National and long
distance operators in India act as carriers for the local, mobile and
internet service providers. They have no direct access to end users in
the country. Private operator Bharti is the main provider of national
connectivity, although VSNL entered the market (through a
capacityleasing agreement with Bharti) in April 2004.
VSNLs monopoly of the international market expired in March 2002,
after which point Data Access, Bharti and Reliance began to move into
the market. The new entrants have made steady inroads into the wholesale
international market, battling VSNL to handle traffic from mobile, local
and internet service providers, as well as the business market. However,
VSNL has been able to hold on to interconnection agreements with BSNL
Analysis of Competition
Competition for incumbent operators BSNL and MTNL is provided in
* Mobile telephony. CDMA WLL mobile and GSM cellular network
operators. Around three competitive services per operating circle.
* Alternative lastmile infrastructure. Five private operators offer
local wireline and WLL services.
* Internet telephony. Fortythree ISPs offering outgoing
international calls from PCs over the public internet.
Alternative LastMile infrastructure
Bharti Televentures, Tata Teleservices, Reliance Infocomm, HFCL,
Shyam Tata Teleservices operates the most local exchange lines (1m at
March 2004) of the private players. However, since the introduction of a
unified licensing regime in November 2003, which brought local access
and mobile service providers under the same legal banner, all the
unified service providers are focusing investment on mobile networks.
Reliance Infocomm is the countrys largest unified service provider,
with over 7m subscribers.
VoIP 43 ISPs offer nonreal time telephony services over their
internetaccess networks between PCs in India and to phones abroad. The
service is regulated as a valueadded ISP application.
Key Competition Trends and Prospects
WireLine Growth Replaced by WLL Mobile Growth
The fixedline market numbered 43.45m subscribers at July 2004, a
penetration rate of around 4%. The market is adding a few hundred
thousand subscribers a month a compound monthly growth rate of
approximately 0.7% for JanuaryAugust 2004. Most subscribers are being
added via WLL networks. Subscriber growth rates will continue to suffer
from competition in the mobile market, which is being driven by CDMA WLL
network operator Reliance Infocomm. After the government amended market
legislation in November 2003, introducing a new unified access
serviceprovider regime which made the basic service provider and
mobile operators one and the same under the eyes of the law all
operators, including fixed market leader BSNL, have been focusing
subscriberline investment on mobile services over GSM and CDMA
networks. The limited mobility services, provided over modified CDMA
2000 1x WLL networks, offer comparable tariffs to fixed wireline and
fully fixed WLL services, but with the valueadded aspect of mobility
within a certain area.
Data Access and Reliance Pressuring VSNL
Since losing its monopoly of the international longdistance market
in April 2002, and then its preferred carrier status for outgoing
calls from BSNL and MTNL in February 2004, VSNL has struggled to fend
off the advances of Data Access and Reliance in the international
telephony market. The operator has maintained a leading share of the
market. However, interconnection rates have fallen substantially by as
much as 70% to some destinations. In a bid to bolster its share of
traffic, the operator launched prepaid cards for incoming and outgoing
traffic in H1 2004, via its local access arm TTSL.
Carrier Access Codes
Competition in the international longdistance market will be
revolutionised once the Telecom Regulatory Authority of India (TRAI)
introduces carrier access codes. Currently, fixedline end users are
unable to select their own international service provider. Competition
for traffic between the longdistance operators is currently entirely
played out in the wholesale market. The introduction of carrier access
codes would act as a major boost for the prepaid calling card business
units of the various longdistance operators, allowing them to market
the service to all end users in India, not just to subscribers of their
local serviceprovider units. The TRAI is currently working on devising
a method of shared funding between the basic service providers and the
international and national operators for the upgrade of local exchanges.
International Traffic Levels Growing
International traffic levels will continue to receive a huge boost
from Indias thriving call centre industry, which is taking on more
customer service business from the UK and the US. Growth in the mobile
market which is expanding by over 1m net new clients every month is
also generating extra international traffic. The government has
estimated the markets rate of growth at approximately 2530% per annum.
Domestic long distance services
By March 2002, the Government had issued licenses to Bharti Telesonic
Ltd., Reliance Communications Ltd. and VSNL to commence DLD services. In
December 2001, Bharti commenced its DLD services. Reliance
Communications is expected to commence its DLD services in June 2002, on
15 major routes in India. In January 2002, BSNL and MTNL reduced the
average STD tariff (Rs per minute) by 55 per cent. This is expected to
result in a decline of around 25 per cent in the revenue per subscriber
(The elasticity of minutes of usage with STD tariff has been assumed to
be negative 0.5 to negative 0.6 times.) In January 2002, BSNL had filed
a petition with the TDSAT on the issue of distribution of the default
long distance calls (mobiletomobile) between Bharti Telesonic and
BSNL. In March 2002, the TDSAT extended the stay on the matter till July
The New Telecom Policy99 envisaged the opening up of the National
long distance service beyond the service area to the private operators.
The Government has decided to open the National Long Distance Service
without any restriction on the number of operators. The license for NLDO
shall be issued on nonexclusive basis, for a period of 20 years,
extendable by 10 years at one time, for intercircle Long Distance
operations within the territorial jurisdiction of India.
The applicant must be an Indian company, registered
under the Companies Act1956. The total foreign equity in the applicant
company must not exceed 49% at any time during the entire license
period. Investment in the equity of the applicant company by an NRI /
OCB / International funding agencies will be counted towards its foreign
The applicant company shall have a minimum paid up equity capital of
Rs. 250 Crores on the date of the application and shall submit the best
proof thereof along with the application for license. The promoters of
applicant company shall have a combined net worth of Rs 2500 crores. The
networth of only those promoters shall be counted who have at least 10%
equity stake in the total equity of the company. The constituents)
having at least 30% of total equity in the applicant company must have
an experience of telecom sector and the proof thereof shall be attached
with the Application for license.
ILD calls: Grey market thrives
If you are in the US and want to have a long chat with your friends
or relatives back home, all you have to do is to buy international
calling cards which offer international long distance calls to India at
rock bottom prices ranging from a cent (43 paisa) to six cents (Rs
2.58) a minute.
Click on any of the search engines for an Indian calling card and
youll be bombarded with the Internet addresses of more than one lakh
sites that offer international calling cards.
These cards are a boon for those in the US who want to call India,
but are a serious threat to Indias fledgling international long
According to industry estimates, ILD operators are losing anywhere
between Rs 1,500 crore and Rs 2,000 crore (Rs 1520 billion) in revenue
a year to what are called grey market operators. These flybynight
operators across the country terminate international calls here
illegally without paying the government charges, something established
ILD operators have to.
The grey market onslaught is already beginning to hurt. Says Badri
Aggarwal, president at Bharti Infotel, which runs the Bharti groups ILD
business: As much as 25 per cent of the international incoming calls
are grey. There is incentive for people to break the law. Its the same
story in ILD.
Others think that the figures are even higher. Points out a senior
Videsh Sanchar Nigam Ltd executive: According to our estimate, grey
market calls comprise 30 per cent to 40 per cent of the total incoming
international call market.
What is causing concern is the fact that the grey market disease has
spread to smaller towns and cities in the US, calling cards are now
available if you want to talk to someone in places like Rajkot,
Warangal. Anand, Kancheepuram, Guntur and Madurai, for example.
ILD companies and international phone call carriers squarely blame
the Telelcom Regulatory Authority of India for this. They claim that
TRAI is refusing to investigate the nature of the grey market. Member of
Parliament Nilotpal Basu, in fact, has openly demanded the removal of
TRAI chairman Pradip Baijal for his inaction on the issue.
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