University Centre Address

InfoTech, University Study Centre (Sikkim Manipal University), 3/7, Central Park, City Centre, Durgapur-713216, West Bengal.

Centre Code

0249

Title of the project report

Descriptive qualitative approach towards the financing needs of Indian telecom sector and different innovative ways to finance its growth with a case study of B.S.N.L., a telecom service provider of India.

By- Neeraj Kumar Singh (Roll No-520751161)

A project report submitted in partial fulfillment of the requirements for the degree of Master of Business Administration of Sikkim Manipal University, India.

Sikkim-Manipal university of Health, Medical and technological sciences,Distance education wing,Syndicate house,Manipal-576104.

Project Synopsis

Title

Descriptive qualitative approach towards the financing needs of Indian telecom sector and different innovative ways to finance its growth with a case study of B.S.N.L., a telecom service provider in India.

Objectives

The objective of the project can be summarized as follows-

1) The first objective is to access the Indian telecom sector, its current status & structure, its appellate authority, its telecom policies, service offerings, investment opportunities & incentives, research & development works, growth potential, government vision and mission etc.2) The second objective is to find out the socio-economic impact of telecommunication investment in developing countries like India, the effect of information and communication technologies, the digital divide in developing and developed nations.3) The third objective is to find out different financing strategies and financial ways to finance a telecom projects in India, and to access the different financial risks associated with.4) The fourth objective is to establish the relation between the telecom investment and its effect on the growth in global perspective.5) The fifth objective is to take the case of B.S.N.L. ( A govt. of India enterprise), a telecom service provider, to access its current business structure, service offerings, current growth in terms of revenue and profits, service expansions, its asset structure, social commitment.6) The sixth objective is to find out the telecom trends in global perspective, high growth drivers, business patterns, cost efficient operation, and how to expand in low ARPU Rural markets.7) The seventh objective is to see the picture of public-private partnership contribution in telecom growth in India, their investment pattern and their differential contribution to the telecom growth.8) The eighth objective is to look into the telecom investment opportunities and potential in Indian telecom sector and the public private investment avenues and nodal agencies.9) At last, to bring out the conclusion for financing needs of telecom sectors, their socio-economic effects, find out the viable technological options to grow in rural telephony, proving the purpose of peoples growth, analyzing the global telecom growth and public private contributions, observing the chunk of investment required to revolutionize the growth, in developing nations like India.

Methodology

To fulfill the objective of the project, different research methodologies have been used to come on the conclusions.

Mainly descriptive study has been made to keep the research simple and narrative and some time quantitative and mainly qualitative approaches have been made to the subject.

Mainly secondary data which have been collected from different websites, magazine, research papers, interactions and books, have been used for analysis purpose.

Different case studies have been taken in to consideration to bring out some facts.

Company financials available in public domains have been compared and telecommunication papers available on websites of ministry of finance, D.O.T., and TRAI have been looked up.

Some surveys of telecom vendors in India, have also been taken into consideration to pull out the conclusions on the subject.

Acknowledgement

I am very much thankful to the people who have helped me in preparation of this project, directly or indirectly. I would like to give special thanks to Mr. Srikanta Ghosh, faculty at Sikkim Manipal University study centre, Durgapur, who has given me the opportunities to do this project.

I am very much grateful to Mr. D. Rana, D.E. (Admin), B.S.N.L., Durgapur, Mr. N. Chakraborty, S.D.E. / Panagarh & B.B., B.S.N.L., Durgapur for their endeavor support for completing this project. I am thankful to my friends giving their remarkable contribution and special thanks to Mr. Srikanta Ghosh, who not only explained the topics very well but has thrown the light on the practical aspect of the project too.

(Neeraj Kumar Singh)

Table of Content1. Executive Summary of the Project 72. Bharat Sanchar Nigam Limited (Company Profile) .9Introduction 9Vision, Mission & Objectives ...11Organization Chart of BSNL .12Staff 13Finance 143. Indian Telecom Sector at a Glance 15Status of Telecom Sector 15Target Set by the Government ...29Indian Telecommunications at a glance 31Bharat Nirman 324. Institutional History of the Telecom Sector in India .34Progress of Reforms ...36Pre-reform Period and Telecommunication in India ..38Liberalization and Reforms in Telecom Sector since early 1990s ...395. Why Telecom Investment and Expansion?? ...............................................................................47Traditional methods of financing telecommunication in developing countries .......47Investing in telecommunication projects a multiplication effect? ...............................49What is Information and Communications Technology? ...............................................50The Digital Divide ..516. What is creative or innovative financing? ....................................................................................59What is financial engineering? .........................................................................................59Financing Strategies..61Financing ways 65Financial risks ..73Leverage effects on ways to finance telecommunication 78How financial development may promote growth .79The importance of telecommunication for economic growth .807. B.S.N.L. as a Telecom Service Provider 85BSNL as an integrated telecom service provider ...85Growth Plan 92Projects Recently Implemented / Under Development ..94Social Commitment 95Summary of financial statement .968. Telecom Trends and High Growth Drivers 988.1General Outlook of communication services 989. Cost efficient operations and rural telecom infrastructure convergence 105Optimised network operations 106Price to optimize network utilization...108Shared access is a bridge to personal connectivity..108India's WiMAX subscribers to top 13 million by 2013 11110. The Role of Public & Private Players in Indian Telecom Sector113Airtel as a private telecom service provider115Performance parameters of BSNL 11911. Telecom Investment opportunities and Potential In India .129Opportunities ...129Potential ..130Investment Facilitation Agencies ...13112. Methodology .133The road to answering our purpose..133Data collection methods...134Source critique.13413. Analysis .134The benefits of wireless .135Delivering service to customers .136Technology choices 137Enter WiMAX 138Looking to the future ..138Streamlining Telcos process efficiency 139Growing pains 139Next-generation technologies .140Public-Private Investment ..141World telecoms and IT outlook ..14314. Findings, Conclusions, and Recommendations .14615. References .148Internet.148Articles.150Literature..15216. Explanation Of Words ..15317. Appendix 170Basic Information of Indian economy and social structure ..170Financial Statement of BSNL 171Financial Performance of Airtel 177World Telecom and Telecom Industry ..178Tele-density Picture in India ..179Economic and social indicators of India 180Sector Distribution of Investment Commitments to Infrastructure Projects .188Auditor General of India Report on Outstanding Billed Amount in Telecom ...189

Unit-1 Executive Summary of the Project

India has taken positive steps towards liberalizing the telecommunications market and introducing private investment and competition in basic telecommunications services. Foreign equity in value-added services is limited to 51 percent. For basic services, the limit is 49 percent as it has been difficult to raise the amounts of money needed to finance the new networks, creative financing arrangements have been allowed in some cases that extend the limit to 74 percent.

The Indian Telecommunications network with 353 million connections (as on September 2008) is the third largest in the world. The sector is growing at a speed of 46-50% during the recent years. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. The Government is committed to expanding rural connectivity through a slew of measures so that rural users can access information of value and transact business. This will include connecting block headquarters with fiber optic network, using wireless technology to achieve last mile connectivity and operating information kiosks through a partnership of citizens, panchayats, civil society organizations, the private sector and Government.

Telecommunication plays a central role in helping developing countries participate in the global economy. Telecommunication is pervasive in all aspects of our lives, from the stereo in your living room to the mobile phone you carry with you. These technological innovations we have in our lives are often taken for granted and it is unfeasible for us to imagine how we can function without them. By encouraging the establishment of telecommunication industries within their countries, not only is their GNP boosted from the production of higher value-added goods, but also, the economy can progress to that which is predominantly characterized by secondary or tertiary industries

Usually financial engineering are used to reduce the financial risk, a second thing is to restructure cash flows for better financial management. Because financial engineering are used to finance projects it can be used to finance telecom projects around the world, and especially in India. This kind of infrastructure project is according to Merna & Njiru (2002) important in developing countries because they are in need for that. Infrastructure projects in developing countries bring several improvements of the country, they lead to: Human welfare and economic development. Reduction of poverty. The environment will be improved.

A well spread out telecommunication network provides a great impetus to the economic growth in a country. Considering the significance of its contribution and also the need to integrate with the global economy, several policy initiatives have been taken by the government.(Ministry of Finance, Govt. of India, 2004-11-26)

To understand the telecom sector growth, it is needed to analyze the giant companies working in telecom sector. The health of these companies tells the story of operating environment of Indian telecom industry. Bharat Sanchar Nigam Limited, a government of India enterprise, formed on 1st October-2000, from its parent body Department of Telecom ( DOT ) working under ministry of telecommunication, India, is playing a major role in Indias telecom arena. When B.S.N.L. formed, the growth of telecom in India was very much dismal, great challenges were before the government to fire the telecommunication growth, pacing the structural growth of India. So, corporatization of DOT done. New entity, B.S.N.L, got more independence, made professional approach in its growth keeping the mission of governments social view, and maintaining its financial health. It has been expanded into different kind of telecom fields and being competitive with others private players in the sector. Because it is wholly owned by government, it can be said to be the government purpose vehicle, to regulate the Indian telecom industry, fulfilling the purpose of socio-economic development of India.

The exploded growth in Indian telecom industry after telecom reforms has shown at the one side a tremendous telecom infrastructure growth both by B.S.N.L. and other private players, but at the other side, fierce competition between these operators, has shrank the margins of operation. At the one side where Indian people have got improved and diverse services at better prices, the financial health of these companies have been affected.

Here, we have taken the case of B.S.N.L, and analyzed its business operations, its financial needs, growth areas, non-profitable operations, in the perspective of Indian telecom sector as a whole. The growth figure of Airtel has been seen and analyzed the contribution of private players in telecom growth in India. Now different technologies and market efficient technologies are available. Their social impact has been viewed and trend in telecom evolution has been considered to make the viable investment.

The telecommunication markets are evolving all over the world very rapidly and day by day a new technology is coming to rock the bourses but at some cost. The time span of these technologies are very less, and before implementing the options available, the company should analyze its commercial aspect, and should try implementing the project of lesser break-even time. In this competitive era, you cant get the chance to be left out in implementing the new technology, in spite of how much it cost to your exchequer. New technology in telecom brings the new dimension of businesses, and new reform in social arena, so it is indispensable for the countrys growth.

All development, expansion, growth need financing. How these financing can be arranged. Different kinds of innovative ways of financing are available and which will be suited best, it should be analyzed case by case basis, so that financing needs may be fulfilled and growth can be intact.

Unit-2 Bharat Sanchar Nigam Limited (Company Profile)

2.1Introduction

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest telecommunications company providing comprehensive range of telecom services in India like Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has become one of the largest public sector unit in India.

BSNL has installed quality telecom network in the country and now focusing on improving it, expanding the network, introducing new telecom services with ICT applications in villages and wining customer's confidence. Today, it has about 46.188 million basic line telephone capacity, 7.96 million WLL capacity, 45.288 million GSM Capacity, 4.854million internet capacity, 5.807 million broadband capacity, more than 37382 fixed exchanges, 60000 BTS, 287 Satellite Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting 602 Districts, 7330 cities/towns and 5.5 Lakhs villages.

BSNL is the only service provider, making focused efforts and planned initiatives to bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in the country to beat its reach with its wide network giving services in every nook & corner of country and operates across India except Delhi & Mumbai. Whether it is inaccessible areas of Siachen glacier and North-eastern region of the country. BSNL serves its customers with its wide bouquet of telecom services.

BSNL is numero uno operator of India in all services in its license area. The company offers vide ranging & most transparent tariff schemes designed to suite every customer. BSNL cellular service, CellOne, has more than 46.732 million cellular customers as on March-2009, garnering 16.19 percent of all mobile users as its subscribers. In basic services, BSNL is miles ahead of its rivals, with 29.346 million Basic Phone subscribers i.e. 85 per cent share of the subscriber base and 92 percent share in revenue terms.

BSNL has more than 5.436 million WLL subscribers and 3.693 million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account Less Internet(CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country.

BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same Backbone and Broadband Access Network. At present there are 3.557 million DataOne broadband customers and 5.807 million equipped capacity at the end of March-2009. The company has vast experience in Planning, Installation, network integration and Maintenance of Switching & Transmission Networks and also has a world class ISO 9000 certified Telecom Training Institute.

Scaling new heights of success, the present turnover of BSNL is more than Rs.351,820 million (US $ 8 billion) with net profit to the tune of Rs.99,390 million (US $ 2.26 billion) for financial year 2006-07. The infrastructure asset on telephone alone is worth about Rs.630,000 million (US $ 14.37 billion).

BSNL plans to expand its customer base from present 47 millions lines to 125 million lines by December 2007 and infrastructure investment plan to the tune of Rs.733 crores (US$ 16.67 million) in the next three years.

The turnover, nationwide coverage, reach, comprehensive range of telecom services and the desire to excel has made BSNL the No. 1 Telecom Company of India.

2.2Vision, Mission & Objectives

2.2.1VISION

To become the largest telecom Service Provider in Asia.

2.2.2MISSIONi. To provide world class State-of-art technology telecom services to its customers on demand at competitive prices.ii. To Provide world class telecom infrastructure in its area of operation and to contribute to the growth ofthecountry's economy. 2.2.3OBJECTIVES To be the Lead Telecom Services Provider. To provide quality and reliable fixed telecom service to our customer and there by increase customer's confidence. To provide mobile telephone service of high quality and become no. 1 GSM operator in its area of operation. To provide point of interconnection to other service provider as per their requirement promptly. To facilitate R & D activity in the country. Contribute towards: i. National Plan Target of 500 million subscriber base for India by 2010. ii. Broadband customers base of 20 million in India by 2010 as per Broadband Policy 2004. iii. Providing telephone connection in villages as per government policy. iv. Implementation of Triple play as a regular commercial proposition.

2.3Organization Chart of BSNL

2.4Staff

Distribution of Group-wise staff strength of DoT and BSNL (numbers) as on 31st March 2007 is indicated below:

2.5Finance

Bharat Sanchar Nigam Limited, the largest Public Sector Undertaking of the Nation, is certainly on a financial ground that's sound. The Company has a net worth of Rs. 88,128 crores (US$ 22.02 billion), authorised equity capital of Rs. 10,000 crores (US $ 2.50 billion), Paid up Equity Share Capital of Rs. 5,000 crores (US $ 1.25 billion) and Revenues is Rs. 38053 crores (US $ 9.51 billion) in 2007-08.

(Note: 1 US $ = 40.02 INR as on 31-03-2008)

2.5.1Gross Investment in Fixed AssetsThe BSNL is making substancial investment year to year for its network expension and mordenisation. During the current financial year BSNL has made the gross investment of Rs. 7180 crore ( US $ 1.79 billion) in Fixed Assets. These investments have been financed by the internal accruals. 2.5.2Cumulative Capital OutlayBSNL has Gross Fixed Assets of over Rs. 124578 Crores (US $ 31.13 billion) as on 31.03.2008.

Unit-3 Indian Telecom Sector at a Glance

The telecom services have been recognized the world-over as an important tool for socio-economic development for a nation. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Indian telecommunication sector has undergone a major process of transformation through significant policy reforms, particularly beginning with the announcement of NTP 1994 and was subsequently re-emphasized and carried forward under NTP 1999. Driven by various policy initiatives, the Indian telecom sector witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also.

3.1Status of Telecom SectorThe Indian Telecommunications network with 353 million connections (as on Setember 2008) is the third largest in the world. The sector is growing at a speed of 46-50% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices.

3.1.1Telecom Regulatory Authority of India (TRAI)The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.TRAIs mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society. One of the main objectives of TRAI is to provide a fair and transparent policy environment, which promotes a level playing field and facilitates fair competition. In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority.The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI.

3.1.2New Telecom Policy 1999The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate.

Key features of the NTP 99 include: Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged. Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted. Department of Telecommunication Services (DTS) corporatised in 2001. Spectrum Management made transparent and more efficient. All the commitments made under NTP 99 have been fulfilled, each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition.

3.1.3National Long DistanceNational Long Distance opened for private participation. The Government announced on 13.08.2000 the guidelines for entry of private sector in National Long Distance Services without any restriction on the number of operators. The DOT guidelines of license for the National Long Distance operations were also issued.

Highlights - NLD Guidelines Unlimited entry for carrying both inter-circle and intra-circle calls. Total foreign equity (including equity of NRIs and international funding agencies) must not exceed 74%. Promoters must have a combined net worth of Rs.25 million. Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centers. Seven years time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase. Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%. Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available. Licence period would be for 20 years and extendable by 10 years.

3.1.4International Long DistanceIn the field of international telephony, India had agreed under the GATS to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with automatic extension of the licence by a period of 5 years. The applicant company pays one-time non-refundable entry fee of Rs.25 million plus a bank guarantee of Rs.250 million, which will be released on fulfillment of the roll out obligations. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 10 ILD service providers (9 Private and 1 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with at least one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I Taxs. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carriers Network.3.1.5Universal Service Obligation FundAnother major step was to set up the Universal Service Obligation Fund with effect from April 1, 2002. An administrator was appointed for this purpose. Subsequently, the Indian Telegraph (Amendment) Act, 2003 giving statutory status to the Universal Service Obligation Fund (USOF) was passed by both Houses of Parliament in December 2003. The Fund is to be utilized exclusively for meeting the Universal Service Obligation and the balance to the credit of the Fund will not lapse at the end of the financial year. Credits to the Fund shall be through Parliamentary approvals. The Rules for administration of the Fund known as Indian Telegraph (Amendment) Rules, 2004 were notified on 26.03.2004. The resources for implementation of USO are raised through a Universal Service Levy (USL) which has presently been fixed at 5% of the Adjusted Gross Revenue (AGR) of all Telecom Service Providers except the pure value added service providers like Internet, Voice Mail, E-Mail service providers etc. In addition, the Central Govt. may also give grants and loans.An Ordinance was promulgated on 30.10.2006 as the Indian Telegraph (Amendment) Ordinance 2006 to amend the Indian Telegraph Act, 1885 in order to enable support for mobile services and broadband connectivity in rural and remote areas of the country. Subsequently, an Act has been passed on 29.12.2006 as the Indian Telegraph (Amendment) Act 2006 to amend the Indian Telegraph Act, 1885.

3.1.6Unified Access ServicesUnified access license regime was introduced in November2003. Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensees network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis.The country is divided into 23 Service Areasconsisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A, Category `B and Category `C Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately.The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum. At present 3 to 6 service providers (2-5 Private and 1 Public Sector Undertaking) are there in most of the service areas.3.1.7Internet Service Providers (ISPs)Internet service was opened for private participation in 1998 with a view to encourage growth of Internet and increase its penetration. The sector has seen tremendous technological advancement for a period of time and has necessitated taking steps to facilitate technological ingenuity and provision of various services. The Government in the public interest in general, and consumer interest in particular, and for proper conduct of telegraph and telecom services has decided to issue the new guidelines for grant of license of Internet services on non-exclusive basis. Any Indian company with a maximum foreign equity of 74% is eligible for grant of license.

3.1.8Interconnection Usage Charges

In January 2003, TRAI notified the Interconnection Usage Charges (IUC) Regulation, 2003 and issued the same in October 2003, which covered arrangements amongst service providers for payment of IUC, covering Basic Services, including Wireless-in-Local Loop (Mobile), Cellular Mobile Services, National Long Distance (NLD) and International Long Distance (ILD) services. This regulation provided for charges payable by one operator to another for origination, transit and termination of calls in a multi-operator environment. It came into force with effect from 1 February 2004. The main features of the new IUC regime were lower Access Deficit Charges (ADC), uniform termination charges of Rs 0.30 per minute irrespective of the terminating network, reduction of ADC on NLD and ILD calls, all of which resulted in lower tariff environment on voice telephony.

3.1.9Broadband Policy 2004

Recognizing the potential of ubiquitous Broadband service in growth of GDP and enhancement in quality of life through societal applications including tele-education, tele-medicine, e-governance, entertainment as well as employment generation by way of high-speed access to information and web based communication; Government has announced Broadband Policy in October 2004. The main emphasis is on the creation of infrastructure through various technologies that can contribute to the growth of broadband services. These technologies include optical fibre, Asymmetric Digital Subscriber Lines (ADSL), cable TV network; DTH etc. Broadband connectivity has been defined as Always On with the minimum speed of 256 kbps. It is estimated that the number of broadband subscribers would be 9 million by 2007 and 20 million by 2010. With a view to encourage Broadband Connectivity, both outdoor and indoor usage of low power Wi-Fi and Wi-Max systems in 2.4 GHz-2.4835 GHz band has been delicensed. The use of low power indoor systems in 5.15-5.35 GHz and 5.725-5.875 GHz bands has also been delicensed in January 05. The SACFA/WPC clearance has been simplified. The setting up of National Internet Exchange of India (NIXI) would enable bringing down the international bandwidth cost substantially, thus making the broadband connectivity more affordable. The prime consideration guiding the Policy includes affordability and reliability of Broadband services, incentives for creation of additional infrastructure, employment opportunities, induction of latest technologies, national security and bring in competitive environment so as to reduce regulatory interventions.By this new policy, the Government intends to make available transponder capacity for VSAT services at competitive rates after taking into consideration the security requirements. The service providers permitted to enter into franchisee agreement with cable TV network operators. However, the Licensee shall be responsible for compliance of the terms and conditions of the licence. Further in the case of DTH services, the service providers permitted to provide Receive-Only-Internet Service. The role of other facilitators such as electricity authorities, Departments of ITs of various State Governments, Departments of Local Self Governments, Panchayats, Departments of Health and Family Welfare, Departments of Education is very important to carry the advantage of broadband services to the users particularly in rural areas. The Year 2007 was declared the year of broadband. Target has been set for 20 million broadband connections by 2010 and providing Broadband connectivity to all secondary and higher secondary schools, public health institutions and panchayats by 2008.In rural areas, connectivity of 512 KBPS with ADSL 2 plus technology (on wire) will be provided from about 20,000 existing exchanges in rural areas having optical fibre connectivity. Community Service Centres, secondary schools, banks, health centres, Panchayats, police stations etc. can be provided with this connectivity in the vicinity of above-mentioned 20,000 exchanges in rural areas. DOT will be subsidizing the infrastructure cost of Broadband network through support from USO Fund to ensure that Broadband services are available to users at affordable tariffs.

3.1.10Tariff ChangesThe Indian Telecom Sector has witnessed major changes in the tariff structure. The Telecommunication Tariff Order (TTO) 1999, issued by regulator (TRAI), had begun the process of tariff balancing with a view to bring them closer to the costs. This supplemented by Calling Party Pay (CPP), reduction in ADC and the increased competition, has resulted in a dramatic fall in the tariffs. The peak National Long Distance tariff for above 1000 Kms. in 2000 has come down from US$ 0.67 per minute to US$ 0.02 per minute in 2006. The International Long Distance tariff from US$ 1.36 per minute in 2000 to US$ 0.16 per minute in 2004 for USA, Canada & UK. The mobile tariff for local calls has reduced from US$0.36 per minute in 1999 to US$ 0.009 - US$ 0.04 per minute in 2006. The Average Revenue Per User of mobile is between US$ 5.06 - US$ 7.82 per month

3.1.11Foreign Direct Investment (FDI)In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile Personal Communications by Satellite, Composite FDI permitted is 74% (49% under automatic route) subject to grant of license from Department of Telecommunications and adherence by the companies (who are investing and the companies in which investment is being made) to the license conditions for foreign equity cap and lock in period for transfer and addition of equity and other license provision. (Press Note 3(2007))Foreign direct investment upto 74% permitted, subject to licensing and security requirements for the following: - Radio Paging ServiceFDI upto 100% permitted in respect of the following telecom services: - Infrastructure Providers providing dark fibre (IP Category I); Electronic Mail; and Voice MailThe above would be subject to the following conditions: - FDI upto 100% is allowed subject to the conditions that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies were listed in other parts of the world. The above services would be subject to licensing and security requirements, wherever required. Proposals for FDI beyond 49% shall be considered by FIPB on case-to-case basis.In manufacturing sector 100% FDI is permitted under automatic route. 3.1.12Investment Opportunities and IncentivesAn attractive trade and investment policy and lucrative incentives for foreign collaborations have made India one of the worlds most attractive markets for the telecom equipment suppliers and service providers. No industrial license required for setting up manufacturing units for telecom equipment. Automatic approval of 100 percent foreign equity, technology fee up to US $ 2 million, royalty up to 5 percent for domestic sales and 8 percent for exports in telecom manufacturing projects. Foreign equity of 74%(49 % under automatic route) permitted for telecom services - basic, cellular mobile, paging, value added services - and global mobile personal communications by satellite. Telecom services projects extended a number of incentives: Amortization of license fee Tax holiday Enhanced limit of external commercial borrowings Rebate on subscription to shares/debentures. Scope for tax exemption on financing through venture capital Concessional import duties for import of equipment by telecom service projects (including cellular, basic, internet etc.) Full repatriability of dividend income and capital invested in the telecom sector.

3.1.13Network Expansion

The telecom sector has shown robust growth during the past few years. It has also undergone a substantial change in terms of mobile versus fixed phones and public versus private participation. The following table shows the growth trend of telecom sector from last five years:The number of telephones has increased from 54.63 million as on 31.03.2003 to 353.66 million as on 30.09.2008. Wireless subscribers increased from 13.3 million as on 31.03.2003 to 315.31million as on 30.09.2008. Whereas, the fixed line subscribers decreased from 41.33 million in 31.03.2003 to 38.35 million in 30.09.2008. The broadband subscribers grew from a meager 0.18 million to 4.91 million during the last 4 years.3.1.14Trend in Tele-densityTele-density in the country increased from 5.11% in 2003 to 30.64 % in September 2008 i.e. an incremental growth of 34.15 % during last 5 years (about 7% per annum). In the rural area teledensity increased from 1.49% in Mar 2003 to approx. 11.5% in September 2008 and in the urban areas it is increased from 14.32% in Mar 2003 to 75.76% in september 2008.This indicates a rising trend of Indian telecom subscribers.3.1.15Rural TelephonyApart from the 76.65 million fixed and WLL connections (as on Sep. 2008) provided in the rural areas, 551064 VPTs have been provided. Thus, 92% of the villages in India have been covered by the VPTs. More than 2 lakh PCOs are also providing community access in the rural areas. Further, Mobile Gramin Sanchar Sewak Scheme (GSS) a mobile Public Call Office (PCO) service is provided at the doorstep of villagers. At present, 2772 GSSs are covering 12043 villages. Also, to provide Internet service, Sanchar Dhabas (Internet Kiosks) have been provided in more than 3500 Block Headquarters out of the total 6337 Blocks in the country. The target of 80 million rural connection by 2010 will be met during year 2008 itself. USO subsidy support scheme is also being utilized for sharing wireless infrastructure in rural areas with about 18,000 towers by 2010.

3.1.16OpportunitiesIndia offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. A host of factors are contributing to enlarged opportunities for growth and investment in telecom sector: An expanding Indian economy with increased focus on the services sector Population mix moving favorably towards a younger age profile Urbanization with increasing incomes Investors can look to capture the gains of the Indian telecom boom and diversify their operations outside developed economies that are marked by saturated telecom markets and lower GDP growth rates. Inflow of FDI into Indias telecom sector during Jan 1991 to August 2008 was about Rs 233,344 million. Also, more than 6 per cent of the approved FDI in the country is related to the telecom sector.3.1.17Research & DevelopmentIndia has proven its dominance as a technology solution provider. Efforts are being continuously made to develop affordable technology for masses, as also comprehensive security infrastructure for telecom network. Research is on for the preparation of tested infrastructure for enabling interoperability in Next Generation Network. It is expected that the telecom equipment R & D shall be doubled by 2010 from present level of 15%. Modern technologies inductions are being promoted. Pilot projects on the existing and emerging technologies have been undertaken including WiMax, 3G etc. Emphasis is being given to technologies having potential to improve rural connectivity. 3G and Broadband Wireless Access(BWA) policies has since been issued. Also to beef up R&D infrastructure in the telecom sector and bridge the digital divide, cellular operators, top academic institutes and the Government of India together set up the Telecom Centres of Excellence (COEs). The main objectives of the COEs are as follows:

Achieve Telecom Vision 2010 that stipulates a definite growth model and take it beyond. Secure Information Infrastructure that is vital for countrys security. Capacity Building through Knowledge for a sustained growth. Support Planned Predictive Growth for stability. Reduce Rural Urban Digital Divide to reach out to masses. Utilize available talent pool and create environment for innovation. Management of National Information Infrastructure (NII) during Disaster Cater the requirement of South East Asia as Regional Telecom Leader

3.2Targets Set By The Government3.2.1Network expansion 500 million connections by the year 2010. Provision of mobile coverage of 90% geographical area by 2010. 3.2.2 Rural telephony One phone per two rural households by 2010 (about 80 million rural connections). Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010. 3.2.3Broadband Broadband with minimum speed of 1 mbps. Broadband coverage for all secondary & higher secondary schools and public health care centres by the end of year 2008. Broadband coverage for all Gram panchayats by the year 20103.2.4Infrastructure Sharing USO subsidy support scheme for shared wireless infrastructure in rural areas with about 18,000 towers by 2010. Increase sharing in urban areas to 70% by 2010. 3.2.5 Introduction of Spread of IPTV and Mobile TV IPTV in 600 towns by 2010. 3.2.6Manufacturing Making India a hub for telecom manufacturing by facilitating more and more telecom specific SEZs. Quadrupling production in 2010. Achieving exports of 6 times from present level of 0.5 billion in 2010. 3.2.7Research & Development Pre-eminence of India as a technology solution provider. Comprehensive security infrastructure for telecom network. Tested infrastructure for enabling interoperability in Next Generation Network. Doubling the telecom equipment R&D by 2010 from present level of 15%. 3.2.8International Bandwidth Facilitating availability of adequate international bandwidth at competitive prices to drive ITES sector at faster growth.

3.3 Indian Telecommunications at a glance(As on 30th September 2008)Rank in world in network size 3rd

Teledensity (per hundred populations) 30.64

Telephone connection (In million)

Fixed 38.35

Mobile 315.31

Total 353.66

Village Public Telephones 5.6 lakh

Foreign Direct Investment (in million)(from January 2000 till August 2008) 182042 million

Licenses issued

Basic 2

CMTS 60

UAS 224

Infrastructure Provider I 177

ISP (Internet) 382

ISP with Telephony (Broadband) 125

National Long distance 24

International Long Distance 19

3.4Bharat Nirman

A time-bound plan for rural infrastructure by the Government of India in partnership with State Governments and Panchayat Raj Institutions 2005-2009.

Bharat Nirman will be a time-bound business plan for action in rural infrastructure for the next four years. Under Bharat Nirman, action is proposed in the areas of irrigation, road, rural housing, rural water supply, rural electrification and rural telecommunication connectivity. We have set specific targets to be achieved under each of these goals so that there is accountability in the progress of this initiative.

- Dr. Manmohan SinghPrime Minister

Goal: Every village to be connected by telephone: remaining 66,822 villages to be covered by November 2007

The Department of Telecom in the Ministry of Communications and Information Technology has the responsibility of providing telephone connectivity to the 66,822 villages that remain to be covered.

3.4.1Funds

The resources for implementation of universal services obligation are raised through a Universal Service Levy which has presently been fixed at 5% of the adjusted gross revenue of all telecom service providers except the pure value added service providers like internet, voice mail, e-mail service providers.The rules also make a provision for the Central Government to give grants and loans to the Fund. The balance to the credit of the Fund does not lapse at the end of the financial year. USO Fund assigns the task of providing VPTs on the basis of bids through open tender and in this case the work has been assigned to Bharat Sanchar Nigam Ltd. Out of the 66,822 villages identified, connectivity in 14,183 remote and far-flung villages will be provided through digital satellite phone terminals. From the USOF, assistance is provided for both capital expenditure as well as operational expenditure. It is estimated that a total sum of Rs.451 crore would be required to provide VPTs in these 66,822 villages and the entire sum will be met out of USOF and no separate allocation from Government would be required.

3.4.2Additional Incentives

Telecom service providers are being assisted through the USOF to penetrate into the rural areas forthe following activities:- Maintenance of existing village public telephones (VPTs).- Provision of an additional rural community phone in villages with a population of more thantwo thousand and where no public call office exists.- Replacement of village public telephones installed on Multi Access Radio Relay (MARR)technology.- Telephone lines installed in household in specified rural areas.

3.4.3Increasing Rural Teledensity

Rural teledensity will be significiantly enhanced during the period of Bharat Nirman.

3.4.4 Knowledge Connectivity

The Government is committed to expanding rural connectivity through a slew of measures so that rural users can access information of value and transact business. This will include connecting block headquarters with fibre optic network, using wireless technology to achieve last mile connectivity and operating information kiosks through a partnership of citizens, panchayats, civil society organizations, the private sector and Government.

Unit-4Institutional History Of The Telecom sector in India

The telegraph act of 1885 governed the telecommunications sector. Under this act, the government was in-charge of policymaking and provision of services . Major changes in telecommunications in India began in the 1980s. Under the Seventh Plan (1985-90), 3.6 percent of total outlay was set aside for communications and since 1991, more than 5.5 percent is spent on it (Figure 1). The initial phase of telecom reforms began in 1984 with the creation of Center for Department of Telematics (C-DOT) for developing indigenous technologies and private manufacturing of customer premise equipment. Soon after, the Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up in 1986. The Telecom Commission was established in 1989. When telecom reforms were initiated in 1994, there were three incumbents in the fixed service sector, namely DoT (Department of Telecom), MTNL and VSNL. Of these, DoT operated in all parts of the country except Delhi and Mumbai. MTNL operated in Delhi and Mumbai and VSNL provided international telephony. Given its all-India presence and policy-making powers, the DoT enjoyed a monopoly in the telecom sector prior to the major telecom reforms. However, subsequent to the second phase of reforms in 1999, which included restructuring the DoT to ensure a level playing field among private operators and the incumbent, the service-providing sector of DoT was split up and called Department of Telecom Services (DTS). DTS was later corporatized and renamed Bharat Sanchar Nigam Limited (BSNL). This meant separation of the incumbent service provider from the policy-maker. Broadly, DoT is now responsible for policy-making, licensing and promotion of private investments in both telecom equipment and manufacture and provision of telecom services. BSNL, a corporate body, is responsible for the provision of services. A crucial aspect of the institutional reform of the Indian telecom sector was setting up of an independent regulatory body in 1997 the Telecom Regulatory Authority of India (TRAI), to assure investors that the sector would be regulated in a balanced and fair manner. TRAI has been vested with powers to ensure its independence from the government. The government has retained the licensing function with itself. The main issue with respect to licensing has not been whether it should be with the regulator but that the terms and conditions of licensing should involve consultations with TRAI to ensure transparency in the bidding process Some of the main functions of TRAI include fixing tariffs for telecom services, dispute-settlement between service providers, protecting consumers through monitoring of service quality and ensuring compliance to license conditions, setting service targets and pricing policy for all operators and service providers.

Further changes in the regulatory system took place with the TRAI Act of 2000 that aimed at restoring functional clarity and improving regulatory quality. TRAI can frame regulations and can levy fees and charges for telecom services as deemed necessary. The regulatory body also has a separate fund (called the TRAI General Fund) to facilitate its functioning. To fairly adjudicate any dispute between licensor and licensee, between service provider, between service provider and a group of consumers, a separate disputes settlement body was set up called Telecom Disputes Settlement and Appellate Tribunal (TDSAT). Telecommunications is the transmission of data and information between computers using a communications link such as a standard telephone line. Typically, a basic telecommunications system would consist of a computer or terminal on each end, communication equipment for sending and receiving data, and a communication channel connecting the two users. Appropriate communications software is also necessary to manage the transmission of data between computers. Some applications that rely on this communications technology include the following: Electronic mail (e-mail) is a message transmitted from one person to another through computerized channels. Both the sender and receiver must have access to on-line services if they are not connected to the same network. E-mail is now one of the most frequently used types of telecommunication. Facsimile (fax) equipment transmits a digitized exact image of a document over telephone lines. At the receiving end, the fax machine converts the digitized data back into its original form. Voice mail is similar to an answering machine in that it permits a caller to leave a voice message in a voice mailbox. Messages are digitized so the caller's message can be stored on a disk. Videoconferencing involves the use of computers, television cameras, and communications software and equipment. This equipment makes it possible to conduct electronic meetings while the participants are at different locations. The Internet is a continuously evolving global network of computer networks that facilitates access to information on thousands of topics. The Internet is utilized by millions of people daily. Actually, telecommunications is not a new concept. It began in the mid-1800s with the telegraph, whereby sounds were translated manually into words; then the telephone, developed in 1876, transmitted voices; and then the teletypewriter, developed in the early 1900s, was able to transmit the written word. Since the 1960s, telecommunications development has been rapid and wide reaching. The development of dial modem technology accelerated the rate during the 1980s. Facsimile transmission also enjoyed rapid growth during this time. The 1990s have seen the greatest advancement in telecommunications. It is predicted that computing performance will double every eighteen months. In addition, it has been estimated that the power of the computer has doubled thirty-two times since World War II (With row, 1997). The rate of advancement in computer technology shows no signs of slowing. To illustrate the computer's rapid growth, Ronald Brown, former U.S. secretary of commerce, reported that only fifty thousand computers existed in the world in 1975, whereas, by 1995, it was estimated that more than fifty thousand computers were sold every ten hours (U.S. Department of Commerce, 1995). Deregulation and new technology have created increased competition and widened the range of network services available throughout the world. This increase in telecommunication capabilities allows businesses to benefit from the information revolution in numerous ways, such as streamlining their inventories, increasing productivity, and identifying new markets. In the following sections, the technology of modern telecommunications will be discussed.

4.1Progress of reforms 4.1.1Private Participation in Telecom For the provision of basic services, the entire country was divided into 21 telecom circles, excluding Delhi and Mumbai (Singh et. al. 1999). With telecom markets opened to competition, DoT and MTNL were joined by private operators but not in all parts of the country. By mid-2001, all six of the private operators in the basic segment had started operating (Table 1).

After a recent licensing exercise in 2002, there exists competition in most service areas. However, the market is still dominated by the incumbent. In December 2002, the private sector provided approximately 10 million telephones in fixed, WLL (Wireless Local Loop) and cellular lines compared to 0.88 million cellular lines in March 1998 (DoT Annual Report, 2002). 72 per cent of the total private investment in telecom has been in cellular mobile services followed by 22 per cent in basic services. After the recent changes, the stage is now set for greater competition in most service areas for cellular mobile Over time, the rise in coverage of cellular mobile will imply increased competition even for the basic service market because of competition among basic and cellular mobile services. 4.1.2Teledensity and Village Public Phones (VPTs) India's rapid population increase coupled with its progress in telecom provision has landed India's telephone network in the sixth position in the world and second in Asia (ITU). The much publicized statistic about telecom development in India is that in the last five years, the lines added for basic services is 1.5 times those added in the last five decades! The annual growth rate for basic services has been 22 percent and over 100 percent for internet and cellular services. As Dossani (2002) argues, the comparison of teledensity of India with other regions of the world should be made keeping in mind the affordability issues. Assuming households have a per capita income of $350 and are willing to spend 7 percent of that total income on communications, then only about 1.6 percent of households will be able to afford $30 (for a $1000 investment per line). Teledensity has risen to 4.9 phones per 100 persons in India compared to the average 7.3 mainlines per 100 people around the world. Figure 2 shows the growth rate of fixed and cellular mobile subscription between 1998 and 2002. Although, the coverage is still much higher in urban areas - 13.7 in urban areas compared to1.4 in rural areas, the government has made efforts to connect villages through village public telephones (VPT) and Direct Exchange Lines (DEL). This coverage increased from 4.6 lakhs in March 2002 to 5.10 lakhs in December 2002 for VPT and from 90.1 lakhs in March to 106.6 lakhs in December 2002 for DELs. BSNL has been mainly responsible for providing VPTs; more than 84 percent of the villages were connected by 503610 VPTs with private sector also providing 7123 VPTs . The overall telecom growth rate is likely to be high for some years, given the increase in demand as income levels rise and as the share of services in overall GDP increases. The growth rate will be even higher due to the price decrease resulting from a reduction in cost of providing telecom services. A noteworthy feature of the growth rate is the rapid rate at which the subscriber base for cellular mobile has increased in the last few years of the 1990s, which is not surprising in view of the relatively lower subscriber base for cellular mobile. 4.1.3 Foreign Participation India has opened its telecom sector to foreign investors up to 100 percent holding in manufacturing of telecom equipment, internet services, and infrastructure providers (e-mail and voice mail), 74 percent in radio-paging services, internet (international gateways) and 49 percent in national long distance, basic telephone, cellular mobile, and other value added services (FICCI, 2003). Since 1991, foreign direct investment (FDI) in the telecom sector is second only to power and oil - 858 FDI proposals were received during 1991-2002 totaling Rs. 56,279 crores (Figure 4) (DoT Annual Report, 2002). Foreign investors have been active participants in telecom reforms even though there was some frustration due to initial dithering by the government. Until now, most of the FDI has come in the cellular mobile sector partly due to the fact that there have been more cellular mobile operators than fixed service operators. For instance, during the period 1991-2001, about 44 percent of the FDI was in cellular mobile and about 8 percent in basic service segment. This total FDI includes the categories of manufacturing and consultancy and holding companies 4.1.4Tariff-setting An essential ingredient of the transition from a protected market to competition is the alignment of tariffs to cost-recovery prices. In basic telecom for example, pricing of the kind that prevailed in India prior to the reforms, led to a high degree of cross-subsidization and introduced inefficient decision-making by both consumers and service-providers. Traditionally, DoT tariffs cross-subsidized the costs of access (as reflected by rentals) with domestic and international long distance usage charges (Singh et. al. 1999). Therefore, re-balancing of tariffs - reducing tariffs that are above costs and increasing those below costs - was an essential pre-condition to promoting competition among different service providers and efficiency in general.

TRAI issued its first directive regarding tariff-setting following NTP 99 aimed at re-balancing tariffs and to usher in an era of competitive service provision. Subsequently, it conducted periodic reviews and made changes in the tariff levels, if necessary. Table 4 shows the current level of telephone charges in India effective from January, 2003. Re-balancing led to a reduction in cross-subsidization in the fixed service sector. Cost based pricing, a major departure from the pre-reform scenario, also provides a basis for making subsidies more transparent and better targeted to specific social objectives, e.g. achieving the USO. 4.1.5Service Quality One of the main reasons for encouraging private participation in the provision of infrastructure rests on its ability to provide superior quality of service. In India, as in many developing countries, low teledensity resulted in great emphasis being laid on rapid expansion often at the cost of quality of service. One of the benefits expected from the private sector's entry into telecom is an improvement in the quality of service to international standards. Armed with financial and technical resources, and greater incentive to make profits, private operators are expected to provide consumers value for their money. Telephone faults per 100 main lines came down to 10.32 and 19.14 in Mumbai and Delhi respectively in 2002-03 compared to 11.72 and 26.6 in 1997-98. Quality of service was identified as an important reform agenda and TRAI has devised QOS (Quality of Service) norms that are applicable across the board to all operators (Singh et. al. 1999).

4.2Pre reform period and Telecommunication in India Before 1990's Telecommunication services in India were complete government Monopoly - the Department of Telecommunication (DoT). Government also retained the rights for manufacturing of Telecommunication equipments. MTNL and VSNL were created in the year 1986.Early 1990's saw initial attempts to attract private investment. Telecommunication equipment manufacturing was deli censed in the year 1991. A notable revolution has occurred in the telecom sector. In the pre reforms era, this was entirely in the hands of the central government and due to lack of competition, the call charges were quite high. Further, due to lack of funds with the government, the government could never meet the demand for telephones. In fact, a person seeking a telephone connection had to wait for years before he could get a telephone connection. The service rendered by the government monopoly was also very poor. Wrong billing, telephones lying dead for many days continuously due to slackness on the part of the telecom staff to attend to complaints, cross connections due to faulty / ill maintained telephone lines, obsolete instruments and machinery in the telephone department were the order of the day in the pre reforms era.

Today, there are many players in the telecom sector. The ultimate beneficiary has been the consumer. Prices of services in this sector have fallen drastically. Telephone connections are today affordable to everyone and are also easily available. Gone are the days, when one had to wait for years to get a telephone connection. The number of telephone connections which was only 2.15 million (fixed lines) in 1981 increased to 5.07 million(fixed lines) in 1991. Today (as in 2003), there are 54.62 million telephone connections of which 41.33 million are fixed line telephone connections, 12.69 million are cellular mobiles and the remaining 0.60 million are WLL telephones1. Wireless in Local Loop (WLL) telephones and cellular mobile telephones were unknown in India a few years ago. Cell phones charges have come down so much that today one can see even a common man going around with a cell phone in his hand. The private companies are giving various incentives to attract customers, a situation which is entirely opposite to the conditions prevailing in the pre reforms era when one had to wait for years to get a telephone connection. The first step toward deregulation and beginning of liberalization and private sector participation was the announcement of National Telecom Policy 1994.NTP 1994 , for the first time, allowed private/foreign players to enter the 'basic' and the 'new cellular mobile section. FDI up to 49% of total equity was also allowed in these sectors. The policy allowed one private service provider to compete in basic services with the incumbent DoT in each DoT internal circle. It allowed duopoly in cellular mobile services in each circle. As part of the implementation of the NTP 94, licenses were issued against license fees through a bidding process. This policy initiated the setting up of an independent regulatorthe Telecom Regulatory Authority of India (TRAI), which was established in 1997. The main objective of TRAI is to provide an effective regulatory framework to ensure fair competition while, at the same time, protect the interest of the consumers.

4.3Liberalization and reforms in Telecom sector since early 1990's 4.3.11991-92: 1. On 24th July 1991, Government announced the New Economic Policy.

2. Telecom Manufacturing Equipment license was delicensed in 1991.

3. Automatic foreign collaboration was permitted with 51 per cent equity by the collaborator.

4.3.21992-93: Value added services were opened for private and foreign players on franchise or license basis. These included cellular mobile phones, radio paging, electronic mail, voice mail, audiotex services, videotex services, data services using VSAT's, and video conferencing. 4.3.31994-95: 1. The Government announced a National Telecom Policy 1994 in September 1994. It opened basic telecom services to private participation including foreign investments.

2. Foreign equity participation up to 49 per cent was allowed in basic telecom services, radio paging and cellular mobile. For value added services the foreign equity cap was fixed at 51 per cent.

3. Eight cellular licensees for four metros were finalized. 4.3.41996-97: 1. TRAI was set up as an autonomous body to separate the regulatory functions from policy formulations and operational functions.

2. Coverage of the term "infrastructure" expanded to include telecom to enable the sector to avail of fiscal incentives such as tax holiday and concessional duties.

3. An agreement between Department of Telecommunication (DoT) and financial institutions to facilitate funding of cellular and basic telecom projects.

4. External Commercial Borrowing (ECB) limits on telecom projects made flexible with an increased share from 35 per cent to 50 per cent of total project cost.

5. Internet Policy was finalized. 4.3.51998-99: FDI up to 49 per cent of total equity, subject to license, permitted in companies providing Global Mobile Personal Communication (GMPC) by satellite services. 4.3.61999-00:1. National Telecom Policy 1999 was announced which allowed multiple fixed Services operators and opened long distance services to private operators.

2. TRAI reconstituted: clear distinction was made between the recommendatory and regulatory functions of the Authority.

3. DOT/MTNL was permitted to start cellular mobile telephone service.

4. To separate service providing functions from policy and licensing functions, Department of Telecom Services was set up.

5. A package for migration from fixed license fee to revenue sharing offered to existing cellular and basic service providers.

6. First phase of re-balancing of tariff structure started. STD and ISD charges were reduced by 23 per cent on an average.

7. Voice and data segment was opened to full competition and foreign ownership increased to 100 per cent from 49 per cent previously. 4.3.72000-01: 1. TRAI Act was amended. The Amendment clarified and strengthened the recommendatory power of TRAI, especially with respect to the need and timing of introduction of new services provider, and in terms of licenses to a services provider.

2. Department of Telecom Services and Department of Telecom operations corporatized by creating Bharat Sanchar Nigam Limited.

3. Domestic long distance services opened up without any restriction on the number of operators.

4. Second phase of tariff rationalization started with further reductions in the long distance STD rates by an average of 13 per cent for different distance slabs and ISD rates by 17 per cent.

5. Internet Service Providers were given approval for setting up of International Gateways for Internet using satellite as a medium in March 2000.

6. In August 2000, private players were allowed to set up international gateways via the submarine cable route.

7. The termination of monopoly of VSNL in International Long Distance services was antedated to March 31, 2002 from March 31, 2004.

4.3.82001-02: 1. Communication Convergence Bill, 2001 was introduced in August 2001.

2. Competition was introduced in all services segments. TRAI recommended opening up of market to full competition and introduction of new services in the telecom sector. The licensing terms and conditions for Cellular Mobile were simplified to encourage entry for operators in areas without effective competition.

3. Usage of Voice over Internet Protocol permitted for international telephony service.

4. The five-year tax holiday and 30 per cent deduction for the next five years available to the telecommunication sector till 31st March 2000 was reintroduced for the units commencing their operations on or before 31st March 2003. These concessions were also extended to internet services providers and broadband networks.

5. Thirteen ISP's were given clearance for commissioning of international gateways for Internet using satellite medium for 29 gateways.

6. License conditions for Global Mobile Personal Communications by Satellite finalized in November 2001.

7. National Long Distance Service was opened up for unrestricted entry with the announcement of guidelines for licensing NLD operators. Four companies were issued Letter of Intent (LOI) for National Long Distance Service of which three licenses have been signed.

8. The basic services were also opened up for competition. 33 Basic Service licenses (31 private and one each to MTNL and BSNL) were issued up to 31stDecember 2001.

9. Four cellular operators, one each in four metros and thirteen were permitted with 17 fresh licenses issued to private companies in September/October 2001. The cell phone providers were given freedom to provide, within their area of operation, all types of mobile services equipment, including circuit and/or package switches that meet the relevant International Telecommunication Union (ITU)/ Telecom Engineering Centre (TEC) standards.

10. Wireless in Local Loop (WLL) was introduced for providing telephone connection in urban, semi-urban and rural areas.

11. Disinvestment of PSU's in the telecom sector was also undertaken during the year. In February 2002, the disinvestment of VSNL was completed by bringing down the government equity to 26 per cent and the management of the company was transferred to Tata Group, a strategic partner. During the year, HTL was also disinvested.

12. Government allowed CDMA technology to enter the Indian market.

13. Reliance, MTNL and Tata were issued licenses to provide the CDMA based services in the country.

14. TRAI recommended deregulating regulatory intervention in cellular tariffs, which meant that operators need no longer have prior approval of the regulator for implementing tariff plans except under certain conditions.

4.3.92002-03 1. International long distance business opened for unrestricted entry.

2. Telephony on internet permitted in April 2002.

3. TRAI finalized the System of Accounting Separation (SAS) providing detailed accounting and financial system to be maintained by telecom service providers. 4.3.10 2003-04 1. Unified Access Service Licenses regime for basic and cellular services was introduced in October 2003. This regime enabled services providers to offer fixed and mobile services under one license. Consequently 27 licenses out of 31 licenses converted to Unified Access Service Licenses.

2. Interconnection Usage Charge regime was introduced with the view of providing termination charge for cellular services and enable introduction of Calling Party Pays regime in voice telephony segment.

3. The Telecommunication Interconnection Usage Charges Regulation 2003 was introduced on 29th October 2003 which covered arrangements among service providers for payment of Interconnection Usage Charges for Telecommunication Services and covered Basic Service that includes WLL (M) services, Cellular Mobile Services, and Long Distance Services (STD/ISD) throughout the territory of India

4. The Universal Service Obligation fund was introduced as a mechanism for transparent cross subsidization of universal access in telecom sector. The fund was to be collected through a 5 per cent levy on the adjusted gross revenue of all telecom operators.

5. Broadcasting notified as Telecommunication services under Section 2(i)(k) of TRAI Act.

4.3.11 2004-05 1. Budget 2004-05 proposed to lift the ceiling from the existing 49 per cent to 74 per cent as an incentive to the cellular operators to fall in line with the new unified licensing norm.

2. 'Last Mile' linkages permitted in April 2004 within the local area for ISP's for establishing their own last mile to their customers.

3. Indoor use of low power equipments in 2.4 GHz band de-licensed from August 2004.

4. Broadband Policy announced on 14th October 2004. In this policy, broadband had been defined as an "always-on" data connection supporting interactive services including internet access with minimum download speed of 256 kbps per subscriber.

5. The Telecommunications (Broadcasting and Cable Services) Interconnection Regulation 2004 was introduced on 10th December 2004.

6. BSNL and MTNL launched broadband services on 14th January 2005.

7. TRAI announced the reduction of Access Deficit Charge (ADC) by 41 per cent on ISD calls and by 61 per cent on STD calls which were applicable from 1st February 2005.

4.3.12 2005-2006 1. Budget 2005-2006 cleared a hike in FDI ceiling to 74 per cent from the earlier limit of 49 per cent. 100 per cent FDI was permitted in the area of telecom equipment manufacturing and provision of IT enabled services.

2. Annual license fee for National Long Distance (NLD) as well as International Long Distance (ILD) licenses reduced to 6 per cent of Adjusted Gross Revenue (AGR) with effect from 1st January 2006.

3. BSNL and MTNL launched the 'One-India Plan' with effect from 1st March 2006 which enable the customers of BSNL and MTNL to call from one end of India to other at the cost of Rs. 1 per minute, any time of the day to phone.

4. TRAI fixed Ceiling Tariff for International Bandwidth, Ceiling Tariff for higher capacities reduced by about 70 per cent and for lower capacity by 35 per cent.

5. Regulation on Quality of Service of Basic and Cellular Mobile Telephone Services 2005 introduced on 1st July 2005.

6. BSNL announced 33 per cent reduction in call charges for all the countries for international calls.

7. Quality of Service (Code of Practice for Metering and Billing Accuracy) Regulation 2006 introduced on 21st March 2006.

4.3.13 11th plan (2007-20012)FDI in Telecom sector has increased in recent years with value of 81.62 billion with share of 10% in total inflow during January 2000 to June 2005. This is mainly in telecom services and not in telecom manufacturing sector. Therefore, it is essential to enhance the prospect for inflow of increased funds. The NTP 1999 sought to promote exports of telecom equipments and services. But till date export of telecom equipment remains minimal. Most of the state-of-the-art telecom equipments including mobile phones are imported from abroad. There is thus immense potential for indigenous manufacturing in India. Certain measures like financial packages, formation of a telecom export promotion council, creation of integrated facilities for telecom equipment through SEZ and encouraging overseas vendors to set up facilities in India, are required for making India a hub for telecom equipment manufacturing and attract FDI. The telecom sector has shown robust growth during the past few years. It has also undergone a substantial change in terms of mobile versus fixed phones and public versus private participation.

Unit-5 Why Telecom Investment and Expansion??..

Globalization is a central driving force behind the rapid social, political and economic changes that are reshaping modern society and world order (Dunning & Hamdan, 1997). One of the key elements of globalization is telecommunication. Telecommunication plays a central role in helping developing countries participate in the global economy. Telecommunication is pervasive in all aspects of our lives, from the stereo in your living room to the mobile phone you carry with you. These technological innovations we have in our lives are often taken for granted and it is unfeasible for us to imagine how we can function without them. In certain parts of the world these thing are unheard of and the people who live there have not experienced the numerous benefits of modern telecommunications.

Telecommunication maybe isnt the highest priority for developingcountries. The main reason for this is that telecommunication competes withfood, housing, sanitation, health, transport and education. But it isimportant to focus on telecommunication investments, because it improvesthe other mentioned problems.(John Williamson, The Rural Telecom Dilemma)

5.1Traditional methods of financing telecommunication in developing countries

Funds for the development of infrastructure projects are traditionally obtained from general taxation or borrowed from multi-lateral and bilateral agencies (Merna & Njiru, 1998). The level of funding provided from national budget financing will depend on the priorities of the national government and its total tax resources. Due to low levels of public finance derived from general taxation, most developing countries rely on borrowing from multi-lateral and bilateral agencies to finance infrastructure developments. This has made most of the developing countries heavy with debt and is spending a large portion of their small finances in meeting debt payments, thus making developing countries borrowing to service debts and not financing infrastructure development projects. The level of finance available for borrowing the traditional sources has reduced in the recent past (Merna & Njiru, 1998). When introducing telecommunication into a country, financing it from state funding is probably the easiest method to use (ITU, 2002). Traditional methods of public financing and management of infrastructure projects have failed to keep pace with the rising demand for infrastructure services in most developing countries. The private sector has participated in infrastructure projects that are financed and managed by the public sector as consultants and contractors during the implementation phase of infrastructure development projects.

The main reasons to fund telecommunications infrastructure are the positive externalities that occur from the services used (World Bank, 1998).

5.1.1 Direct economic benefits

Costs and time saved. substituting more expensive means of communication and learning.

5.1.2 Social and economic as well as political benefits

Better provision of social services, e.g. education and health. Decentralization and integration processes. Integration and empowerment of communities.

Benefits from telecommunications infrastructure are several and can be grouped into three Categories:

1. Human welfare and economic development.

2. Reduction of poverty

3. Improvement of the environment.

Infrastructures such as telecommunications are a vital factor to the activities of households and to economic production. Providing a service as telecommunications or other infrastructure service to meet the demand of businesses, households and other users is one of the major challenges of economic development

Infrastructure represents the wheels of economic activity. Infrastructure services are used in the production process of nearly every sector. Users demand infrastructure services not only for direct consumption but also for raising their productivity (Bond, 1997). Adequate quantity and reliability of infrastructure such as telecommunication are key factors in the ability to participate and compete in international trade, even in traditional commodities

5.2Investing in telecommunication projects a multiplication effect?

One benefit from what the innovations bring to developing nations is the improvement of the overall economy (Dunning & Hamdan, 1997). By encouraging the establishment of telecommunication industries within their countries, not only is their GNP boosted from the production of higher value-added goods, but also, the economy can progress to that which is predominantly characterized by secondary or tertiary industries (Dunning & Hamdan, 1997). Should these industries flourish and even expand, investments by large foreign corporations dealing in the modern communication technologies may be expected as their confidence in the country's improving economy increase.

5.2.1Macroeconomic Linkages between Infrastructure Reform and Poverty

CategoryBenefitsRisks

Economic growthMore private participation in infrastructure may help growth, andthereby poverty reduction, by increasing productivity and easing access to capital markets. In Latin America, a 1 % growth in per capita GDP leads to a reduction of the share of the poor of close to half a percentage point.If economic growth benefits mostly the non poor, poverty may not be reduced by much and inequality may increase, with a possible reduction in social welfare. Infrastructure reform can contribute to broadly based growth.

EmploymentIf infrastructure reforms generate economic growth, there should ultimately be some employment creation, but it may take time.Reforms may generate layoffs and reductions in wages, at least during the transition period. The negative impact of layoffs on poverty can be mitigated through severance packages and other policies.

Public ExpendituresRevenues from reforms (for example, privatisation) and the phasing out of subsidies generate fiscal space for other public programs that may be better targeted and more pro-poor.The poor may be hurt by the reduction of public subsidies for infrastructure services (there may be cuts in the subsidies for both connections and consumption).

5.3What is Information and Communications Technology?

Information and Communications Technology (ICT) is an umbrella term that includes any communication device or application, encompassing: radio, television, cellular phones, computer and so on, as well as the various services and applications associated with them, such as videoconferencing and distance learning.

ICTs are often spoken of in a particular context, such as ICTs in education, health care, or libraries (ITU, 2003). The Organization for Economic Co-operation and Developments (OECD) definition makes a distinction between the manufacturing and service dimensions of the ICT. In 1998 OECD member countries agreed to define the ICT sector as a combination of manufacturing and services industries that capture, transmit and display data and information electronically. The important factor in this broad definition is that, as it breaks the traditional dichotomy between manufacturing and services, activities producing and distributing ICT products can be found everywhere in the economy (OECD, 2002).

The definition OECD made, paves way for understanding the multi-dimensionality of the ICT and its applicability in helping reduce poverty across various sectors (OECD, 2002). The manufacturing sector of ICT hardware and software contributes to the economic growth and creates employment in countries like China, Malaysia and Mexico. India, on the other hand, has been a beneficiary of global software outsourcing, achieving spectacular growth in this sector. India exports software to 95 countries around the world and serves as a major outsourcing hub. The main market for the Indian software has been the USA, and to a lesser degree, Europe. 185 of the Fortune 500 companies outsourced their software requirements in India alone. ICT industry generated 7.7 billion USD in 1999 and creating over 180,000 jobs in India in 1998 (UNDP, 2001).

Since these sectors rarely create direct employment for the very poor. There is no denying of the fact that ICT has been recognized as an important tool for socioeconomic development. Socio-economic development was earlier limited to providing services from top-down approaches to the communities who are less privileged, poor and disadvantaged (Mahmud, 2002).

5.4The digital divide

According to ITU (2002) the digital divide is a result of socio-economic disparities, and thus it is little different from other income, health and education divides, linked to poverty. The digital divide, is therefore often just a symptom of a much more profound and longstanding economic and social division within and between societies, and which existed prior to the ICT revolution. Lack of information is one of the major causes for this situation (Jaggi, 2003). Relevant and concerned information, which they want to know, is missing. Hence, the gap between information rich and information poor community is also increasing. The new millennium has ushered in a world of greater inter-connectivity, accelerating the flow of free data and information, and shrinking time and national boundaries.

The information and technology gap and related inequities between industrialized and developing nations are widening: a new type of poverty -information poverty - looms. Most developing countries, especially the least developed countries are not sharing in the communications revolution.(United Nations, 2000)

In the past, ICT was generally considered as a luxury and was not considered as a viable option for development policy where other needs, such as building roads, hospitals and providing drinkable water, etc. were considered more urgent (Pedrelli et al, 2001). However, the digital divide has today become one of the most prominent considerations in the development divide, and the early judgment is no longer sustainable, especially when considering the following points:

ICT provides exceptional opportunities to effectively fight against poverty in the developing countries: for example, ICT can support the poor in business development, foster empowerment of the poor, facilitate access to education and health, help improve the environment and prevent natural disasters. Thanks to the huge amount of information easily accessible and hardly controllable by governmental institutions, it strengthens democracy.

United Nations (UN) considers ICT a priority for the development of poor countries, and many developing countries agree on the importance of the role that ICT can play in their development.

International initiatives are proliferating. The G8 Dot Force, the UN ICT Task Force and several other initiatives are aimed at effectively promoting access to ICT in the developing countries.

Exclusion from ICT increases the divide between the developed and developing countries.

Unit-6 What is creative or innovative financing?

When you are planning for a way to finance a project it is important to do a deep research of the different specific factors that a country has, and then choose a financial way based on those circumstances