India's Telecom Mess

Iridium is a glittering, audacious piece of technology. Based on 66 satellites in near-earth orbit, it involves a handset (like a bulky cellular phone) which communicates directly with the nearest satellite. This gives a phone which works with one single number, anywhere on the earth. The satellites suffer from friction with the atmosphere and keep crashing, requiring numerous fresh launches per year. Using Iridium costs $2 per minute, and it's the latest status symbol of the wealthy elites, everywhere in the world.

Except in India.

In India, normal international phone calls cost $2.25 a minute. Hence, common men should use Iridium and the `wealthy elites' should use normal phones. This epitomises India's telecom mess: that an exotic solution based on satellites, which is the height of snobbery all over the world, is cheaper than one based on ubiquitous telephone lines that we make in India.

Another example of India's telecom problem is the Internet services of VSNL and MTNL. They allocate one megabyte of disk per user for storing incoming email. Larger capacities can be rented for Rs.3000 per megabyte per year. Now disks can be purchased for Rs.3 per megabyte. A thousand-fold markup to get the rental cost is surely ludicrous.

Developments in international telecommunications are taking place at a hair-rasing rate. We see Internet service providers throwing in free computers; Computer vendors throwing in free Internet services; we see free local telephone services available if you are willing to bear hearing ads; free Internet services if you are willing to endure ads. Prices of telecom services in India are far away from these levels.

In the early 1990s, there was an early upsurge of hope for progress in telecom when policy changes were promised, in the direction of bringing in competition from private and foreign telecom providers. In one area -- mobile telecom -- genuine progress did take place, in the form of (a) cellular and pager services coming about for the first time in India, and (b) these services being provided by two competing private--sector providers as opposed with the traditional public-sector monopoly.

In other areas, telecom reforms in the early 1990s were largely unsuccessful. The procedure of awarding entry permits to the highest bidder generated very high bids, which would inevitably generate high prices of telecom services for India's economy. This violates the original objective of telecom reforms, which was to produce reliable, low cost telecom services.

In the last one year, a small part of this gloom has lifted:

  1. The prices charged by VSNL for Internet access have dropped, and VSNL's Internet access has spread to dozens of cities. High speed internet access using ISDN has begun in a small way. Retail internet use in India now faces prices comparable with those found in other countries.
    However, retail internet access faces extremely low quality of service -- VSNL provides Indian dial-up users of the Internet with some of the lowest bandwidth when compared with ISPs internationally. Leased--line internet access, which any firm requires, continues to face prices which are 30-50 times higher than those found abroad. Most Indian web sites are hosted on computers located in the land of good telecom regulation, the US, where telecom prices are the lowest in the world.
  2. Entry has taken place into Internet services, thus heralding a new world of competition in this vital area. It is to the credit of the government that the license fee in this area is Rs.1, a sharp break with the strange tradition of auctioning permits to the highest bidders.
  3. The first of the basic services providers have commenced operations, signalling the transition from promise to reality.

While these are significant developments, they do not constitute a solution to our telecom mess. The eight building blocks which have yet to fall into place are:

  1. The DOT's draconian "Closed User Group" policy, which is incompatible with sensible economics, and with the basic idea of a liberal democracy, should be abolished. All interconnections by the citizens of India should be permissible, and free of censorship or snooping.
  2. VSNL's monopoly on international telecommunications needs to be replaced by unrestricted competition, without requiring license fees.
  3. Domestic long--distance telecom should similarly be a market with unrestricted competition where private and foreign firms face no entry barriers.
  4. License fees for basic services and mobile telecom should be abolished, and unrestricted competition should come about. New technologies, such as cable vendors, should be able to offer telecom services, such as Internet access, without requiring permissions or license fees.
  5. The electromagnetic spectrum is a vital resource which enables many telecom services. The defence services have appropriated an inordinately large fraction of this scarce resource. These frequencies should be freed up for civilian use. Frequencies should be auctioned off by the government, once and for all, to the private sector where they would become private property. Frequencies should trade on an exchange, just like shares. The Government should enforce property rights of the owner of a frequency, just like a squatter is prevented from misappropriating a piece of land.
  6. The TRAI should be strengthened, and it should address the problems of interconnectivity and minimum standards of service quality.
  7. The State should embark upon building public infrastructure for high--speed data networking. This should be a wholesale facility through which anyone can obtain a 2 Mb/s leased line for domestic networking, for a total price like Rs.30,000 per month.
  8. The institutional landscape, which presently consists of DOT, TRAI, MTNL and VSNL should be altered. The bulk of DOT, which is a telecom services company, should be converted into a limited liability company. The TRAI should be a strong regulator. A small "Department of Telecommunications" should continue to work on policy questions, with no operational involvement in the telecom industry.

Telecom users in several European countries went on strike recently, protesting against the persistent use of per-minute billing for local calls by their local telephone companies. In Europe, local telephone companies are generally public sector monopolies, like in India. In the US, where better economists and regulation are found, it is routine to have local telephony at a flat rate like $20 per month, for unlimited use. This is critical to enabling Internet usage by low-income households. It is probably time for us to organise similar strikes in India also.

There is one clear area where civil disobedience is clearly called for: international calls. The prices charged by the Indian telecom monopolies for international calls are the highest in the world. Two strategies could be adopted. The first is to use callback services. The second is to use the wonderful Internet based services through which ordinary voice-grade telephone calls can be placed, to any phone number in the world, at prices prevalent in the US. If Indian law were able to prevent censorship by VSNL, I would have supplied a few URLs here (the way things stand, VSNL would simply block access to the "offensive" sites that I name).

Telecom is extremely important to us in India today; not just to enable the growth of software companies, but to produce better efficiency in running cement factories, NGOs and trucking companies. If the above eight points could be rapidly executed, it would have a major impact upon economic growth in India.

Back up to Ajay Shah's media page