The more things change, the more they remain the same. Thus, we had a New Telecom Policy introducing competition in telecom basic services in 1994. In 1999, we are once again introducing another brand new Telecom Policy, which again promises to introduce competition. Meanwhile, we have set up a Telecom Regulatory Authority of India, which believes its task is to help the private operators: cellular, basic services, radio paging, etc. The subscribers hardly figure in this picture, with only lip service being paid to the Universal Service Obligation and improvement in teledensity, allegedly the objective of the telecom reforms. Lest people point out that competition was supposed to reduce costs and not increase tariffs, the lullaby being sung is that it will come down at some future date: a little pain now is for lots of pleasure in the distant future.
I am not going into tariff issues here except to observe that the increase in local tariffs imposed by TRAI and now agreed upon by the BJP led Government amounts to an increase in the subscriber bills by about 100% and not 30% as TRAI has claimed. This is because the pulse duration has been reduced to 3 minutes from the current 5 minutes, almost doubling the number of metered calls if the duration of the tele-conversations remain the same. If TRAI adheres to the targets for future increases, the subscribers’ bills will rise to three times their current level as a consequence of introduction of competition. While competition in advanced countries is being used to lower telecom tariffs; in countries such as Mexico and India however, private entry in the guise of competition is designed to raise tariffs.
If we are to believe the policy pronouncements, the direction in telecom reforms globally is to allow competition and provide service at lower costs. The rosy picture that is projected is that with competition, the rates will come down, the services will improve and teledensity will increase. A reality check after 5 years of the National Telecom Policy, 94 (NTP94) shows that only in one circle has the private operators provided telephones as against the targets of NTP94 which promised hundred per cent coverage of all rural areas and wiping off the waiting list through private operators. While no increase in teledensity or rural coverage has been effected through private service providers, subscribers have already been saddled with a huge increase of tariffs for local calls.
The tragedy of the country is that instead of learning from the failure of NTP94, the National Telecom Policy ’99 (NTP99) makes more of the same mistakes. Instead of only two operators, we will now have more than two. As the basic service operators are not able to pay the committed license fees, they will be accommodated through revenue sharing. Even a cursory reading of NTP99 will make clear that the underlying basis of the policy is how to resolve the problems of the private operators. If NTP 94 was to help private entry in telecom, NTP99 is to help those who made this entry, even if it means relaxing all the conditions that were made mandatory such as rural telephony obligations and license fees. Instead of the Ministry of Communications, it is now PMO’s office that is calling the shots. A Sukh Ram may go, but other Sukh Rams continue. The actors have changed, the play remains the same.
For the purpose of this paper, I would like to focus on the technological trends in the telecommunications sector before we look at the directions we are taking. The issue here is that the broad direction of developments in the sector finally must be in synch with what is happening technologically. The international trends in telecom policy are important too, as quite often they are trotted out to justify reforms at home. While the reforms in the advanced countries are taking place slowly and with changes in the legal and regulatory framework, they are being thrust on the developing countries at a much faster rate. The changes in Eastern Europe are even worse as public assets are systematically being handed over to either to multi-nationals or the local criminal cum bureaucratic mafia.
Emerging Trends In Telecom
Until 1980s, the telecommunications services were regarded as natural monopolies and were the exclusive preserve of their respective national carriers. While in Europe, it was the Government that ran the telecommunications services as a part of the Post and Telegraph Department, in countries like US and Canada, it was in private hands. The major change in this scenario took place due to technological development and the need of US companies to seek external markets.
The telecom services earlier were only voice services; the voice was carried as electric signal over physical wires. As the laying of wires and cables are only possible when the concerned parties are given the right of the way legally, this was the physical basis of the monopoly. Further, it is much easier to add an incremental connection to an existing network and not duplicate the same. In the age of voice telephony and cable based networks, monopoly was a natural corollary.
However, the growth of wireless, satellite and cable based TV (CATV) networks made it possible for alternative means of communications. It is possible to provide a mobile telephone based on wireless — the cellular phones. In this, a number of cells are laid along roads and the telephone connection is passed from one cell to another as the subscriber moves. While the cellular phones are essentially for mobile services, it is also possible to provide stationary phones using fixed wireless systems. Satellite communications — using the satellite to support a number of telephone links — are also possible. Similarly, the co-axial cable used for CATV can also support telephone systems. The net result is that it is possible to provide competition to existing network operators using alternate technologies.
The other route to competition has come from the different kinds of services possible today over the basic physical layer — the telephone line. These services are e-mail, data communications, data base services, etc. All these use the basic signal and the phone lines of the existing system but overlay different kinds of service. Initially, the operating companies wanted to be the sole supplier of these services — called the value added services. However, it was soon realised that other companies could also provide these services through call-up lines and leased lines. The issue then was to provide a level playing field between the various service providers and the basic network operator. It was easy for the network provider to freeze out all competition by charging exorbitantly for facilities that only they could provide leaving their service as the only viable one. Obviously, the service providers had to be provided protection against the predatory practice of the network operators.
There are convergence and collisions in communication technologies that have emerged as a result of technological change. For example, the computer screen and the television screen are technologically identical products. The difference is in the standards in these areas, there are competing digital TV standards and CRT standards which are being backed different segments of the industry. Thus, a movie on a TV is a multi-media product on a computer. There is convergence of functions while there are collisions on standards as each segment of the industry tries to keep out the other.
The mode of delivery of services have however significant differences. A movie can be transmitted terrestrially (DD1), or through CATV or Direct to Home Telecast (DTH). It can also be down loaded through the telecommunications network and run on the PC. Here, the multiplicity of modes of transmission show that the convergence in the end product has produced more collisions at the level of transmission as each segment seeks to keep out the other. Thus, in broadcast services, the picture is that due to convergence of the end product, there is much more competition on the mode of delivery.
CATV grew mainly in competition with terrestrial TV and has now overtaken it with respect to viewer-ship in countries such as US. However, it also not facing a secure future, as DTH has made serious inroads in its viewer-ship. Murdoch has destroyed the cable market completely in UK using DTH. CATV connects homes through co-axial cables which has the ability to carry a large number of TV channels. As the band width required for voice telephones are quite low, the same cabling system can be used to provide telephone services also. The cable based modem and cable internet services are emerging as a viable option. It has an obvious advantage for downloading large files – video or data – using the much larger bandwidth of the fibre optic cable as compared to the copper cable.
Compared to the telephone companies, the size of the cable companies are quite small. However, they are the only other entities that have cabled the homes. Given that the market for telecom services is ten times that of the CATV companies, even a small share of the telecom pie will mean significant revenues for the cable companies. For the telephone companies, even though the cable market is not a big one, they can not let the cable companies poach on their territory without taking pre-emptive action.
The second level of convergence of functions is in voice services. This is single cast communications, where one person speaks to another. Thus, for a user, voice services are available through either cellular or land based networks. Both perform essentially voice services and could conceivably merge together to deliver personal communications services even if they are in collision today.
The third function that has grown in communications is the completely new one of Internet services. Thus, hooking the computer to a telephone line has made possible a new type of service to emerge – multicast service. It differs from broadcast phenomenon where the broad caster has a passive audience and has to make a very large investment in broadcast equipment and licenses. The Internet services (creation of a site etc) have much lower entry costs and can attract a number of users who are looking for specific information, services or entertainment. The start-up costs of service providers are also much smaller, as the major investment is in the network which has already been made by the network operator. I will not get into details here of how the Internet allows for a different paradigm of communication. I will only point out that collisions again are at the transmission end – wireless, telephone line, CATV, as alternate forms of transmission.
In Table I below, I have summarised each of the service functions along with their major characteristics. Figure 1 shows the growth of data communications as against voice communications, while Figure 2 shows the media alternatives for various services.
Table I: Characteristics of Communication Functions
Type of Service
|Bandwidth||Major Characteristic||Modes of Transmission|
|50-100 Baud||Point to point or Single-cast||Wireless, CATV, land line, VSAT|
|Multicast||Land line, wireless CATV|
< 20 MBaud
|Broadcast||Terrestrial, CATV DTH, land line|
While a majority of the users of the telecom network in the future will be voice, the major load on the network will come from data communication (Internet or downloading movies, etc., being classified here as data communications). Figure 1 shows the trend in increase in data communications. This is why it is even possible for voice telephony to ride piggy-back on data communications with some loss of quality – internet telephony – as it uses very little bandwidth compared to data communication. In a longer time frame, the network which is currently configured for voice communications will have to be reconfigured for communications – from circuit switching to packet switching. Thus, the data end of the network – the high-end users will impose major reconfiguration of network costs. The current pricing of the network, if continued, will penalise the voice user who will have to underwrite the much larger cost imposed on the network by the high-end user.
I am not a great believer on CATV replacing the telecom network for voice or internet services in the country. I am not going to get into details of this as it does not pertain to the focus of this paper. I believe that CATV is going to face competition from DTH and will restricted itself largely to entertainment. I also believe that while downloading films, etc. may be done through the network, the primary focus of the telecom network will be voice and the internet. Thus even though there is convergence between the two in some sense, the market segments will remain separate.
Models of Costing Services If the above is true, than what are the models for costs of voice and internet services. Here again, I believe that internet telephony will improve to a level that it will become the preferred route for long distance voice in the future due to its much lower costs.
How does it affect the telecom network? It is clear that voice telephony is the primary function of the telecom network – the plain old telephone service or POTs as it is called. However, even if voice telephony is the primary focus of the network today, digitised data communication (including internet, films) is going to rise rapidly. In other word, even though at any given point of time, the number of users will be voice, the major traffic on the network will originate from data services.
I am giving in Table II models of possible costing of services based on data rates and distance..
Table II Basis of Costing of Services
|Flat charge model||A flat charge is levied for all subscribers irrespective of usage|
|Connection charge per call||No distance charge and no distinction made between data or voice connection|
|Distance based connection charge||No data rate charge – voice or data treated on par.|
|Distance and data based charge||Call charges based on data rate and distance.|
|Data based connection charge||All calls treated as local. However, charges based on data rates|
I am placing the above as options that exist for basing telecom charges. Convenience of charging is highest for a flat rate connection model while the equity is the lowest; high end and low end users have the same costs in this scheme. The distance and data based charge is the most complex but is the most equitable. However, with internet telephony, the high end user can bypass the distance restriction and therefore the distance ceases to be a major criterion. I would argue that with internet, we are entering into a mode of communication where distance will cease to be a criteria in working out costs. Thus, as voice calls ride piggy-back on data services as though very low band-width, they will increasingly looked upon as local calls irrespective of the distances involved. This has already happened with fax where the e-mail has replaced fax as the preferred means of communications and is likely to happen in voice telephony also. Thus, the direct dial-up voice connection will decrease in importance with internet telephony assuming greater importance.
If we take the above into account, I anticipate a long term drop in STD/ISD costs and an increase in the capital costs of the network driven by the high end user. The long term strategy for us is to focus on a tariff policy which accepts this end result, while seeking to enlarge teledensity through lower access charges. Thus unlike, the TRAI, I would argue for a higher tariffs for the high end users. I would also argue that data/internet services are being subsidised heavily by the existing voice subscribers, and even though this may be done initially to increase coverage, at some point the increased cost of the network must be realised from the data/internet users.
This is not to argue that the tariff reduction for STD/ISD as done by TRAI is rational. It is only to place that the terrain of struggle for a more equitable telecom order must focus on providing cheap access to voice services anywhere in the country. While we still may do a delaying action on reduction of ISD/STD tariffs, the long term prognosis is that with much lower communication costs per baud, the voice end of the market should be delivered at lower costs even for long distance.
Future Requirements of the Information Revolution on the Telecom Network
With the above trends of the telecom sector in mind, let us look at the underlying infrastructure. The first and most important point regarding the telecom infrastructure is that bandwidth upgradation will be crucial for providing the required services. While wireless can provide adequate voice telephony, I do not regard it as the major medium for data communication which will be primarily land line based. Thus, we will see major investments in packet switching networks, pushing fibre optic cables deep into the network and digital local loops in the land line based networks. For voice telephony, hybrid combinations of cellular/wireless land lines will probably be the most optimal. Thus, remote areas could be connected through wireless, while dense areas could be covered by both wireless and land lines.
The key element in the above is that the physical telecommunications layer is emerging similarly to the roadway networks in 16thy-17th century Europe. Each portion of the network was maintained by the feudal lords of the area. Modern industry however demanded good road systems and better communications. Finally, the state took over the road system, maintained it as public goods, as it also did for the railway system later. Currently, the increased demand on telecom network created by the information revolution requires an unified telecom network with a very high bandwidth. However, the thrust of the telecom reform are to fragment the network to an extent that the kind of resources required for future telecom needs can not be put into network expansion. Thus, we are attempting to replicate the fragmented road network of medieval Europe, while the need in telecommunications is to provide a high bandwidth physical layer as public goods. While value added services –data base, internet, etc. can be made competitive, there is a need to keep the network integrated and in the hands of the state. Therefore, internet /email service and other data services can be made competitive while the underlying infrastructure is left as an integrated state monopoly with voice services.
If this is the direction of technology, why are reforms advanced countries taking place in a different direction?
There are two evolutionary trends driving reforms in the advanced countries. With convergence of communication function and collisions in access technologies, it is not clear what were the likely contours of the future. Thus, regulatory barriers that existed between various segments of the services – telephone, CATV, etc.– were lowered to ensure that alternate forms of the access could compete to provide the same functions. This also meant allowing competition in both CATV and the telecom markets. The second is that by allowing competition in their home markets, they are arguing for opening telecom network of other countries to competition. Thus, this is also a move for globally integrated networks – for larger monopolies than the national monopolies of today.
The competition in telecom is therefore shaping up due to a combination of parallel technologies and the need of large telecom majors to invade other markets. Obviously, the regulatory framework built up in the time of sedate technological changes are being rapidly outdated. Earlier, telephone companies were granted monopolies just as the CATV operators were also granted monopolies. The regulatory and legal system that had walled off various kinds of communications are now incapable of merging of various technologies and alternate means of communications for the same kind of end service. While the articulation is for fostering competition and better services, the real driving force of the regulatory changes are for building a framework to allow for the emerging scenario.
It is interesting to note that the communications arena is seeing massive mergers as the regulatory barriers are being lowered. Completely new alignments are being worked out with entertainment companies, CATV companies, the computer hardware and software companies and the telephone companies all in the throes of mergers and acquisitions. The largest players are likely to be the entertainment and the telephone companies as they are the largest in size. In other words, the direction of telecom reforms is to form even bigger monopolies through competition – CATV-Teleco mergers, international telco mergers such as BT and MCI (even though this is in trouble now) – creating mega monopolies.
Reforms: Ideology Driven
My submission here is that a struggle for a just future can not be done without looking at broad technological trends. The trends in telecom reforms are internationally driven by the ideology of those who seek to take over other countries telecom networks and are out of synch with the trend of technological development. What we require, on the other hand is cheap access to voice telephony and a high bandwidth integrated network for future data communications. What we are getting instead, is a high cost access to voice telephony and a fragmented network.
The NTP94 and NTP99 are both flawed because they start from the premise that competition is the direction that the telecom world is travelling. It is true that competition is being introduced in telecom, but it is largely through competing technologies. I am still not aware of any competition in basic services in the advanced countries at the local level through duplication of the physical network. Business users have been targeted by some of the competing telephone companies, but this competition still remains restricted to a small set of end-users. However, the argument for competition in India completely overlooks the nature of the competition that is emerging and is attempting to push in a mindless competition. We have made no attempt to analyse the failure of the basic service operators and the relatively better performance of the cellular operators. If proper lessons had been learned, the thrust would be to allow competition through wireless or CATV route but retain the integrity of the land based network. This will not only conserve scarce capital resources, but also provide a policy aligned to the direction of technological growth. Unfortunately, the ideology of private capital has swamped the country and this is dictating policy today.
Footnotes & References:
1A good overview of convergence and collision is available in IEEE Communications Magazine, January 1998. Figures 1 and 2 her are taken from Anders Rockstrom and Bengt Zdebel “A Strategy for Survival”, in above.
Until 1980s, the telecommunications services were regarded as natural monopolies and were the exclusive preserve of their respective national carriers. While in Europe, it was the Government that ran the telecommunications services as a part of the Post and Telegraph Department, in countries like US and Canada, it was in private hands. The major change in this scenario took place due to technological development and the need of US companies to seek external markets.>