Global Telecom Summit 2001 "Connecting India"
September 27-28, 2001

Address by Hon'ble Mr Tapan Sikdar, Minister of State for Communications

To talk about financing the country's telecom sector before the august gathering here is perhaps like talking about Gita to Lord Krishna. But my job as a minister is not to hesitate but to speak. I, therefore, take the liberty of expressing my views on financing requirement of the Indian telecom sector during the next five years, which happens to coincide with the tenth five year plan.

None would deny that reforms in Indian telecom sector have progressed at a considerably faster pace than many others had done. No other component in Indian infrastructure sector could match its track record. There has been a marked improvement, both in terms of accessibility and quality of service rendered. In the process, it has significantly eased the scope of human contact and enhanced opportunities in personal, social and commercial life.

Today, world-class telephony in India has announced its presence not only on the billboards in the major metropolis; it has dotted the landscape of the district towns and the suburbs with PCOs and the Cyber cafes at the street corners. This is only suggestive of the enormous potential that exists in our domestic market to absorb supply driven growth in the telecom facilities.

Stroking the engine of growth calls for creation of enabling environment to attract investment and putting financial mechanism in place to sustain it. The way the telecom sector is reformed and the market forces are allowed unhindered would be critical in determining the pace.

As you are aware, several roadblocks have been removed in the recent years to facilitate flow of private investment. The system of fixed license fee has been replaced by migration into a regime of revenue sharing between the private operators and the government. Until then, the viability of private investment in the basic and the cellular services was eroded on account of high license fees committed by the private players at the time of bidding on the basis of their unrealistic expectation of high profit. Revenue sharing in replacement of fixed license fee is a matter of comfort offered to the private players.

Tariff revisions have been undertaken in a phased manner in order to redress the prevailing distortions in the tariff structure. Erstwhile tariff structure permitted cross-subsidization of local calls by artificially higher domestic and international long distance tariffs. This was inconsistent with the worldwide trends and market reality. Besides, wrong signals were being sent to investors about the viability of investment in the local network. Beginning with May 1999 till January 2001, tariff rates for STD and ISO have been brought down substantially in three phases to rebalance an otherwise distorted tariff structure.

Prevailing distortion in the form of entry-barriers in the long distance segment was removed in the New Telecom Policy 1999. It has been opened without any restriction on the number of operators. To promote competition, the number of cellular operators in the circles has been increased from two to four including BSNL and MTNL as the third operator.

Several steps have been initiated to create level playing field. The general policy now is to allow free entry everywhere. The only problem is where there is the issue of sanctioning spectrum.

A major step towards distancing of market from the government has been initiated in the form of detachment of the Department of Telecommunication from service providing functions, which are now vested in the BSNL curved out of the erstwhile DOT and corporatised. The Department of Telecommunications has remained in a truncated form with the authority to formulate policies and issue licenses in addition to certain administrative and management functions including management of spectrum.

With the reforms already implemented and more to come, we hope to usher in an era of rapidly increasing private investment and accelerated growth in the telecom sector. In a scenario of fast moving technology in the industrial world the catch up process can be faster if we are able to attract higher and higher level of foreign investment. As on date, we have a liberal FDI regime in the telecom sector. As you all know, 100 per cent foreign equity, is allowed in the manufacture of telecom equipment, internet services not providing international gateways, infrastructure providers (category I), e-mail and voice mail services. FDI up to 74 per cent has been permitted in Internet services (providing international gateways), infrastructure providers (category II) and radio paging services. In basic, cellular, value-added and national long distance services foreign equity up to 49 per cent has been permitted. Capital invested and dividend income are fully repatriable. The telecom sector is the second largest recipient of FDI after the energy sector.

Though private investment and FDI are growing, resources through internal accruals in the public sector giants continue to remain the major driving forces of investment today. I admit that they enjoy near monopoly position in the market. However, in course of time their surplus might come under competitive pressure.

For them, the ability to adjust to changing market forces and recourse to innovative market based financing will be crucial to their prosperity and growth. We expect them to be a source of significant investment in course of the Tenth Plan. At the same time we rely on the private sector and FDI to increase their share of total investment in a major way.

The financing need will depend on the targeted growth we set before us to be achieved by the end of the Tenth Plan. Though our tele-density has grown from 2.32 in 1999 to 3.8 per 100 people in 2001, we are still much below China, Malaysia, or even Thailand. If we want to achieve a tele density of 12 by 2007, investment has to increase manifold.

A major challenge before us is to increase tele-density in rural areas. In 2001, it is roughly 1 per cent. The bulk of investment in rural telephony today originates in public sector. Private sector participation is insignificant in this area. On the other hand, the bulk of private sector investment is in cellular mobile segment. As per available indications, cellular mobile phone may grow faster and contribute significantly to achieve higher teledensity in the country. Since per line cost is much lower in this segment, wireless telephony may play an important role in multiplying teledensity in rural areas at a lower investment cost. Given lower population density in rural areas, WLL based technology with a command area within 25 kilometers radius can provide telecom facility in 1964 square kilometer area more cheaply than fixed line.

Finally, in a convergence regime, policy and regulatory aspects, which are geared to full exploitation of economics of scope auger well with investment growth. Fragmented and narrowly focused policies and regulation would artificially constrict investment and therefore, be avoided by all means. We have attempted so far to focus broadly on issues, which had been impeding growth. On the whole, I look back with satisfaction on the work done. Now it is up to the business to come forward and deliver the fruits to the consumers. How this needs to be done will be explained by the galaxy of experts who will be deliberating afterwards. I am confident they will agree with me that major roadblocks have been removed. Now the mental ones are there for removal. Experts will tell you how to do so. Like you all I, too, am eagerly waiting for the exciting times ahead.