upgrades of the
network.
• Keep the National Regulatory Authorities independent and assess their performance
against the overall objective of long term benefits to the end-users (residential and
business alike).
• Support the idea of engaging with the NRA, and the industry as a whole, to ensure that
access prices are set so that returns from their investments warrant their risk on one side,
but do not allow recovery of inefficiently incurred costs on the other.
• Being open to the idea of price differentiation on geo-types for wholesale broadband
connections, while safeguarding USO, and uniform tariffs, for more basic services.
BIBLIOGRAPHY
1. http://cbdd.wsu.edu/kewlcontent/cdoutput/TR503/page6.htmL
2. www.nctr.usf.edu/pdf/416-01.pdf
3. www.insight-corp.com/reports/futuretel.asp
4. en.wikipedia.org/wiki/History_of_telecommunication
5. http://www.telecom.otago.ac.nz/TelecomIntro.htm
6. http://en.wikipedia.org/wiki/Telecommunication
7. http://www.indianetzone.com/42/history_indian_telecommunications.htm
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