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Indian Telecom Industry – Is it a Success Story?

Indian Telecom Industry

Indian Telecom Industry

While surfing on the internet recently, I came across an old report, dated 2006, about the Indian Telecom Industry. The most notable part of the report was the prediction about the number of subscribers in 2010. The 2006 report had predicted that the estimated number of mobile phone subscribers would reach 27.5 crores by 2010. The actual number of cell phone subscribers in India, as of now, is around 60 crores.

That sums up the success of the Indian telecom sector in a nutshell. But then one can understand why the report went so haywire in its prediction – in 2006, the total number of mobile subscribers was less than 10 crores – who could have predicted it will grow more than six times in four years? Every month, every quarter and every year, the telecom industry has beaten the records it set in the previous period. The figures have become so big, they have even stopped surprising everyone. Nowadays, the Indian telecom industry is defined by the success story of mobile telephony in India, and no one even mentions that our landline penetration rates are still among the lowest.

Interesting fact 1– If all the mobile subscribers in India were to form a separate country, that country would be the second largest in terms of population, only behind China – and about twice as populous the third ranked country – the USA.

Interesting fact 2 – If all the new mobile subscribers added EVERY MONTH in India were to form a separate country, that country would be as populous as Australia – 2 crores (every month, that is).

India is considered a peculiar economy in that it has leapfrogged whole stages of the economic development cycles. For example, the service sector grew to be the biggest constituent of the economy, without the ‘usual’ transition to a manufacturing economy. Similarly, the cell phone penetration has reached almost 60% of population (as high as 95% in some urban areas), even though landline penetration remains abysmally low. Still, the fact that India has achieved a teledensity of 65% has been made possible by the cell phone revolution.

How We Got Here?

The road to the current position has been a long and arduous one. Not even 15 years back, India was at the bottom ladder of the teledensity table. the telecom sector was mired in the regular tale of red tape, crushing weight of bureaucracy and a staleness in thinking. Admittedly, there were a number of attempts since the time of Indira Gandhi to reform the sector, but they were stalled by some meaningless opposition. Some measure of success was achieved in the Rajiv Gandhi regime, and with the formation of C-Dot. The actual transition started in 1994-95, when the PV Narasimha Rao government decided to reform the sector, despite the tough resistance put up by the concerned departments, trade unions and leftist parties. A significant development during this period was the unbridled increase in the number of PCOs over the Indian landscape. Besides proving to be of immense value in communication and business, the PCOs also proved to be significant employment generators – about 40 lakhs by 2007!Indan Telecom

But its was the general public, the common subscribers, that voted with their feet for the new services. The possibilities and the opportunities associated with the service caught the imagination of the Indian population, and they responded with great zeal and enthusiasm. Soon, the mobile operators also pitched in with customer friendly plans.

The AB Vajpayee government provided further impetus by allowing greater access to foreign operators , and foreign partnership was gradually allowed up to 74% from the earlier 49%. The license fees was greatly reduced in 2000, throwing the field open for a greater number of operators in every circle, leading to more competition, and eventually, lower prices. Two other events played a significant part in the story – the entry of public sector enterprises, such as BSNL, into the market, and the emergence of the CDMA standard, introduced into India by Reliance Telecom. These two events were significant game changers, and helped to take the cellular revolution into the rural hinterland.

Challenges

The apparent success story has also its fair share of challenges, some of which have affected it in past, some of which affect it even now, and some which are likely to affect it in the future.

  • Landline penetration is still very low, though a lot of observers argue that this is not likely to have a significant effect on the industry growth
  • Cost is still a major determinant for  large proportion of subscribers, and providing good quality of service at very low costs will prove to be the biggest challenge for operators. Incidentally, this brings us to the third point -
  • The ARPU (average revenue per user) is very low for India operators, and many analysts and operators have expressed their opinions about this being unsustainable for long. Admittedly, this is a part of a global phenomenon – ARPUs are falling everywhere in the world.
  • Complete rural coverage is still miles away – literally.
  • Infrastructure for complete coverage is still being laid out, and may take a long time to bear fruit.
  • Lack of complete clarity on the part of government about certain aspects – for example- the 3G fiasco.

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4 Responses

  1. Yes, we lack behind in the underlying technology of mobile communications, though teledensity is on the rise for sure. ARP is not a factor of progress if an organization can step up profits by keeping ARP low. But what is required is very efficient service at low cost and for this some higher technology like 4G.

    • Hi Abhirup,

      I did not quite understand your point about stepping up profits by keeping ARPU low – perhaps you could elaborate on that.

      Another point that I would like to make here is that we have achieved these high numbers because operators have been able to provide services at rock bottom costs. Cutting edge technology would mean higher costs – how many subscribers do you think would agree to that, at this stage?

  2. You are correct that we are behind – but not in terms of technology per se – BSNL has already implemented 3G a long time back. What we are lagging behind is the mapping out of proper policies to roll out the technologies, and then to implement them. The technology is already there – we just need to evolve the policies.

  3. we are ahead in numbers of mobile users, but in technology we are far behind…countries have started working on 4G networks and we still havent got 3G yet