UNIT 17 TELECOMMUNICATION

SERVICES
Objectives

After studying this unit you should be able to:

understand the growth trends in the telecom sector in India;
highlight the competitive structure in the telecom industry;
understand the key issues related to pricing of telecom services;
describe the service quality parameters for telecom service providers.

Structure
17.1 Introduction
17.2 Growth of Telecom Sector in India
17.3 Tariff Issues
17.4 Sector Dynamics and Implications for Firm Level Competition
17.5 The Changing Market Structure
17.6 Service Quality
17.7 Summary
17.8 Self Assessment Questions
17.9 Appendix
Appendix 1 : Chronology of Indian Telecom Deregulation
Appendix 2 : Key Features of NTP 99

17.1 INTRODUCTION
The telecom sector in India has witnessed rapid changes in the last few years.
There have been far reaching developments in Information Technology (IT),
consumer electronics and media industries across the globe. The Government
of India has recognized that provision of world-class telecommunications
infrastructure and information is the key to rapid economic and social
development of the country. This will not only help in the development of the
IT industry, but will also provide for widespread spillover benefits to other
sectors of the economy.

The first step in this direction was the announcement of the National Telecom
Policy in 1994 (NTP 94). This provided for opening up the telecom sector to
competition in Basic Services as well as Value Added Services like Cellular
Mobile Services, Radio Paging, VSAT Services, etc. It also set targets for
provision of telephone on demand and opening up of long-distance telephony.
This was followed by a New Telecom Policy declaration in March 1999 (NTP
99) to remove some of the bottlenecks and push the liberalization process
forward.

The policy maker for India’s telecommunications sector is the Ministry of

Communications and Information Technology, which operates through two
government bodies — the Telecom Commission and the Department of
Telecommunications (DoT). The Telecom Regulatory Authority of India (TRAI)
is an independent regulator that reports to Parliament through the Minister.
The Telecom Commission performs the executive and policy-making function,
the DoT is the executive and policy-implementing body while the TRAI 31
Sectoral Applications-II performs the function of an independent regulator. Secretary, DOT, is the ex-
officio Chairman of the Telecom Commission.

17.2 GROWTH OF TELECOM SECTOR IN INDIA

Telecommunications was not perceived as one of the key infrastructure sectors
for rapid economic development during the formative years of the Indian
economy. The relatively low levels of investment in this sector affected the
quality, quantity and range of services provided. In 1998, number of phone
connections per 100 persons in India was 2.2 while the world average was
14.26 (World Telecommunication Development Report, ITU, 1999).
According to a report by Ernst and Young (E&Y) this teledensity is expected
to cross 20 percent by 2008. According to the report the total telecom
revenues in India are expected to almost triple from $9 billion in 2002 to $23-
25 billion by 2007. As in the other parts of the world, the global wireless
revolution has been the principal growth engine in India.

For the provision of basic services (fixed line), the entire country is divided
into 21 telecom circles, excluding Delhi and Mumbai. Bharat Sanchar Nigam
Limited i.e. BSNL (erstwhile Department of Telecommunications (DoT))
provides basic services in the 21 telecom circles, while Mahanagar Telephone
Nigam Limited (MTNL) serves Delhi and Mumbai, which are two metro
license areas. Table 17.1 shows the list of basic services operators in India ,
while Table 17.2 presents the subscriber base corresponding to each operator.
BSNL’s market share has increased from about 80 per cent to 84 per cent
between March, 1997 and March, 2003, while the share for MTNL has
dropped considerably.

Table 17.1: List of Basic Service Providers and their Area of Operation

Area of Operation Name of Service Provider

All over India Department of Telecommunications, now BSNL
Delhi & Mumbai MTNL
M.P., Delhi, Haryana, Bharti Telenet Ltd.
Karnataka, TN
Maharashtra Tata Teleservices Pvt. Ltd. (earlier Hughes Ispat
Ltd.)
A.P., Delhi, Gujarat, Tata Teleservices Pvt. Ltd.
Karnataka, TN
Gujarat, AP, Bihar, Delhi, Reliance Telecom Pvt. Ltd.
Haryana, HP, Karnataka, Kerala,
MP, Mah., Orissa, Punjab,
Rajasthan , TN, UP(E),
UP(W), WB
Punjab HFCL
Rajasthan Shyam Telelink Ltd.

In the early years after liberalization, India restricted the number of licenses
awarded for basic services. The market was divided into separate circles and
the policy admitted one private operator in each to compete with the incumbent
DoT (now BSNL) and MTNL. New entrants were allowed to offer intra-circle
long distance services, but DoT maintained its monopoly on inter-circle National
Long Distance (NLD) telephony. Initially, the bidding process led to six new
entrants in basic services. In the year 2001, the policy was changed to allow
unlimited entry into each circle for basic services and subsequently 22 additional
32
license agreements have been signed. For the list of basic service providers Telecommunication
Services
and their area of operation refer to Table 17.1. As of December 31, 2003
BSNL controlled 84.8%, MTNL 10.6% and other private operators 4.6% of the
fixed service market.

Table 17.2: Subscriber Base – Basic Services

Service 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Provider
DoT/BSNL 11,530,276 14,394,956 17,927,526 22,479,721 28,108,976 33,218,498 35,932,877
MTNL 3,012,324 3,406,740 3,653,913 4,031,624 4,327,158 4,629,709 4,690,080
Bharti Nil Nil 13,980 91,967 115,212 180,989 370,973
Telenet Ltd.
Hughes Nil Nil 6,070 22,110 69,599 160,672 233,397
Ispat Ltd.
Tata Tele- Nil Nil Nil 26,713 58,736 150,400 365,190
services
Reliance Nil Nil Nil Nil 109 140 958,534
STL Nil Nil Nil Nil 8,998 27,150 82,265
HFCL Nil Nil Nil Nil 13,441 64,926 111,647
Total 14,542,600 17,801,696 21,601,489 26,652,135 32,702,229 38,432,484 42,744,963

In the year 2003-04 while the fixed lines including WLL (F) showed an
increase of 3% over the previous year, during the same period the mobile
services including Cellular and WLL (M) showed a spectacular growth of
160% i.e. from 13 million to 33.58 million subscribers. This trend is not unique
to India. Worldwide trends also confirm the same results i.e. higher growth in
the mobile sector.
Figure 17.1: Actual and projected subscriber growth, fixed-lines and
mobile, millions, 1990-2010

2'00 0
Mobile hashas

Mobile overtaken
ov ertake n
fixed-lines in iCambodia,
fixed -lines n Ca mbodia,
Finla nd,
Finland, I tal Korea
Italy, y, K orea 1'50 0

Mobile
Mobile subscribers
s ubscri bers to to
ov ertake
overtake fixed-line
fixed-line Fixed
worl dwibefore
worldwide de be fore 20 05?
2005? 1'00 0

Mobile
Mobile rev enue
revenue to to Mobile
ov ertake
overtake fixed-lineafter
fixed-line after
500
2004?
2004?

Fastes
Fastest t gr owth
growth in i n
dev eloping
developing countries
countries 0
199 0 200 0 201 0

Source: 1990-1998 data from ITU World Telecommunication Indicators Database. 1999-2010 ITU

Figure 17.1 shows the prediction made by International Telecommunications

Union (ITU) that mobile will overtake fixed worldwide, perhaps by 2005.
Interestingly, this has already happened in a few countries. In India, it is
envisaged that by 2007 mobile phones will surpass fixed phones. However,
with the current structural changes in the telecom sector including the move
towards unified licensing it is more than likely that this will happen earlier.

Private participation in the cellular-mobile market in India has been very

successful. Eight cellular licenses, two in each of the four metros, were
awarded in October 1994. Subsequently, bidding resulted in the award of
licenses in 18 Circles. (Circles have been classified as category A, B and C
based on market characteristics and telephony potential in diminishing order of
attractiveness). For two circles, Jammu and Kashmir, and Andaman and
Nicobar Islands, no bids were received, while for West Bengal and Assam,
only one bid each was made. A list of existing cellular operators and their area
of operation is provided in Table 17.3. The subscriber base crossed 3.5 million 33
Sectoral Applications-II by the last quarter of 2001, at the end of March, 2003 it reached to about 13
million and was more than 33 million by the end of March 2004. (Cellular and
WLL – M combined). The top five mobile operators (Cellular and WLL-M
combined) as of December 2003 in terms of market shares were Reliance
(21.9%), Bharti (19.34%), BSNL (17.34 %), Hutchison (13.26%) and Idea
(7.88%). Table 17.4 gives the details of growth in subscriber base for cellular
services.

Table 17.3: List of Cellular Service Providers and their Area of Operation
Category City/Circle Operator 1 Operator 2 Operator 3 Operator 4
Metros Delhi Bharti Hutch MTNL Batata
Mumbai BPL HMTL MTNL Bharti
Chennai RPG Bharti BSNL Hutch
Kolkatta Bharti Hutch BSNL Reliance
A’ Circle Maharashtra BPL IDEA BSNL Bharti
Gujarat Hutch IDEA BSNL Bharti
A.P. IDEA Bharti BSNL Hutch
Karnatka Bharti Spice Comm BSNL Hutch
T.N. BPL Aircel BSNL Bharti
B’ Circle Kerala Escotel BPL BSNL Bharti
Punjab Spice Comm - BSNL Escotel
Haryana Escotel ADL BSNL Bharti
U.P.(W) Escotel - BSNL Bharti
U.P.(E) ADL - BSNL Escotel
Rajasthan ADL Hexacom BSNL Escotel
M.P. IDEA Reliance BSNL Bharti
W.B. Reliance - BSNL -
C’ Circle H.P. Bharti Reliance BSNL Escotel
Bihar - Reliance BSNL -
Orissa - Reliance BSNL -
Assam Reliance - BSNL -
N.E. Reliance - BSNL -
J&K - - BSNL -

Source: [Link]

Table 17.4: Subscriber Base – Cellular Services

Category March March March March March March March March

'97 '98 '99 '00 '01 '02 '03 '04
All Metros 325,967 551,757 519,543 795,931 1,362,592 2,567,757 4,439,524 7,941,766
‘A’ Circle 9,698 176,954 354,799 585,653 1,165,778 2,134,333 4,364,943 9,698,299
‘B’ Circle 3,000 138,309 284,189 460,094 932,685 1,501,151 3,374,538 7,402,067
‘C’ Circle 366 15,296 36,915 42,633 116,040 227,573 508,632 1,112,273
All India 339,031 882,316 1,195,446 1,884,311 3,577,095 6,430,814 12,687,637 26,154,405

Source: [Link]

34
Activity 1 Telecommunication
Services
Visit the website [Link] and find out the market positions of the
various cellular service providers.
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17.3 TARIFF ISSUES

It is now widely recognized that enhancing efficiency and investment in telecom
requires the introduction of competition, which in turn needs a regulatory
mechanism to facilitate competition. An essential ingredient of transition from a
protected market to competition is alignment of prices to costs (i.e., cost-
oriented or cost-based prices), so that prices better reflect their likely levels in
a competitive environment. In basic telecom, for example, a major departure in
pricing of services involves cross-subsidization. Cross subsidization involves
providing one service such as monthly rental below cost and another such as
Domestic Long Distance (DLD) and International Long Distance (ILD) above
cost to recover cost and also to generate surplus for investment. Table 17.5
shows that in 1998, 70 per cent of BSNL’s (then DoT) revenue was due to
only 13 percent of the subscribers. This can be estimated by calculating the
cumulative distribution of subscribers and revenues from Table 17.5. For
example, 2.7% of subscribers contributed 46.1% of revenue. The next 2.5% of
subscribers contributed 9.8% of revenue, implying that 5.2% of subscribers
contribute 55.9% of revenue and so on. One reason for this was the very high
price of long distance calls compared to local calls. The considerable
difference between the price of a local call and that of DLD and ILD calls
was policy driven. Empirical evidence shows that it was 90 times more
expensive to make a long distance call from Delhi to Mumbai in 1998
compared to local call and the corresponding ratio for an ILD call to USA.
This implies that those who made long distance calls were cross subsidizing
those who used the telephone for only local calling.

Table 17.5: Revenue Contribution by Different Subscriber Groups

Share of Total Subscribers The Contribution of These

Subscribers to Call Revenue
2.7 % (those making more than 10,000 call bi-monthly) 46.1 %
2.5 % (those making between 5001 and 10,000 call bi-monthly 9.8 %
7.9 % (those making between 2,001 and 5,000 calls bi-monthly) 13.4 %
14 % (those making between 1,001 and 2,000 calls bi-monthly) 11.6 %
21.3 % (those making between 501 and 1,000 calls bi-monthly) 10 %
51.7 % (those making 0 to 500 calls bi-monthly) 8.1 %

Source: Telecom Regulatory Authority of India (TRAI). 1999, “Telecommunication Tariff

Order.”

Traditionally, BSNL (DoT earlier) tariffs cross-subsidized the cost of access (as
reflected by rentals) by domestic and international long-distance usage charges.
In order to promote desired efficiencies, ‘re-balancing’ of tariffs is a necessity,
and, therefore an important policy issue. Re-balancing of tariffs involves
reducing tariffs that are above costs while increasing those below costs. Thus,
re-balancing implies a reduction in the extent of cross-subsidisation in the fixed-
services sector. Such a rationalization is required as a condition precedent to 35
Sectoral Applications-II the conversion of a single operator system to a multi-operator one. A small
proportion of the subscribers account for a major share of call revenue, and
these subscribers would be the subject of competitive churn when private
sector operators enter the market. For example, Hughes teleservices (now
TATA) targeted the high revenue paying subscribers when it entered the
market in Mumbai and made attractive offers to corporates and potential clients
in the rich districts of Nariman point and Colaba. Similarly, Bharti in Madhya
Pradesh acted likewise in the cities of Indore and Bhopal when it newly
entered the market in 1996. Such cream skimming or cherry picking is a
commonly adopted pricing strategy for new entrants in telecommunication
markets when facing entrenched incumbents. Loss of high revenue customers
will have a significant effect on the revenue situation of the incumbent, making
it difficult to meet its revenue objectives. Thus, while tariffs have to be reduced
for the services that are priced much above cost (e.g., long distance and
international calls), tariffs for below-cost items need to be increased. Such a
re-balancing exercise is common when preparing the situation for competition.
Otherwise, competition will result in a decline in above cost prices without any
compensating charge in the below cost prices. Cost-based prices restrict the
possibility of cream skimming by operators.

The methodology of specifying tariffs included the following feature to impart

flexibility. For certain services, TRAI specified particular tariff levels while for
several others it allowed forbearance. Forbearance is a feature that permits
service providers to set their own tariffs without approval from the regulator.
Usually it is a practice followed in markets where there is substantial or
adequate competition. Even for those services for which tariff levels are
specified, the framework includes the possibility of providing alternative tariffs.
The tariffs specified by TRAI form a package that is termed the “standard
tariff package.” This package must always be provided to the customer. In
addition, the service provider is left free to provide any “alternative tariff
package.” Since the standard tariff package is always available to the
customer, any alternative tariff package has to be better in order to attract any
customer. Therefore, the standard tariff package provides a minimum
guarantee to the customer. In one sense, it specifies the peak expenditure
level for the customer, with the alternative tariff packages being attractive only
if the expenditure involved in them is lower than that for the standard tariff
package. This method of flexibility was adopted because of the growing
tendency in telecom markets to provide different tariff combinations for various
baskets of services. Thus the standard tariff package could be viewed as a
ceiling tariff, with operators free to provide alternative tariffs that were below
this level. For cellular mobile, tariffs were restructured because the prevailing
rentals were low and call charges were high. This resulted in a tariff structure
that dissuaded usage and loaded the subscriber base. Thus, call charges were
reduced and rentals were increased. The methodology clearly included license
fee as costs and showed that a high license fee translates into higher tariffs.
Standard monthly rental for mobile cellular was increased from Rs 156 to
Rs. 600, but the maximum call charge was reduced from a peak of Rs. 16.80
per minute to Rs. 6 per minute. The service providers were allowed to give
alternative tariff packages which resulted in lower tariffs.

The possibility of giving alternative tariffs provided a means of addressing

several concerns. Over time, with greater competition in the market, tariffs for
long distance calls and for cellular mobile have seen dramatic declines within
such a framework. The reduction in tariffs has also been spurred by the
introduction of wireless in local loop (with limited mobility) and the major cost
reduction due to technological change. With the new service providers relying
on more recent, cost efficient technologies, Indian telecom market is emerging
36 with very strong competitive pressure.
The basic driving force of growing competition in what was once thought to be Telecommunication
Services
a natural monopoly is the increasing versatility with which services can be
provided, based on the digitisation of all signal-transfer technology. As the
manner in which signals are transferred from one location to another becomes
common, it is possible for a service provider in one segment of
telecommunication, say network television services, to perform the functions of
another, say, the local phone company. Efforts to maintain barriers across such
segments will eventually be overwhelmed by technology. Regulation will follow
convergence rather than the other way around. Convergence will eliminate the
existing barriers between different types of services, for example, between
basic and cellular and allow service providers and, thus, consumers to benefit
from scale and scope economies. This has already been initiated in India with
a move towards unifying the licenses for Basic and Cellular services.

17.4 SECTOR DYNAMICS AND IMPLICATIONS FOR

FIRM LEVEL COMPETITION
a) Basic Services
After NTP 1994 was announced, move was made to include private
participation in providing telecom services. During September 1994 guidelines
were issued for private sector participation in basic services. In January 1995
tenders (circle-wise) were invited for the 2nd operator in Basic service. In the
year 1997 private operators started providing basic services.

Table 17.6: Extent of Competition as on 31st March 1997

Circle/City Number of Basic players Number of Cellular players

A&N 1 0
AP 1 1
Assam 1 0
Bihar 1 0
Gujarat 1 2
Haryana 1 2
HP 1 1
J&K 1 0
Kerala 1 0
Karnataka 1 0
Maharashtra 1 0
MP 1 0
NE 1 0
Orissa 1 0
Punjab 1 0
Rajasthan 1 0
TN 1 0
U P (E) 1 0
U P (W) 1 0
WB 1 0
Mumbai 1 2
Kalkatu 1 2
Delhi 1 2
Chennai 1 2

b) Cellular Services
Licences were issued for Cellular Services for metros in November 1994. In
December 1994 tenders were invited for 19 circles apart from 4 metros. In
most of the circles/metros two operators began service, making the market a
duopoly.
37
Sectoral Applications-II c) State of Telecom Market as on 31st March 1997
Basic subscriber base 14.54 Million
Cellular Subscriber base 0.34 Million
Teledensity 1.56
Number of NLD players: 1 (BSNL)
Number of ILD players: 1 (VSNL)
The data shown above demonstrates that the telecom sector in 1997 was
dominated by the government owned monopoly, with a few private operators in
the cellular mobile segment. Teledensity was low and prices were relatively
high. Although the market had been opened to competition in the basic and
cellular segments, the structure remained concentrated i.e. the market was
fairly monopolistic.

In the year 1999, NTP-99 was announced. Its main objectives are shown in
Appendix 2. In 1999, DoT was divided into DTS (Department of Telecom
Services) for service provision and DoT for policy making. In the year 2000
DTS was corporatised as BSNL, which is the name under which it operates
today. Until June 2001, there were only 6 private operators in operation
apart from BSNL (operating all over India except Delhi and Mumbai) and
MTNL (operating in Delhi and Mumbai). During this period, existence of
private operators did not provide adequate competition to force down
prices. There was virtually no competition in Basic services. As on 31st
December 2003, share of private operator in basic service market was less
than 5%.

Licence for 3rd Cellular operator was granted to the Government owned
service providers, BSNL & MTNL. MTNL started its Cellular services in
2001 while BSNL started its services in 2002. An interesting development in
cellular tariffs was witnessed at this time. There was a steep and sudden
decline in tariffs by the private operators in anticipation of entry of 3rd cellular
service provider. However, an analysis of market shares of cellular operators
shows that MTNL has not been able to make a significant impact in the
Cellular Market. At the end of September 2003, MTNL’s share in Delhi was
6% and 8% in Mumbai. An interesting fact is that the private operator that
entered the markets of Delhi and Mumbai almost a year after MTNL, has
acquired a larger share of the market. Whereas, BSNL as the 3rd entrant has
had relatively more success achieving a 22% market share on an all India basis
as of September 2003 (operating in 19 circles). The fourth Cellular operator
also started service along with BSNL in the year 2002. As one would expect,
the entry of competition in cellular mobile has provided a boost to the market in
terms of subscriber acquisition, tariff changes and value added services like
roaming, SMS, cricket updates, stock market news etc. Based on the prevailing
tariffs in the market, costs and extent of competition, TRAI decided to
introduce forbearance in the year 2002. Thus cellular service providers are now
free to determine the price of tariff offerings to subscribers.

17.5 THE CHANGING MARKET STRUCTURE

Several parts of the sector have been liberalised and along with reforms the
market structure has also undergone a significant change. Unlimited entry of
new players has been allowed in basic, NLD, ILD, ISP and infrastructure
businesses. Cellular mobile has upto 4 operators in each service area. As a
result of these changes, the sector presents a very different picture from the
one that obtained in 1997. There are 8 different operators in certain lucrative
38
service areas such as Delhi, Chennai, Karnataka etc. There are 4 NLD and 5 Telecommunication
Services
ILD operators in India.

The way in which the structure of the industry is changing at a phenomenal

speed seems unending at the moment. The Reliance launch has been a catalyst
not just in the ensuing price competition but even more significantly in
attempting to alter the mindset of all the stake holders of the telecom business.
One early casualty is going to be the most conventional way of looking at the
business: henceforth the services and the tariff on offer cannot be fitted so
easily into neat compartments such as basic telephone services, mobile services
or local calls, STD calls and so on. Bundling, which is examined later in this
section is one example of this.

Three to four leading private players are likely to emerge as competition to the
incumbents, BSNL and MTNL, which have a significant presence across the
value chain. The Tata Group, Reliance Infocom and Bharti Televentures have
announced plans to emerge as integrated telecom companies offering
end-to-end services to customers. Hutchison, on the other hand, appears to be
focused on cellular services, with no stated intention of entering other
businesses.

The VSNL acquisition has catapulted the Tata Group to the leading position
among private Indian telecom players. With a 100 per cent share in the
lucrative ILD business, a leading share in Internet services, and a favourable
NLD license, VSNL fits in perfectly with the group’s plans of providing
integrated telecom solutions. The Tata-VSNL team will now embark on its next
challenge - ensuring a smooth transition at VSNL and integrating business plans
for ILD, NLD and Internet/data services to enhance value for its customers
and shareholders.

This increase in competition has not only increased the market size for telecom,
but has also resulted in substantial tariff declines. The next section analyses
this phenomena.
a) Trend in tariffs
There can be no question about the direction of change in average tariff in the
sector. The trend has been consistently downward. There are many ways to
estimate the decline in tariffs for telecom services and some may be subjective.
While different methods may result in different estimates, the message that
comes through is that substantial declines in tariffs have occurred that can only
be attributed to the intense competition in the market.

The reason why estimates of tariff declines could vary is because prices vary
depending on the nature of usage and the package of services viz. local NLD,
ILD, value added services etc. chosen by the subscriber. Another complexity
in telecom is the widespread use of multi part pricing i.e. a fixed monthly rental
for access to the service and a variable charge depending upon usage and the
nature of calls. Moreover service providers have attempted to segment the
market according to subscriber types and have tried to customize tariff
offerings to best meet the needs of different subscribers. Thus a number of
tariff plans are available which subscribers choose according to their
requirements.

In September 2003, TRAI did a study on trends in tariffs for Fixed, Cellular
and WLL (M) services. The following graph shows the results of that
study.

39
Sectoral Applications-II
Comparison of effective charge per minute for 400 M

3.00

2.50

2.00

1.50

1.00

0.50

0.00
Mar.-01 Jun.-01 Sep.-01 Dec.-01 Mar.-02 Jun.-02 S

Fixed 0.69 0.69 0.69 0.69 0.69 0.69 0

WLL(M) 1.25 1.37 1.37 1.37 1.37 1.37 0
Cellular 2.42 2.41 2.06 2.06 1.89 1.89 1

MOU: Minutes of Use

The above graph is based on the calculations performed on the minimum tariffs
prevailing in the market at various points of time for average local usage of
400 minutes (outgoing + incoming). As stated above, tariff decreases have
been an unmistakable feature of the telecom market in India over the last few
years, although different analysts could come up with different estimates
depending on the methodology adopted for the purpose.
b) Innovations in Tariff offerings
Technological progress has blurred the boundaries between different platforms
for access services. Thus, competition is not only within the service but also
between the services, viz, cellular and WLL (M). One manifestation of this
competition has been examined in the previous section on tariff declines.
Another is the frequency of change in tariff plans offered by operators. Not
only is the frequency of change high, service providers are also designing
innovative tariff plans to attract subscribers. Further, service providers are
striving to lock their customers for a longer period of time to prevent churn.
Acquiring subscribers is passé; customer retention has become vital.
c) Bundling of services
Another interesting change in the sector is the multiple licenses owned by a
single company. As stated earlier, India has issued separate licenses for Basic,
Cellular, NLD, ILD, ISP services. In view of the fact that a single operator
has acquired multiple licenses and can thus offer multiple services, one of the
innovations that have occurred relates to bundled offers. An integrated
operator (Integrated operator means that one business house possesses cellular
or basic i.e. access, NLD, ILD and ISP license. This enables the service
provider to offer end-to-end services to the customer under its own brand
name) can design more bundles and innovative schemes compared to a stand-
alone operator. Some of the bundled offers are described below.
CUG (Closed User Group) : Forming a group of customers where the
calls within group are either not charged or are charged very low and the
calls made outside the group are charged higher.
Friends and Family : Unlimited free talktime to a selected number for a
cost of a fixed monthly charge.
40
 Free VAS (Value Added Services): such as SMS, CLIP free with Telecommunication
Services
certain tariff plans.
Unlimited usage free: Tariffs with high monthly rental and unlimited free
usage. This may attract the high callers and this type of packages also
ensures a minimum ARPU (Average Revenue per User) to the service
provider.
Zero Rental: Packages with no or zero rental and high calls charges. This
type of package may attract very low users, who want to own a phone
but use it very rarely.
Prepaid plans with no administrative charges or plan fee: This
ensures a fixed ARPU to the service provider. Also, customer gets a
chance to use his net payout to the fullest.
Plans to lock customers for a longer period of time: Tariff plan for
minimum commitment of 3 years. Although it provides a facility to the
customer to exit the plan but at a very high cost, which discourages the
customer from exiting the plan.
Plans with very low rental but outgoing calls are barred: At a very
low monthly cost ranging between Rs. 70 to Rs. 150, customer can receive
any number of calls. Also if someone wants to make outgoing calls, he can
use VCC (Virtual Calling Card). It is a perfect substitute of pager or may
be one step ahead.

The intense competition witnessed in telecommunications has several

implications that go well beyond the immediate sectoral interests. Such
competition has been price-driven; with the existing service providers hoping to
retain their market share through tariff cuts in the wake of strong emerging
challenge. The immediate gainers are the consumers, especially users of mobile.
Activity 2
Try to find out examples of bundling in other industries (sectors) in India.
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17.6 SERVICE QUALITY

The Telecom. Regulatory Authority of India Act 1997 11(1) (b) (v) as amended
by TRAI (Amendment Act, 2000) mandates TRAI to “lay down the standard
of quality of service (QOS) to be provided by the service provider and ensure
the Quality of Service and conduct the periodical survey of such service
provided by the service providers so as to protect interest of the consumer of
Telecom Services”. One could argue that in a competitive environment,
Regulator need not bother about QOS Parameters and competition will
automatically take care of it. Unfortunately, in reality it is not so. Even in the
countries, where there has been competition in various telecom services for a
long time, the QOS is a major concern to protect consumer interest.

After going through a consultation process through written comments and open
house discussions, TRAI issued a QOS Regulation on 5th July, 2000 both for
Basic as well as Cellular Services. This Regulation has laid down benchmarks
for various QOS parameters with the following objectives:

41
Sectoral Applications-II i) Create conditions for customer satisfaction by making known the quality
of service which the service provider is required to provide and the user
has a right to expect.
ii) Measure the Quality of Service provided by the Service Providers from
time to time and to compare them with the norms so as to assess the
level of performance.
iii) To generally protect the interests of consumers of telecommunication
services.
QOS Parameters for Basic Telecom Services
The following key benchmarks have been set for basic services
i) Provision of a telephone after registration of demand for exchange areas
declared on demand : 100% within 7 days.
ii) Fault incidences (No. of faults / 100 subscribers / month): <3
iii) Fault repair by next working day: >90%
iv) Mean Time To Repair (MTTR): <8 hours
v) Call Completion Rate within a local network: >65%
vi) Metering and billing credibility: Not more than 0.1% of bills should be
disputed.
vii) Operator Assisted Trunk Calls: Urgent <1 hour, ordinary <2 hours
viii) Customer Care (Promptness in attending to customers requests) 95% of
requests: a) Shifts : <3 days b) Closures: <24 hours c) Additional
facility : < 24 hours
ix) Percentage of repeat faults: <1%
QOS Parameters for Cellular Services
On similar basis QOS Regulation have been laid out along with the benchmarks
for cellular services.
A) Fault incidence and Repair
i) Fault incidence (Number of faults /100 subscribers/month): <1
ii) Faults cleared with 24 hours : 100%
iii) Accumulated down time of Community isolation: <24 hours
B) Network Performance
i) Call Success Rate (within licensees own network): >99%
ii) Service Access Delay : Between 9 to 20
iii) Call Drop Rate : <3%
iv) Percentage of connections with good voice quality : >95%
C) Billing Complaints
i) Billing complaints per 100 bills issues: <0.1%
ii) Percentage of billing complaints resolved within 4 weeks: 100%
iii) Period of all refunds/payments due to customers from the date of
resolution of complaints as in (ii) above: <4 weeks

In a survey conducted by IMRB on behalf of TRAI to assess the quality of

services provided by the service providers (for the period Oct. – Dec. 2003)
following issues emerged.
a) The basic services being provided are not upto the desired standards. The
situation is particularly bad in respect of provision of new connection within
7 days, number of faults per 100 subscribers per month, time taken to
42 repair faults, and time taken to shift connections and closures.
b) Cellular operators are providing much better quality of service than their Telecommunication
Services
basic counterparts. Fierce competition in the cellular market has forced
operators to constantly keep improving their networks, resulting in
acceptable levels of service. The key concern areas for CDMA operators
are billing complaint incidence, billing complaint resolution and fault
incidence, in that order. The performance of the CDMA operators on
the remaining parameters is good.

The details of QOS regulation and detailed reports on surveys conducted are
available on TRAI’s website : [Link]
Activity 3
As a user of telecom services, try to evaluate the service quality of your
service provider(s) based on the parameters given in this section.
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17.7 SUMMARY
This unit gave you an overview of fixed line and cellular mobile industry in
India. There has been a significant growth in the Indian telecom market during
the last few years. A number of steps have been taken by the Indian
government which have resulted in a dynamic change in the competitive
structure of the industry. The unit outlines the steps taken and analyses the
competitive structure prevailing in the industry. Issues related to pricing (tariffs)
have been discussed in detail. The unit ends with the service quality parameters
relevant to telecom service providers.

17.8 SELF ASSESSMENT QUESTIONS

1. Discuss the major trends in the growth of telecom sector in India during
the last few years.
2. What are the important issues that should be kept in mind while deciding
on the pricing issues for telecom services?
3. Explain the nature of competition prevailing in the telecom industry in India.
What are its implications for the telecom firms?
4. What is bundling? Why do you think bundling has emerged as an important
aspect of customer pricing, especially in context of telecom service
provision inIndia. Do you think bundling is always in customer interest?
Give Reasons.
5. What are the service quality parameters for basic telecom services and for
cellular mobile services? Why have such parameters been introduced by
the regulatory authority?

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Sectoral Applications-II
17.9 APPENDIX
Appendix 1 : Chronology of Indian Telecom De-regulation
Year Event
1992 Bids invited for radio paging services in 27 cities
Bids invited for cellular mobile services in four metro cities
1994 National Telecom Policy announced
Radio paging, V-SAT data services, electronic mail services, voice – mail
and video – text services opened to private providers
DoT guidelines for private sector entry into basic telecom services in the
country
Eight cellular licensees for four metros finalized after over two years of
litigation
1995 DoT calls for proposal to operate basic, cellular telecom services and
public mobile radio trunked (PMRT) services
DoT receives bids for basic, cellular and PMRT services
Most cellular operators in circles sign license agreements
DoT announces cap on the number of circles basic operators can roll out
services in. Licensees selected for five circles.
1996 After setting reserve prices for circles, DoT invites fresh bids for basic
services in 13 circles
Five successful bidders short-listed for providing basic services
Poor response to third round of basic telecom bidding. Only on company
bids - for Madhya Pradesh.
Selected bidder of first round refuses to extend bank guarantees for its
four circles. Challenges in court DoT move to encash guarantees.
Three more companies move court against DoT move to encash
guarantees.
1997 Telecom Regulatory Authority of India (TRAI) formed.
First basic telecom service company signs license and interconnect
agreements with DoT for Madhya Pradesh
Second basic service provider signs basic telecom license pact for Gujarat
TRAI quashes DoT move to increase tariffs for calls from fixed-line
telephone to cellular phones
VSNL calls for global tenders to find a partner for its South Asian
regional hub project
Internet Policy cleared; license agreement for basic services in
Maharashtra also becomes operational
Basic service licensees for Andhra Pradesh and Punjab sign basic telecom
agreements with DoT.
1999 TRAI Issued First Tariff Order.
New Telecom Policy announced.
TRAI Issues First Regulation on Interconnection and Usage Charge
Conditions for migration to revenue sharing from fixed license fee regime
issued
Cellular operators allowed the use of any digital technology;MTNL
given a license to provide cellular mobile service under these flexible
technology conditions.
2000 Ordinance promulgated divesting TRAI of adjudicatory role. TDSAT
created to settle disputes between licensor and licensee. Appeals against
TRAI decisions to be heard by TDSAT.
TRAI implements second phase of tariff re-balancing
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 Telecommunication
Policies announced for easier entry/operation of new service providers in
Services
the various sectors, e.g., VSAT, PMRTS, Radio Paging, Unified Messaging,
Voice Mail
Government has allowed the setting up of international gateways to
private internet operators
Guidelines for Issue of Licence for National Long Distance Service
Guidelines for Issue of Licence for Cellular Mobile Telephone Service
2001 Guidelines for Issue of Licence for Basic Telephone
Convergence Commission of India Bill laid in Parliament.
Open competition policy announced for International Telephony Service
Usage of Voice Over Internet Protocol permitted for international telephony
service
First License for National Long Distance service signed
Launch of WLL(M) services by Basic service provider in the market
2002 Guidelines for Issue of International Long Distance Licence
First License for International Long Distance service signed
First private operator begins ILD service
TRAI revises tariffs for WLL(M)
TRAI leaves Cellular tariffs to market forces, service providers to notify
their Reference Tariff plans
TRAI introduces the Reference Interconnect Offer (RIO) regulation
TRAI introduces Regulation on Quality of Service For VOIP Based
International Long Distance Service
2003 TRAI introduces the Telecommunication INTERCONNECTION USAGE
CHARGES (IUC) Regulation
TRAI leaves NLD sector left under forbearance subject to a ceiling tariff
TRAI leaves ILD sector left under forbearance
TRAI mandates Basic Service Operators (BSO) to be non-discriminatory in
provision of Infrastructure facilities to ISPs
TRAI gives its recommendations on unified licensing for basic and cellular
mobile services
TRAI gives its recommendations on “WLL(M) Issues Pertaining To TRAI
Based On HON’BLE TDSAT’S Order
TRAI Forbears Basic Service Tariffs Except Rural Tariffs

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Sectoral Applications-II Appendix 2 : Key Features of NTP 99

Some of the notable advances marked by the NTP 99 are as follows:

Speeding up competition in long distance, including usage of the existing
backbone network of public and private entities in Rail transport, Power
and Energy sectors for data (immediately) and for domestic, long-distance
voice communication when the latter is opened to competition from
January 2000. This increases the scope for entry of a new category of
‘infrastructure providers’ or ‘carrier’s carrier’.
Fixed Service Providers (FSP) shall be freely permitted to establish ‘last-
mile’ linkages to provide fixed services and carry long-distance traffic
within their service area without seeking an additional licence. Direct
interconnectivity between FSPs and any other type of service provider
(including another FSP) in their area of operation and sharing of
infrastructure with any other type of service provider shall be permitted.
Policy to convert Public Call Offices (PCOs), wherever justified, into
Public Teleinfo centres having multimedia capability like Integrated Services
Digital Network (ISDN) services, remote database access, government and
community information systems etc.
Transforming, in a time-bound manner, the telecommunications sector to a
greater competitive environment in both urban and rural areas providing
equal opportunities and level playing field for all players.
Strengthening research and development efforts in the country and provide
an impetus to build world-class manufacturing capabilities.
Achieving efficiency and transparency in spectrum management.
Commitment to restructure DoT.
Interconnect between private-service providers in the same Circle and
between service provider and VSNL along with introduction of competition
in Domestic Long Distance.
Undertaking to review interconnectivity between private-service providers
of different service areas, in consultation with TRAI.
Permission for ‘resale’ of domestic telephony.
Clarity regarding number of licenses that each operator may be granted.
(This could lead to consolidation of industry operators over the long term).
Emphasis on certain other issues including Standardisation, Human
Resource Development and Training, Disaster Management and Change in
Legislation.

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