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 over the next five years depends on how fast technologies grow, how fast the market responds to the introduction of these 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 tonnage levels for trucks: 40 tonnes, 50 tonnes, 80 tonnes, etc. But the basic technology required to manufacture a 40-tonne truck is similar to that required for manufacturing an 80-tonne truck. Therefore, it makes no sense to award a licence (assuming a licence is required to manufacture trucks) for a 40-tonne truck and withhold it for an 80-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.

One size won't fit all
This brings me to the perceived versus the actual attractiveness of the single-licence model. In my opinion, it will be foolhardy to take a bet on a 'single-licence, any-service' model. At this point in time, a single-licence regime seems set to become a reality in the next two years. But it is quite possible that consumer preferences will 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 Rs 10,000 to Rs 9,000 — would not entice the target audience; a big dip — from Rs 10,000 to Rs 4,000 — 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 Rs 50,000 a month may need a 3G phone; for a schoolteacher in a small town, earning Rs 5,000 per month, the idea of a 3G phone is ludicrous. Unlike a carmaker or an airline manufacturer, 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 every social strata. However, it is quite likely that in five years the schoolteacher in the small town will demand a 3G phone. From being a luxury item, it might then become a necessity.

Future imperfect
Technology is a very dicey affair. Video-enabled cell phones have been sitting on the desks of innovators for the last 15 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 naive 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, consumers, etc. In order to survive the battle, players in the telecom sector have to be adaptable, flexible, market- and techno-savvy, and responsive to consumer needs in the short-to-medium term. They must be prepared for long-term play.

* Mr Chaukar is the managing director of Tata Industries. He spoke to Shilpa Goel and Kaushik Karforma