April 2003 | Shilpa Goel and Kaushik Karforma
Licensed to connect
Telecommunications industry will surely thrive in the next several years. Who will succeed depends on the investing capability and knowledge of technology, regulations, market dynamics, consumer mind etc
An era of telecom deregulation in India has passed. Government monopoly is a thing of the past. Videsh Sanchar Nigam Ltd, the entity that once held the entire telecommunications industry in thrall, has now been privatised. New players are entering the market every day, bringing with them innovative marketing ideas and technologies that are better suited to the needs of the Indian customer. As broadcasting and telephony begin to merge, technology blurs the difference between different conduit systems like wire-line and wireless.
The heady optimism about the future of telecommunications in India flags when one encounters the regulatory environment. Today, there are separate license regimes for basic, cellular, ISP, satellite and cable TV operators. In turn, each regime has spawned a separate industry structure, byzantine terms of entry and varying requirements for creating infrastructure. Will there ever be a "one license, single service" regime?
The answer is yes. But whether it will happen in the next six months or in the next five years depends on how fast the technology grows, how fast the market responds to the introduction of those technologies and how existing regulations can adapt to changing technologies.
The last point is especially crucial. A single illogical legislation could cause all technological advancements to come to naught. For instance, there are different tonnages of trucks: forty tonnes, fifty tonnes, eighty tonnes etc. But the basic technology required to manufacture a forty-tonne truck is similar to that required for manufacturing an eighty-tonne truck. Therefore, it makes no sense to award a license (assuming a license is required to manufacture trucks) for a forty-tonne truck and withhold it for an eighty-tonne truck. It is a case of difference in scale, not difference in technology. Therefore, regulations should be suited to the technology, not the other way round. The Chinese telecom regulations are a case in point. While I am not an expert on the subject, the available information leads me to believe that the Chinese regulations are more appreciative of the market forces and less complex — in terms of the technologies in place and the related uncertainties.
Regulators should also ensure there is a level playing field for all players in the market. It is not the responsibility of the players to make sure that this is so. Take, for example, the case of basic service providers offering limited mobility services, given that cellular service providers have to pay a higher license fee compared to basic service providers. In this case, it is the duty of the regulator to ensure an equal opportunity for all by changing licensing terms or reorganising the tariff structure.
This brings me to the perceived versus the actual attractiveness of the single license model. In my opinion, it will be foolhardy to take a bet on a "single license, any service" model. At this point in time, a single license regime seems set to become a reality in the next two years. But it is quite possible that consumers’ preferences might change in the next five years. Indeed, consumers may become more discerning about the packages offered and the seriousness of service providers. Instead of preferring a "one-size-fits-all" concept, they may opt for specialised service providers, just as patients suffering from cardiac arrests prefer to go to a heart specialist rather than to a general practitioner.
A vertically fragmented market means ever-falling cellular tariffs. This is a logical consequence of the across the board ever-present demand for telecom services — a demand that can be met only by making these services more affordable. This can be done by lowering the price continually and drastically to enable newer markets to participate.
Having captured the premium market, if service providers want to capture the next segment, they need to reduce prices by an order of magnitude, instead of merely by a fraction. A small dip in prices — from Rs10, 000 to Rs9, 000 — would not entice the target audience; a big dip — from Rs10000 to Rs4000 — certainly would.
The greatest obstacle in the way of capturing new markets is misplaced confidence in new technologies. Instead of being blinded by the glitz of Generation Three (3G) technology and sermonising on how to bridge the gap between the current second generation and the third generation, we must decide whether 3G is required. Going by the logic of capturing markets lower down the ladder, the answer will probably be no.
Sophistication of technology is a function of social sophistication. A yuppie executive, earning Rs50, 000 may need a 3G phone; for a schoolteacher in a small town, earning Rs5, 000 per month, the idea of a 3G phone is ludicrous. Unlike a carmaker or an airline, telecom companies don’t have the option of setting aside the less advanced markets and concentrating on the high-end ones because telecommunications touches a large number of people belonging to all social strata. However, it is quite likely that in five years, the schoolteacher in the small town might demand a 3G phone. From being a luxury-item, it might become a necessity then.
Technology is a very dicey affair. Video-enabled cell-phones have been sitting on the desks of innovators for the last fifteen years. But no one has found much use for them. It is futile to be either sanguine or pessimistic about the future. The best we can do is to look at the short-to-medium term and prepare for eventualities.
The same logic holds true for GSM and CDMA. I am not betting on which one will win. But CDMA might prove to be a better technology, because of its lower operational costs (in a high-density traffic area) and higher spectrum-utilisation capacity.
Let me resolve a dichotomy. On the one hand, telecom is fraught with risks. There is no guarantee that you will see the rupee that you have invested in a telecom company giving returns soon. On the other hand, companies are rushing ahead with ambitious plans to set up telecom networks throughout the country. It is naïve to expect a telecom company to recover its money in less than five to seven years because the infrastructure industry does not yield such returns.
As an industry, telecommunications will thrive in the next several years. Which players will succeed depends on the investing capability and on how well the players understand the technology, regulations, market dynamics, consumer mind etc. In order to survive the battle, players in the telecom sector have to be adaptable, flexible, market- and techno-savvy, and responsive to consumers’ needs in the short-to-medium term. They must be prepared for long-term play.