Regulation of Indian Mobile Network Industry: "Enabler or Disabler"

Mobile Development Strategies in India
Regulation of Indian Mobile Network Industry: Enabler or Disabler
1. INTRODUCTION
With the advent of new technology the way of communication has altered. In the past pigeons were the mode of communication. After that post was introduced were people wrote letters and sent them by post, and later came the telephone and today its is an era of wireless communication which has given the world a new form of communication. Cellphones are the most simple way of communicating in todays life. Mobile phones are long range, portable and wireless electronic device of communication. Mobile phones are now very cheap, user friendly, and comfortable and operational with all the new features and facilities that we require. Cellphones now have facilities like video conferencing and interent with which people can download stuff and can make life much more simple. It has also programs which can alert the user about natural disasters for exemple in japan cellphone industries propvide information on earthquakes without any additional charge. The cell-phone novel is the first literary genre to come out with something that can via text to a website that gathers the novels as complete (New Yorker, 2008). In good quality online computer games, users can play games as first person. The novels make a personal space for every reader. Paul Levinson, in Information on the Move (2004), says "...nowadays, a writer can write just about as easily, anywhere, as a reader can read" and they are "not only personal but portable". Mobile communications play an important role in any modern society and economy. Mobile accounted for 51 per cent of household spend on Telecoms (Yahoo surveys, 2008). Mobile services are also a major contribution for business, with cellphones communications now a fundamental part in an even more services-based economy. Being one of the fastest emerging economies in the world, India has come up in leaps and bounds in all aspects of development. Communication is one of the most important sectors for high-speed growth and technological advancements are 1
Mobile Development Strategies in India quintessential for punctuating the progress. The mobile industry has played a great role in channelizing access to communication into the width and depth of India. The prospect of catering to a population of one billion people has attracted a flowing number of entrants in the mobile phone industry in India. Such an attractive market and suitable business environment has resulted in fierce competition among the players and overloading of customers using mobile phone services. The fierce rivalry and potential for overwhelming business has upshot different business models and strategies in the industry. With international handset and service providers sneaking in, there has been constantly changing strategies to adapt to the changes in the competitive environment. Inspite of all the quick spurge in the industry, customers are largely finding it difficult to enjoy hassle-free services and connectivity. Users find it difficult to access destination numbers, consistent internet, speedy Short Messaging Services (SMS) at busy times in the urban areas and most of the time in rural locales. This can be due to a lack of proper network scope and/ or number of issues that prevent the existing network from functioning at its optimum level. While the network infrastructure is a vital part of the development, there are a number of factors controlling the latent development. Since the sector has been opened up for privatisation, there have been many local and international operators flooding the market like Vodafone in 2007, Virgin in 2008, etc. This has lead to an over-crowded sector with limited infrastructure. Added to this is huge no. of customers in the customer list and few more in the potential list in the form of target audience. There are also many examples of an individual with more than one mobile phone connection. Another controlling factor is the management and involvement of regulation of the mobile telephone sector. As in the case of most sectors in India, regulation plays a very important and influential role in determining the evolvement and success of the mobile industry. There have been disputes over the sharing of infrastructure between the government owned BSNL and the private operators. There are constant revisions in the way the tariff is shared and managed regarding roaming services provided. 2
Mobile Development Strategies in India There was a serious debate surrounding the privatisation of this sector. There is an on-going discussion regarding the adoption of better frequency bands and further liberalisation of the mobile telephone sector. Thus, there are a number of important factors determining the performance of infrastructure development and the mobile telephone sector. I shall analyse them one by one and see how they affect the network infrastructure and in turn, the mobile industry development in the country. 1.1 Structure My report will take the following structure which is based on Fishers ideal structure of a dissertation (Fisher, 2007). First, I shall make clear the Area of my interest, the aims and objectives of the research, the research question and the significance this research carries for the industry players, regulators and for future researchers to evaluate the industry performance. Then, I shall perform a critical literature review of the definitions, their scope and all other existing literature in the area. This will include the analysis of many theoretical framework and they shall form the foundation on which I shall base my analysis upon. After the literature review, I shall lay out my hypothesis that is to be tested in this research. This will be based on the gaps identified in the literature review section. In this section, I shall also depict the research design that includes the research methodology to be adopted, the data sources used to collect relevant information for the research. It will include the reasons for adopting all of the above techniques. Next, I shall present the analysis of the data collected using the methodology defined and present the findings born out of the analysis. This will lead on to the conclusion of the research, revealing the results of the hypothesis test and establish any recommendations and suggestions that I intend to make out of my research. In the last section, I shall display a summary of the findings, any suggestive conclusion and comment on what needs to be done further in this area.
Figure 1.1 Dissertation Structure
2. Research Overview
2.1 Area of Interest An important feature of Asian cellular markets that does not find a strong parallel in America and the EU is that existence of more than one competing but compatible wireless standard. Whereas the dominant cellular standard is still GSM, CDMA networks may be found coexisting with GSM in numerous markets in India, China, Indonesia, Malaysia, Hong Kong, Korea and Japan. Frequency bands are an important determinant of such differences. They go on to decide the quality of the waves that are diffused to the cellular mobile phones. Operators have to make sure that the customers are happy and are have minimum trouble using this frequency bands as per the growth for demand and technology. With the technological part on one side, there are other factors that also affect the mobile telephone industry. But, this being a technology-based industry, I believe that it is technology that needs to co-ordinate with other factors in order to facilitate development. Hence, my research will revolve around the area of technology and the ancillary network infrastructure imparting the existing technology in order to be utilised to render efficient services to the public. 2.2 Aim & Objectives Primary aim is to further the interests of consumers in relation to mobile communications services, with mobile network infrastructure being a key focus. In addition to this overall duty to consumers, we also have specific duties to ensure optimal use of the mobile infrastructure regarding radio spectrum and to promote competition. These are particularly important in the context of the mobile sector because availability, and efficient use of, spectrum, and competition between providers, are pre-requisites for realising the full benefits of mobile communications. Thus primary objectives are: To study the implications factors like competition and regulation have on the mobile network infrastructure. 5
Mobile Development Strategies in India Establish how the above factors can be reformed in order to benefit the industry infrastructure. Analyse the effect the mobile network infrastructure has on the mobile telephone industry in India. 2.3 Research Question How does the mobile network infrastructure enable or constrain mobile telephone industry in India? The advent of cellphones faces an engineering difficuty that can overcome wellorganized and consistent wireless communication. The requirement for wireless communication have developed in a very stylish way which has paved the way for understanding the primary issues in communication theory and electromagnetism as well as the and their propositions for the planning of highly-capable wireless systems (Kekas, 2003). Among the influencing factors, I shall focus on the network infrastructure in the Indian mobile industry. The other factors shall be feeders to the main variable identified and shall interpret as issues affecting the main variable. I shall then conclude on how the combination shapes the overall industry and go on to establish my recommendations
2.4 Significance of the Research At a critical stage of its economic development, India is under serious pressure from China to improve its internal infrastructure in all sectors. Communications being such an important part and mobile telephone seemingly the future, it is important for the Indian policymakers to give importance to the mobile network infrastructure in order to develop a competent mobile telephone service sector. A recent report, Indias international bandwidth sector 2007-11 by India Bandwidth analysed the upcoming trends in the Indian telecom industry. The report stated that the network availability and quality in the Indian mobile connections would
Mobile Development Strategies in India improve up to capable standards after its privatisation. Unfortunately, the consumers continue to face poor signals and there seems to be other indulgent factors that need to be addressed collectively to solve this issue. This paper will throw light on those factors and show to what extent these factors are influencing the network framework. Also, it will test the possibility of liberalisation in the industry and its probable benefits and drawbacks. This will be a consideration before the regulatory bodies eventually liberate the sector.
2.5 Implications for Organisations
The main implication of this research will be for the regulatory authority in India Telecom Regulatory Authority of India (TRAI). The report analyses issues like existing competitive structure, frequency sharing & distribution, bandwidths offered and customers logged in, etc. It shall go on to include an examination of the potential reasons, methods and consequences of implementing further liberalisation of competitive policies and frequency generation in India. My research shall highlight where the probable glitches lie as far as troubled mobile telephone service is concerned. For operators, it will show the potential benefits of better frequency availability as a result of liberalisation and the option it would generate for them in terms of product variety, innovation and quality distribution of services. It also bears significant implications for handset manufacturers who might have to customize their handsets to the new technical scene. They could enjoy added opportunities in the form of more possible applications and facilities supported by the reformed network design. Other dependent divisions like broadband which is inclined towards going mobile in the near future, mobile gaming which is already very popular in the sector and mobile novels and offices mentioned in the introduction will also have noteworthy connotations out of this paper.
3. CRITICAL LITERATURE REVIEW
3.1 Introduction
The purpose of the critical literature review is to introduce some of the concepts and theories that would be using in the research. The relevance of these theories to the research shall be re-examined and critically assess their link to the work. It shall include a comprehensive review of the conclusions and findings established in previous work in this field and use this to gain a better understanding of the mobile industry in general and the development of the network infrastructure in specific. The researcher shall then extend this to include the aspects covering the Indian context. First, The Researcher shall sketch a map of the source of the literature The Researcher am going to review in this section and the reasons for choosing them. Then, The Researcher shall pick the areas within the selected literature that The Researcher am going to examine in detail. Then, The Researcher shall present his critical analysis of the literature. This will start with defining the variables involved and the scope of the terms used in this report. Then The Researcher shall analyse the characteristics of the industry according to theory and explicitly depict the likely issues identified by previous authors as ones affecting the industry and the network infrastructure in particular. This will be a followed by a detailed analysis of the issues identified individually and review how these issues have looked upon by researchers in their frameworks so far. Under every topic, The Researcher shall start with the theories relating to the mobile industry in the global scenario and then prolong the discussion of the frameworks to include its link to the Indian mobile industry context. All this shall lead to a conclusion regarding what needs to be done further and this shall form the basis of his hypothesis.
Figure 3.1 Critical Literature Review Structure
Mapping the Literature Identifying Areas within Literature Critical Analysis Definition and Scope Related Terms Characteristics of the Industry Likely Issues Identified Competitive Structure Technology Regulation & Role of government Conclusion
Hypothesis
3.2 Mapping the Literature Review

The mobile industry is a field that has been frequented a lot by researchers in the field of telecommunications. Many of them have even paid close attention the development of network infrastructure. The literature the researcher is going to review shall be ones that bear close resemblance in their content to his perspective of research. At the top his list are the papers in the field by Klein (1999) and Chakravarthy (2007). Also, since this is a field with constant developments and large coverage, The Researcher has referred to a lot of journals which have a say on the overall industry or the issues in specific. The Telecommunication Policy journal is the main supply, closely followed by market reports on specific issues coherent with his research. The Researcher has also reviewed the articles by industry experts to get a view of what they think is and should be happening in the industry. The Researcher shall critically look into all the concepts and ideas established in these sources of literature to bring out what has been found out so far about the sub-division The Researcher am researching in and how valid they are to the network development scene in India and the Indian mobile telephone context.
3.3 Area to be reviewed

Breaking down his research question into three parts, The Researcher recognises three variables the network infrastructure, the mobile telephone industry and the Indian milieu to both of these. His analysis of the literature collected shall be from the perspective of the variables identified above. They are connected to each other and this linkage between them shall help me determine how they enable or constrain the development of the Indian mobile telephone industry. So, The Researcher shall be concentrating on areas concerning these variables and analyse the theories about them in detail. The Researcher shall evaluate the validity of these concepts to his research and say to what extent they have covered ground in the path leading to his research objective.
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3.4 Critical Analysis of Theoretical Framework

Within the area identified in the above section, The Researcher shall now give his critical review of the relevant concepts and theoretical frameworks formed before and link them to his research. The mobile industry has been frequented by academics and researchers and hence, a lot of derivations have to be drawn from related work to ensure that all the established theories have been covered.
3.5 Definitions and Scope

In this section, I shall clearly state the definitions that I refered to while researching are used in the following terms in his report. It shall define the scope they cover and any are picked to suit his research objectives. The mobile industry is considered to be a part of a much bigger sector that is collectively termed as the Telecommunication sector. The New American Oxford Dictionary (2005) defines telecommunications as: the science and technology of communication at a distance, especially the electronic transmission of signals. In this definition, the distance factor and the sector involving the broadcast of electronic signals are prominent. This highlights the importance of transporting information on the electronic format over a distance of kilometres in the industry and is relevant for the mobile telephone sector as well. A basic telecommunication system consists of three elements:
a transmitter that takes information and converts it to a signal; a transmission medium that carries the signal; and, a receiver that receives the signal and converts it back into usable information.
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Mobile Development Strategies in India For example, in a radio broadcast the broadcast tower is the transmitter, free space is the transmission medium and the radio is the receiver. Often telecommunication systems are two-way with a single device acting as both a transmitter and receiver or transceiver. For example, a mobile phone is a transceiver (Haykin, 2001). Telecommunication over a mobile phone is called point-to-point communication because it is between one transmitter and one receiver. Telecommunication through radio broadcasts is called broadcast communication because it is between one powerful transmitter and numerous receivers and hence referred to as a radio broadcast. Network Industry From the above definition, it can be observed how the telecommunications sector itself is a part of a much larger network industry. ATIS Telecom Glossary (2000) defines a network as a collection of transmitters, receivers and transceivers that communicate with each other. Digital system is a combination more than one routers which collectively passes data to the required user. An analogue network contains more than one switch that helps to set up a link between users. In both the cases repaters are required to amplify or restore signal while it is being send out over long distances (Solderblom, 1974). The network industry is a dense one and consists of many more terminologies that are defined below. Analogue or digital Signals can be both analogue or digital. The signal that changes constantly according to the information is an analogue signal. Whereas in a digital signal data is fixed as a set os separate values (for example ones and zeros). At the time of transmission the data enclosed in analogue signals is ruined by noise. Equally, except the sound goes over a certain limit, the data enclosed in digital signals will be undamaged (Ambardar, 1999).
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Spectrum Cave et al. (2007) define: Spectrum is a term to describe a band of electromagnetic frequencies. It is often used to refer to a specific band and this is further divided with various different parts which are being used for different application. A user can get a license which will help the user to access or broadcast on some part of this spectrum, e.g. 800 MHz 850 MHz (Cave et. Al, 2007).
3.6 Related Terms The mobile sector is one which contains a lot of jargons and terminologies that one does not come across outside the field. Hence, The Researcher am laying down a list of terms that are closely related to his research and shall be repeatedly used in literature review and the consequent analysis of his dissertation report. Throughout this document the a lot of technical terms are used. A list of technical terms with their description is provided in Appendix 1 (OfCom Report, 2009).
3.7 The Indian Context

Indian Telecommunication Sector has gone through a major
development of change form time to time by having new important policy reforms, process undergone a major process of transformation through significant policy reforms, mainly with the declaration of NTP 1994 which was consequently highlighted and passed forward under NTP 1999. The indian telecommunication has observed a whole new change in the last decades by the different policy schemes. As per licensing conditions:Any dispute, with regard to the provision of SERVICE shall be a matter only between the aggrieved party and the LICENSEE, who shall duly notify
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Mobile Development Strategies in India this to all before providing the SERVICE. And in no case the LICENSOR shall bear any liability or responsibility in the matter. The LICENSEE shall keep the Licensor indemnified for all claims, cost, charges or damages in the matter. Telecom Regulatory Authority of India, shortly known as TRAI in the industry, an independent legal entity, was established to regulate the telecommunication services and discharge the various functions, two of them are as follows : To ensure compliance of terms and conditions of license which includes customer service, Quality of Performance, Tariff also apart from other conditions. To lay down the standards of quality of service to be provided by the service providers and to ensure the quality of service and to conduct the periodical survey of such service provided by the service providers so as to protect interest of the consumers of telecommunication services.
3.8 Characteristics of the Industry

In the above section, it was seen how the mobile industry falls under the telecommunications sector. The telecommunications sector, in turn, comes under the network industry that consists of a lot of other sectors included in its scope. In this section, The Researcher present a review of the framework theorising the characteristics of the network industry and then connect it with the possible features of the mobile industry. According to Bergman et. al (1998), network industries have three key elements: upstream production; an infrastructure; and downstream service provision. The Upstream production is one which involves the production of the product or service. This is more related to heavy-industries like Electricity generation, Aircraft manufacturing, etc and not is completely applicable to the telecommunications sector.
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Mobile Development Strategies in India The Infrastructure is the building block that merges with the product from the upstream stage to be delivered successfully in the downstream region. It is the medium that connects both ends of the industry and enables deliverance of the service to the end customer. From this, it can be understood that the presence of an efficient infrastructure in a network industry is very essential for its successful performance. In the mobile industry, it will refer to the availability of spectrum and the ancillary physical infrastructure like frequency towers, etc. The Downstream constituent part of three elements refers to the part where the generated product or service is actually delivered to the customer. This includes the service part that is dominant in a mobile sector and forms the characteristic for it to be referred as a service industry. The players are referred to as service providers. In their Chapter talking about the Structure of network industries, Bergman et. al (1998) say that there are many possible structures that network industries such as the mobile industry could take. They provide five cases that differ from one another based on competition in the infrastructure element. They are:(i) Vertical integration and monopoly, in this there is only one company which manages the the upstream and downstream mechanism and the network infrastructure. (ii) Vertical integration with struggle in the downstream or upstream mechanism. This is similar to (i) except that the vertically integrated firm faces resisitance in the downstream or the upstream mechanism. (iii) Vertical partition with upstream and/or downstream competition, but the organization working on the network infrastructure does not function in either the upstream or downstream mechanism. (iv) Joint ownership, where the infrastructure is owned jointly by firms competing in the upstream and / or downstream components.
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Mobile Development Strategies in India (v) Infrastructure or facilities-based competition: competing vertically integrated firms that may or may not be interconnected. In the first four cases, there is only one network infrastructure provider due to a case of a natural monopoly condition, where the regulators might need to step in to regulate it. In the last case, there is room for competition in the infrastructure component of the industry. Core Products Core Products
Infrastructure
Infrastructure
Customer Service Provision
Customer Service Provision
Figure 3.2: Facilities-Based Competition

Adapted from: Bergman et. al (1998: 15)
The mobile telephone industry belongs to the fifth case Infrastructure of Facilities-based Competition. The service providers may be having their own infrastructure components and competing with each other on the basis of infrastructure that forms the foundation for the delivery of their products and services. The services rendered to the customers by the mobile phone operators are enabled by the infrastructure bridging them and hence, the quality of this infrastructure is a determining factor in the quality of service that reaches the customer using their service. This, further, insists the significance of network infrastructure in the mobile industry. In the Indian context, it is to be noted that the mobile telephone industry was an example of the fourth case. There was a natural monopoly in the infrastructure with the government-owned BSNL owning most of the network infrastructure and all the other operators jointly sharing it. After the first phase of liberalisation, the Indian Mobile Industry has moved on to the fifth case cited.
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Mobile Development Strategies in India Bergman et. al (1998) say that the relation between network industries and economic development is difficult to measure quantitatively and this topic has generated a lot of debate. Most of the studies examining this relationship has been in the context of the United States. So, The Researcher shall use this as a foundation and build his analysis for the Indian industry on this. Premature studies by academics like Aschauer (1989) on the impact of network industries on economic performance found a significant connection. As far as the infrastructure constituent of the network industry is concerned, most of them have not found any useful link. Hulten and Schwab (1984, see also their 1991 study) concluded that technological infrastructure in homogeneous and hence, only other parts of the infrastructure system like public transport affect productivity more. Being more specific in the area, there have been studies relating the investment in the telecom and information technology infrastructure with the economic development. Resting on US data again, Greenstein and Spiller (1995) studied the impact of telecom infrastructure on economic growth measured by the amount of fibre-optic cable employed. He found a positive effect and a significant one in some of the industries. Lichtenberg (1995) uses firm level data on information technology investments and finds very high growth effects. Roller and Waverman (1998) investigate the impact of telecoms infrastructure (as measured by the penetration rate of exchange lines) on economic growth. Using a sample of OECD countries and accounting for the simultaneous interaction between growth and telecoms infrastructure, they find evidence that there is a positive causal link, with telecoms infrastructure accounting for as much as a sixth of economic growth. All this said, all the effort and investment in the Telecom industry is worth it only if the network infrastructure lies above a certain critical mass (Bergman,1998). In spite of the severe studies detecting the exact relationship between network industries and economic performance, it is beyond doubt that these industries hold the key in competitiveness. Thus, for an emerging country like India, it is very important for the mobile infrastructure to improve if India has any ideas of climbing up the ladder and facilitating economic augmentation.
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Mobile Development Strategies in India 3.8.1 Infrastructure Characteristics Since his research focuses on the network infrastructure part of the mobile telephone industry, The Researcher is now magnifying the Infrastructure characteristics. The infrastructure of a network is typically a collection of nodes connected by transport links (Bergman et. al, 1998). In a mobile industry, the waves are the nodes and the towers are the transporting links. Investments in network infrastructure bear two common features to them: They are irreversible or sunk They are indivisible or bulky.
The capital investments required to install a network infrastructure are often considerable, upfront, fixed and irreversible. The installation of such a network is extremely costly and many of the network components, once installed, are sunk investments. These amounts of capital, once invested, cannot be retrieved. Moreover, this kind of infrastructure cant be divided into small parts. This bulky nature of the investment causes hurdles in transporting, maintaining, etc. These are some of the reasons why the telecom industry doesnt allow soft or small capital players. It involves big money to enter and survive in this industry. This can be connected with Porters Five Forces (Porter, 1981) and said that the threat of new entrants will be relatively low due to the heavy capital splashing that will be required by the new comer. 3.8.2 Economic Importance In the above sections, the individual characteristics of the mobile industry were studied. This section will combine those features and account for the economic importance it holds. In the previous sections, an analysis of past studies on this relationship was presented. Mobile communications play an important role in any modern society and economy. Mobile accounted for 51 per cent of UK household spend on Telecoms (Mobile Review Survey, 2006). Mobile services are also a critical input for business, with mobile communications now a vital element in an increasingly services-based economy.
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Telecommunication has a significant social, cultural and economic impact on modern society. In 2006, estimates placed the telecommunication industry's revenue at $1.2 trillion (USD) or just under 3% of the gross world product (VoIP Magazine, 2006). On the microeconomic scale, companies have used telecommunication to help build global empires. according to academic Edward Lenert, even the conventional retailer Wal-Mart has benefited from better telecommunication infrastructure compared to its competitors (Journal of Communication 48 (4): 323). Even relatively poor communities have been noted to use telecommunication to their advantage. In Bangladesh's Narshingdi district, isolated villagers use cell phones to speak directly to wholesalers and arrange a better price for their goods. In Cote d'Ivoire, coffee growers share mobile phones to follow hourly variations in coffee prices and sell at the best price (Samaan, 2003). Because of the economic benefits of good telecommunication infrastructure, there is increasing worry about the inequitable access to telecommunication services amongst various countries of the worldthis is known as the digital divide. A 2003 survey by the International Telecommunication Union (ITU) revealed that roughly one-third of countries have less than 1 mobile subscription for every 20 people and one-third of countries have less than 1 fixed line subscription for every 20 people. Given the economic importance of the mobile phone industry, it is now essential to recognize the factors that affect them and analyse them one by one. This shall give a direction regarding what needs to be done next in the journey towards complete development of the Indian mobile industry.
3.9 Business Theories on Network Industry Management

Considering the competitive nature of the Indian Mobile Telephone Industry, it can be clearly seen that competition and regulation are two decisive factors in an otherwise technology-oriented business. Regarding the concentration on regulation
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Mobile Development Strategies in India in this research, it might be of interest to point out that regulation of network industries have undergone changes over an era and liberalisation and technological innovations demand a different pattern of regulation. Buigues (2006) says that the prominent kinds of regulation of network industries are still debated and their consequences are yet not clear. 3.9.1 Ex Ante Approach versus Post Ante Approach Ex Ante approach refers to the regulatory approach whereby regulatory agencies are pro-active in nature, intervene and seek actions before events take place like imposing price controls, defining network sharing, etc. Due to this, enterprises are controlled in their movements by the regulatory authorities but there is less uncertainty involved in the style as a clearly defined set of regulations exist. The post ante approach is the competitive approach whereby there are no set rules to abide by for the companies but if the regulatory body finds any conduct as inappropriate or exploiting, they shall intervene and seek action on the company. The companies, in this mode, are much freer to indulge in various market combinations but there is uncertainty of whether the authority will penalise their actions later (Derker C and Yarkabots, 2000). Ex Ante Approach Market Event Post Ante Approach
In his contribution, Buigues (2006) takes a business-case scenario of pricing. In the mobile telephone industry, one of the most pertinent issues is the pricing of interconnection among competitors (OECD, 2004). He opines that it is important for new entrants to know what price they are paying for a particular service or agreement when they are making the initial outlay. In such a case, it would be easier to take a post ante view and decide if the price charged was exorbitant rather than taking a ex ante approach and pre-deciding a price. But again, the former will create uncertainty for the new entrant as to how much they need to shell out. These approaches will have to be considered while reviewing the Indian regulatory scenario in the analysis. It should also be kept in mind that the Indian Mobile Industry is still maturing in terms
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Mobile Development Strategies in India of development. So, any current approach from the authorities is not necessarily the permanent one and it could be to assist a growing industry coming of age. The IDEI Report (1999) mentions that to design an effective networking policy requires not only: (a) a sophisticated understanding of economic incentives and effects, but also and to a varying degree depending on the regulatory mode, (b) substantial technology expertise and (c) considerable cost and demand information. The ex ante or Sector-specific regulation approach makes sure that the consumer is not harmed while the post ante or competition policy approach makes sure that companies do not mis-use their dominant positions and engage in improper business conducts. The former implies high costs to companies and is based on the forwardlooking ability of the regulatory body. Their general lack of economic knowledge (Buigues, 2006) and the excessive speed of technological development are hurdles. The latter does not prevent opportunities for companies by restricting access or controlling prices but abuse of dominant positions may take deep investigation and time to be penalised. A summary of the two approaches is provided in Table 3.1.
Table 3.1 summarizes the differences between competitive policy approach and sector specific regulation. Competition policy General approach Amount and nature of information required Nature of the remedies imposed on undertaking Nature of public intervention approach Ex-post, harm based approach Only information on the allocated abuse Structural remedies addressed to specific conduct Permanent based on principles Sector-specific regulation Ex-ante, prescriptive business conduct General and detailed information on the sector Detailed conduct remedies requiring extensive monitoring As competition is more specific regulation replaced by competition 21
general competition policy effective, part of sector
Mobile Development Strategies in India law
Table 3.1: Differences between competition policy approach and sector-specific

regulation (Adapted from: Buigues, 2006:11)
An observation made by industry experts is that sector-specific regulation is effective in the initial phases of network industries when there are chances of a monopolistic situation due to technological innovation (Buigues, 2006). The aim of the ex ante approach is mainly to ensure that there are no market failures and once competition is flowing in the sector in line with other industries in the economy, the approach should shift towards competition. In the initial phase, when there was a domination in the Indian mobile telephone industry by players like BSNL and VSNL, regulation intervention was necessary to prevent abuse and more importantly to enable new entrants into the market in a smooth process. In the long term, when there are established players like Airtel, Vodafone, Reliance, it becomes better to switch to the competition policy as it will result in price equilibrium, efficiency, better customer treatment and offers, etc. Hence, at some point, the TRAI has to draw a balancing line and decide to liberalise the mobile telephone industry further. 3.9.2 Market Failures Market failure in an industry results in a situation where a competitive structure is not possible or if possible, it would not be efficient (Kay, 1996). Other than creating a monopoly with too much of market power with one player, there are factors like pricing, capital regulation and product offering which makes way for regulation of an industry. Another cause might be information asymmetry, whereby the seller knows more than the buyer resulting in exploitation. With the factors for regulation in mind, a look at the telecommunications industry will reveal that market failures are more likely to occur in an industry at its start-up stage. Especially with a technology-based product, occurrences of information asymmetry have high probability and the resultant over-pricing of a new service is also possible. Moreover, in a globalised world, it also becomes important to
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Mobile Development Strategies in India protect upcoming industries from international leaders. These can be accepted as strong reasons for regulation at the initial phase in the Indian telecom industry. But as Kay (1996) and Buigues (2006) say, as the industry moves ahead and competition is more spread out and pricing has been stabilised, it is important for regulation to be eased (liberalised) in order for the industry to grow beyond normal levels. Kay (1996) talks of two kinds of issues that companies encounter with regulation. He says that as per business economics, companies have to manage the regulation, whereby businesses have to look to manage regulatory and government actions and make sure that their statute is met. The second issue is that companies have to manage regulation and competition. Stressing on the latter, it can be inferred that companies with excellent resources and know-how are limited in their growth by regulatory action that restricts their development in the name of controlling market power. This is highly possible in a growing industry like the Indian mobile industry, where the authorities are still holding on to regulations that were laid out at the initial phase. This kind of stunted growth can result in missing the peak time for company growth and in turn, the industrys growth. Kay (1996) agrees with this and says that companies will gain competitive advantage based on market share and not historic strength. For this market share to evolve on a true and competitive basis it is important for an industry to be liberalised or their resources wouldnt be converted to productive efficiency on time. Such a phenomenon would delay the growth of the overall industry. Market Regulation - Dynamic There are reasons for and against the need for market regulation. While talking of regulation in the telecommunication industry, Buigues (2006) has mentioned the existence of static and dynamic criteria. Static criteria refer to the existence of natural monopolies due to high initial investment and infrastructure barriers preventing new entrants. It involves huge sunk costs as we have already seen. This calls for regulation in the industry as it involves certain technological requirements that cannot be replicated economically (Buigues, 2006). 23
Under the dynamic criterion, it should be considered that innovations in a developing field like telecommunications can ease entry barriers to a great extent and this dynamic nature of the industry should be kept in mind (Buigues, 2006). One might also infer from this that new players might themselves bring in innovations with them and thus might attract the initial outlay required from different sources like venture capital or a joint venture. This new entrants innovation will boost competition and benefit the overall industry. Hence, the persistence of entry barriers is only till a period of time in life cycle of the telecom industry and Indian regulatory authorities must identify this to decide on the timing and phasing of deregulation. This will be discussed further based on the collected data in the analysis section. It can be seen how regulations must be checked at regular intervals. Beardsley and Farell (2005) agree with this in their report on industry regulation and say: A regulator should continually assess not only the kind of rules each of them requires but also, if competition is already established, whether fewer rules might make sense. The idea of regular assessment is stressed here as well. The logic of making flexible regulations based on the non-existence level of market failures and the presence of competition will be more beneficial for an industry like the Indian Mobile which is in its developmental phase. Beardsley and Farell (2005) also talk about a sunset clause whereby regulations are reviewed in pre-determined intervals and extension or removal of the sunset clause will be decided on the performance observed. This was successfully implemented in the U.S airline industry which resulted in tighter competition and competitive prices, benefitting the consumers and industry at large. Such a methodology could work for the Indian Mobile Industry after providing for certain infrastructural changes. 3.9.3 Market Forces The Indian Mobile telephone industry is at a stage in the peak of its growth stage. This is a crucial phase of development for the industry. Any technological innovations 24
Mobile Development Strategies in India that are efficiently utilised and competition of properly channelized can boost the productivity and reach of the industry. It has been seen how the probability of market failure is an important determinant in the plan of action. There are various other market forces that act on a market and direct competition. These market forces shall now be studied in detail using the Porters Five Forces tool to gain a better understanding of the zones where market power rests. This shall be strategic issues to consider while the regulatory authorities and companies make decisions. Porters Five Forces The Porters five forces tool is now used to measure the different forces in the market and how, when combined, they act on competitive rivalry. The extent of each force is measured in zones ranging from Low, Medium and High. Bargaining Power of Sellers - Medium The mobile telephone industry in India started as a luxury product subscribed by the early adopters in the late 90s and has gone on to become a standard technical product bought by the common man. The constantly advancing nature of technology has meant that new products and service packaging are being offered on a continuous basis. New products like new handsets or new technology like 3G, etc can bring a premium price for the sellers. But, the tight competition that exists in the industry and an on-going price war mean that the bargaining power of sellers is limited to the extent of them receiving subscription from the customers over other providers. Thus, the technological progression equips companies with a lot of market power. Bu the quick distribution of technology among competitors becomes another consideration. The power of the companies is limited by the price discounts and other forms of promotional offers presented by rival companies. Hence, their overall power is medium. Bargaining Power of Buyers Medium High As seen above, the mobile phone customers have a heavy bunch of service providers to choose from. The current price regulations, even technology and 25
Mobile Development Strategies in India competition mean that customers have considerable switching power. A recent regulation that has enabled customers to switch providers without changing phone numbers at an ignorable fee shifts more power into the customers hands. All these mean that there is relatively high power with the buyers. Threat of New Entrants Medium High This is one of the sharpest indicators of industry position. The Indian mobile industry has seen many developments in the incumbent players zone of the market. The private companies exploited a phase when privatisation was new to the industry and they also carried their corporate reputation along with them (Bharti, Tata, Reliance, Idea). The mobile telephone industry is a capital-intensive one, involving high sunk costs and extensive economies of scale (Bergman et al, 1991). Another factor to be considered is that any company with a breakthrough innovation can enter the industry with the help of private equity and venture capital. There is also a strong possibility of international players entering India on individual or joint ventures like Vodafone did and Docomo being the latest example (Indian Express, 2008). This is more likely with India being an emerging economy with a 100 million subscriber base and average technological advancement. Considering all these factors, it will be fair to say that the threat of new entrants in the market is Medium High. Threat of Substitutes Low The replacements for a mobile phone are very rare. Even the very few that exist like the traditional telephone, computer and wrist watch phones are either lacking certain key features of the mobile phone (telephone, computer) or rarely available (wrist watch phones). Also, with more computer features being embeeded in mobile phones like Blackberry, Palmtops and iphone, mobile phones are gaining importance and utility. Even with technology development at a very high pace and distribution, the threat to mobile phones from possible substitutes are low. Competitive Rivalry High
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Mobile Development Strategies in India The inception of mobile services in India saw public sector providers like BSNL and later MTNL dominating proceedings. Once the industry was opened up, players like Airtel, Hutch and Essar came into the scene. The private players list has now grown in numbers. This has been a combination of international entrants like Vodafone and Docomo and joint ventures for specific products and offers like Airtel Blackberry. The Mobile service subscribers in India have a bunch of Tier-1 service providers to choose from and a lot of Tier 2 sellers. The tier 1 consisting of the technology and market leaders like Airtel, Vodafone, Reliance and BSNL and the tier 2 lot being bigger with players like Idea, Spice, Aircel, etc. There are other players who are relatively small but well established in their states like Aircel in Tamil Nadu, BPL in Maharashtra and Spice in Karnataka. These private players have a considerable share of the market in these circles and force the tier 1 players to adopt a more tight strategy in these stages. Another influencing factor, as in most businesses, is price. The wave of regulatory changes and mixed strategies from companies has set-off highly stiff pricing margins and non-financial incentives through promotional offers. Increasing competition with existing and new players, improving technology like 3G and UMTS and more disposable income from the bulging Indian middle class have all lead to high competitive rivalry in the industry. The competitive structure is discussed in more detail in Section 3.10.1and its affects are analysed in the Findings and Analysis part of the research. Threat of New Entrants (Medium - High)
Buyer Power (Med - High)
Competitive Rivalry (High) Threat of Substitutes (Low)
Seller Power (Medium)
Figure 3.3 Porters Five Forces Indian Mobile Telephone Industry
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3.10 Likely Issues Affecting the Indian Mobile Industry

The International Telecommunication Union estimated that mobile cellular subscriptions worldwide would reach approximately 4.1 billion by the end of 2008 (International Telecommunication Union, 2009). Mobile phones have gained increased importance in the sector of Information and communication technologies for development in the 2000s and have effectively started to reach the bottom of the economic pyramid (Heeks, 2008). Looking at Figure 3.4, it can be seen how the graph is evening out towards the end for developed countries showing the relative maturity of the markets. Comparatively, the graph for the developing countries is rising continuously signifying the growing nature of the mobile markets. This theory also applies to India, it being one of the fastest developing countries.
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Figure 3.4 Source: NewYorker, 2008
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Mobile Development Strategies in India The market for cellular mobile technologies in Asia has seen explosive growth in the nineties and the first few years of the millennium. In his paper, Chakravarthy (2007) says that the main reasons for the growth of mobile telephony in Asia are the opening up of markets to competition, introduction of digital cellular technologies and the presence of an independent telecom regulator. Looking at it from the India perspective, the markets had been opened up for competition after it was being dominated by the government-owned BSNL and MTNL. The technology has been constantly upgraded ever since the market opening and new kinds of expertise in the field has been pumped into the sector by the innovative and high-paced private players. But still, it has not advanced as it is in the developed countries. Comparatively, countries like China, which has a similar density of population like India, has much better technology, which sometimes is replicated by the developed countries. It has also achieved a much better penetration and has a much larger subscriber base. This shows the potential India can explore if it develops the mobile telephone sector in a proper and structured way. The above two factors lead us to the next element the regulatory framework. The step to launch a separate department and then an independent regulatory body TRAI, was a crucial step in developing the sector. This made sure that there were now specific policies being made for the sector and the general events in the industry was being monitored by an authoritative body. Moreover, the decisions on competition and acquiescence of technology into the country are also controlled by the regulatory and political bodies. This shows how the third variable overrides the first two as the prime issue. In this section, these issues will be taken up individually and elaborated on.
3.10.1 Competitive Structure

Theoretical Framework Substantial empirical evidence reveals that privatization or deregulation in the telecommunications sector can lead to performance improvements. Megginson, et al. (1994) compare pre- and post-privatization financial and operating performance of 61 companies (in 32 industries, including telecommunications) from 18 countries. They find increased sales, profits, investments, and employment following privatization.
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Mobile Development Strategies in India The early empirical work in this area compares average performance indicators across firms or countries before and after deregulatory reforms. Most of that evidence is from Latin America, a fact that is not surprising, given the region's relatively early start in reforms. In general, these studies find positive effects of reforms (e.g., Kikeri, et al. 1992; Wellenius and Stern, 1992). Though privatization has yielded significant benefits, allowing entry and competition in the sector tends to yield far greater benefits (Wallsten, 2002). A monopoly provider, whether state-owned or private, experiences fewer incentives to improve service and lower prices than do firms that operate in a more competitive environment. As Ambrose, et al. (1990) argue, "simply moving a monopoly from the public to the private sphere will not result in competitive behavior." This wisdom is reflected in results obtained from a broad class of studies, which finds that competition leads to the biggest improvements in the sector (Fink, et al. 2002; Li and Xu 2001; McNary 2001; Petrazzini 1996; Ros 1999; Wallsten 2001). The detrimental effects of monopoly provision are also exacerbated in network industries (such as telecom), where the presence of network effects, switching costs and supply side economies of scale, may lead to 'lock ins' where a producer with market power charges a premium that customers may be willing to pay given that their cost of moving to a new product or technology may be prohibitively high. (2) 'Locked in' customers may give rise to imperfect competition even if there is free entry to the market, as new firms may not be able to ever build up the installed base of consumers or realize the cost advantages that they require to compete. Again, no anti-competitive behavior is necessary in order to create market inequality in network markets (Economides, 2003). The natural monopoly that occurs due to the large installed base of a dominant firm results in it wielding market power with no explicit strategy of entry deterrence. The Indian Mobile Industry Perspective India, the worlds second-largest mobile-phone services market after China (ITU, 2009), added more than 10 million subscribers for the third straight month in November and is set to attract more operators as it prepares to auction licenses for starting high- speed wireless services next year.
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Mobile Development Strategies in India Talking of competitors, India has a market that has a lot of divisional and national players. But the overall scenario is dominated by a few big operators.
Airtel Airtel comes from Bharti Cellular Limited - a part of the biggest private integrated telecom conglomerate, Bharti Enterprises. Bharti Enterprises has been at the forefront of technology and has revolutionized telecommunications with its world class products and services. Bharati-AirTel is a GSM mobile phone service provider in worldwide and the surrounding areas. It offers various pre-paid and post-paid plans, as well as value added services.
Bharat Sanchar Nigam Limited - BSNL is the largest Public Sector Undertaking of India and its responsibilities include improvement of the already impeccable quality of telecom services, expansion of telecom network, introduction of new telecom services in all villages and instilling confidence among its customers.
BPL Mobile - Having started its services in 1995, BPL Mobile operates in Mumbai, Maharashtra, Goa, Kerala, Tamil Nadu and Pondicherry- with a network spanning across 209 cities currently. Today, BPL Mobile, India's premier mobile phone service provider serves over 2 million happy and satisfied wire-free citizens across all our markets. It provides cutting-edge solutions, services and products in the broader areas of Enterprise Communications, Digital Consumer Electronics and Information Technology, with a dedicated focus towards hardware and software solutions for highly competitive global markets.
Hutch One of the bigger players in India. Bought in 2008 by Vodafone of the U.K. Some of the figures shall refer to them as Hutch.
IdeaCellular - Servicing Mumbai initially and a lot of other regions later. A telecommunications venture from the Aditya Birla Group, one of the biggest corporate houses in India.
MTNL - MTNL was set up on 1st April, 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs
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Mobile Development Strategies in India of Indias key metros Delhi, the political capital and Mumbai, the business capital of India.
Reliance Infocom - The Reliance Group founded by Dhirubhai H. Ambani (1932-2002) is India's largest business house. Reliance Infocomm will offer a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services.
Spice Telecom - Spice Telecom the brand name of Spice communications Limited is presently operating Cellular Phone Services in the states of Punjab and Karnataka. Considered as one of the best providers of mobile telephony in India. Spice brings quality cellular services at attractive prices. These include Auto Roaming facility, special services like voice-mail, and Spice Plus, and the option of charging cell phone account with pre-paid Spice currency, the easiest way to pay.
Tata Indicom - Tata Teleservices ltd offers its products and services to customers across India under the name of "Tata Indicom". TATA Teleservices limited is India's leading Private Basic Service Operator. This is from the TATA group one of the biggest and well-known corporate groups in India.
Videsh Sanchar Nigam Limited - VSNL was incorporated on April 1, 1986 under the Indian Companies Act , 1956 to take over the activities of the erstwhile Overseas Communication Services (OCS). The company operates a network of earth stations, switches, submarine cable systems, and value added service nodes to provide a range of basic and value added services.
A Detailed list of mobile operators in India is provided in Appendix 2. It can be seen how the operators in the sector are scattered. But in spite of so many operators being present, the business in the markets are dominated by the major players like Airtel, Reliance, BSNL, Hutch (Vodafone), etc. From figure 3.5, it can be seen that the market in the metropolitan cities and the states in general have been captured by the chief operators like Airtel, BSNL, Reliance, Hutch (Vodafone), Aircel, Spice, Tata Indicom , etc. This depicts a picture of competition being lead by a few players, but due to the cut-throat nature of the mobile sector, stage of development and its scope for further growth, it is very healthy.
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Mobile Development Strategies in India Estimates put the total worth of Indias telecommunications sector at nearly US$100 billion in 2007 (Budde, 2008). This was on the back of soaring valuations of the countrys telecommunications companies, both listed and unlisted. Listed companies like Bharti Airtel and Reliance Communications could claim valuations in the range of US$26-27 billion and US$19-20 billion, respectively. And big operators like Bharat Sanchar Nigam Ltd and Idea Cellular would be likely to range in value from US$8 billion to US$30 billion if they were listed. Over a 10 year period, the telecom industry saw numerous high profile exits by multinational companies such as AT&T, Telecom Italia, British Telecom, Telstra, Cingular and France Telecom. Others to exit included some local companies as well such as Aircel, BPL, Escorts, RPG, Usha Martin, JT Mobile and Hindujas.
Figure 3.5 Market share region-wise (Asia Telecom Report, 2006)
Vodafone, which had also exited the Indian market earlier on, had made a comeback in recent times with its successful bid for Hutch. Over the years, the exits and entry of new players have been part of market consolidation, ultimately resulting in strong value creation. A joint venture between AT&T and Mahindra Telecommunications saw the US-based company become the first foreign telecom operator to get a
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Mobile Development Strategies in India licence under the Indian governments revised FDI policy increasing the foreign ownership cap from 49% to 74%. There are a few experts who predict the entry of more foreign players as the market progresses and consolidation. These issues will be looked upon later. Before analysing the existing competition, it would be very useful to have a look at the market share occupied by the few dominant operators in the country. On June 30, 2008 the market share in the Indian mobile market looked like this:-
Figure 3.6 (CAOI)1
The heavy competition marked by the abundant number of players means that there is a problem for customers in the respective regions in accessing the frequency network of their service providers. There have been numerous complaints in the recent past being network being blocked during peak hours due to colossal overloading of customers. A reason to bring in regulation can clearly be seen. But, like what Klein (1999) says, it should be in the nature of network industries to keep
1
CAOI - The Cellular Operators Association of India (COAI) was constituted in 1995 as a registered, non-profit, non-governmental society dedicated to the advancement of communication, particularly modern communication through Cellular Mobile Telephone Services.
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Mobile Development Strategies in India the sectors as deregulated as possible and promote free competition. While this paradox needs to be addressed, the other factor this feeds is the issue of technology. The overflowing number of operators and ever-increasing number of customers should be supported by efficient network infrastructure and other related technology. This issue is now analysed in the following section.
3.10.2 Technology
The importance of infrastructure in a network industry has been seen in the initial part of this literature review. Technology and infrastructure development has been a persistent hurdle in the economic progress of India. There are over 1.5 billion cellular phone subscribers in the world, according to International Telecommunication Union (ITU, 2005). The developmen in mobile phone subscribers today is faster than the growth in fixed telephone subscribers and Internet users. In some developed countries in the EU like Sweden and Iceland (and Hong Kong on the Pacific Rim) cellular diffusion is around 100 percent. Sweden today has a mobile penetration of a 101 percent, i.e. there are more cellular phone subscriptions than people in the country. Most advanced industrial countries have historically displayed a significant diffusion rate for cellular technologies. According the Organization for Economic Cooperation and Development (OECD, 2003), in 2001, mobile penetration in Netherlands, Iceland, Italy, Finland and the UK were 81.3, 82.6, 80.4, 87.1 and 77.1 percent respectively, with the overall penetration rate for EU being 74.3 percent. Among the other developed countries, the US stood at 45.1 percent, Japan at 58.8, Australia at 57.1 and Germany at 68.3 percent in cell phone penetration (OECD, 2003). However an important aspect of cellular technology diffusion among advanced industrial countries is that mobile penetration has levelled off in the early part of the millennium with the growth centres for cellular technology shifting to countries such as Russia, China, India, Korea, Malaysia, Indonesia and the Philippines and Taiwan. The first basic requirement for the Industry to grow is the need for a competent handset market. The global players for mobile handsets are present in India as well.
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Figure 3.7 Global Mobile Handset Market
In the global scene, it is seen how Nokia dominates proceedings and India is no different. The operators have been coming up with efficient mobile devices for the Indian market. Radio frequency spectrum is a limited natural resource. The word Spectrum basically refers to a collection of various types of electromagnetic radiations of different wavelengths. In India, the radio frequencies are arbitrarily confined between 9kHz and 3000 GHz and are being used for 40 different types of services like fixed communication, mobile communication, broadcasting, radio navigation, radiolocation, fixed and mobile satellite service, aeronautical satellite service, radio navigational satellite service etc. Some of the important and typical characteristics of the radio frequency spectrum as said by Kaul (2006). 37
Mobile Development Strategies in India In this section, it could be seen how the spectrum and other related technology needs to be given attention and should be studied before formulating on them. From the section on Competitive Structure and Technology, it can be seen how anything that has to be controlled has to go through the regulatory bodies. This key variable is now analysed in the following section.
3.10.3 Regulation and Government Bodies

There has been significant research on the adoption of new technologies from both national and practical point of view. In telecommunications, the subject on competition generates furthur values to minimize cost to clear pieces (Laffont and Tirol, 2000). The cellular mobile industry has always been much less regulated than its fixed line counterpart and indeed most public utility provision. In Asia this more liberal policy environment led to mobile provision at a premium in the nineties by either incumbent operators or by monopoly/duopoly private firms who were charging high rents to consumers with relatively inelastic demand for voice communication services in countries with low mainline penetration. However the relative lack of regulation that prevailed in this industry also meant for more competitive entry as the level of supernormal profits increased. In the study (Chakravarthy, 2007) of the number of countries in Asia that had a certain industrial structure (e.g.--monopoly, duopoly, three firms or more than three firms) from 1993-2004, we see that up to 1996, the number of monopolies exceeded the number of oligopolies but from that point on the number of countries with two or more firms increased significantly until in 2004, 10 of the 31 countries surveyed had a monopoly whereas 21 had multiple providers. What is clearly seen the change in the average peak-rate tariff for a three minute local cell phone call for the different regions in Asia. The graph shows that 2000-2002 was the only phase in the decade when the peak-rate tariff decreased for all three broad regions of Asia. Thus an increase in competition is seen to be directly linked to a falling of prices in this market. It may be mentioned that almost all countries had "liberalized" or "corporatized" their telecom incumbents by the middle of the nineties it has been argued that competition creates additional values to reduce costs to innovate and eradicate un
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Mobile Development Strategies in India (except the countries of the Middle East which even in 2002 had a number of monopolies). This however did not make for higher consumer welfare or rapid market growth, which came in the 1999-2002, as a concomitant to higher competition and falling tariffs. It must also be mentioned that for developing countries even though an increase in mobile penetration may be observed with more entry, a significant portion of this increase may be because of unsaturated demand for telecom services, rather than a response to "better" quality of service per unit of consumer expenditure. Klein (1999) putting your self in the front that when we are uncertain, the
policymakers should not limit the admission of the competitive firms in such networks. If they want to limit the admission he says that the limit should be according automatic test after a set time, and observe for costs and profit. An industry-agreed set of spectrum trades could represent a better and quicker solution than one imposed through regulation. The future spectrum distribution should be resolved quickly and it should allow for re-use of the spectrum whilst maintaining a competitive market.
3.11 Summary & Conclusion

From the review, it has been seen how the quest for the development of the Indian mobile telephone industry breaks down to the three factors of Competitive structure, Technology and Regulation. In the individual analysis, it was also seen how both competitive structure and the network infrastructure providing the technology need to be managed properly for the over enhancement of the sector. This leads us to the main variable recognised Regulation of the Industry, which not only controls both the factors identified above but also plays a very important role in its independent functions. In a nutshell, the literature review brought out the following issues: Development of Mobile Communication is quintessential for the overall development of India as an economy. The network infrastructure acts as a bridge between the creation and delivery of the services and should be given priority in policies.
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Mobile Development Strategies in India Competitive structure determines the traffic in the industry and this concentration influences the industry through innovation, spillover and other effects. Technology is the backbone of the industry and is upgrading by the minute. The spectrum has to be managed strategically to squeeze the optimum use out of it. Regulation plays the most important role; it has to maintain a balance in the competitive composition in the industry and also divide, utilize and impart the spectrum distribution cleverly. What needs to be done? - Further liberalisation of the spectrum and the adoption of discernible technology manifested by novelty are needed to be implemented further by the authorities to enable the network infrastructure facilitate overall development. These areas have will form the nucleus of his research design and subsequent analysis.
4. RESEARCH METHODOLOGY 4.1 Introduction

The research and the methodology implemented are key essentials in deciding the success of the research carried out (Fisher, 2007). They portray the procedure as how the research is going to take place and how it is linked to the aims and objectives mentioned in the research.
4.2 Research Proposition

From the literature review, it was seen how the mobile industry can be broken down into three segments for the purpose of infrastructure analysis. It has been identified that, in the Indian Mobile Industry, given the current state of affairs, for the network infrastructure to be developed and competition to be channelized efficiently, the regulatory authorities hold the key. From the background of this research, the 40
Mobile Development Strategies in India wider research area of network infrastructure enabling mobile telephone industry progress has been restricted down based on the three important variables recognized Competitive Structure, Technology & Infrastructure and Regulatory Framework. Among these variables, the importance of the regulatory function has been recognised. The project proposition is supports the key variable which has its benefit on the research attained n general will be based on this chief variable to help the research achieve its overall purpose. The research is done to give spotlight on the regulatory body of the indian telecommunication industry. Regulation of network infrastructure shall enable development in the Indian mobile telephone industry.
Figure 4.1 Breakdown of Hypothesis
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4.3 Research Design

The research aims to demonstrate the different parts of the research gathered models and data, the technique of working and estimating results, all this is done to overall add just before the main research objectives (Trochim, 2000). This part shows an general view of the information sources and the set methods, also what kind of methodology to be This section gives an overview of the data sources and collection methods, methodology to be taken on and ways of analysis.
4.3.1 Research Approach

The research has elements relating to the cellphone infrastructure and when merged , they add or reduce in general the sector efficiency. By braking the research into various components, it is makes it more simple to set up cause and the outcome connection between the variables recognized and the rigid structure. Then, resulting model is found from different cases and the will be tracked across cases and strategy proposition will be set up. These kind of models are mostly used to describe possible events or explanation that are necessary from the rigid part of the sector to sort out the efficiency roll-out communication for the firm. Forcasting future happening and describing out action plans for the firm can be a subject to argue about in a growing market like the indian cellphone industry, the research states that it can cope up with the one-sided advise overcoming the flaws, which is a part of practicality (Fisher, 2007). This means that information relevant to the known variables in the indian framework would be gathered and kept as a viewpoint, the network communication organization will be the key source to recommend future plans.
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4.4 Data Sources and Collection

Rationally, this gives the way to the next step in the plan, that is searching for suitable sources of information and gathering them in a systematic manner to minimize loss of value and have usefull understanding. The method of gathering information used here is desk-bades orientation. It comes under secondary sources of information (Fisher, 2007). The information gathered according to this method is done from a large range of sources which also has the surveys about the situation of the inidan telecom industry. The report by OfCom drawing a phasing out plan for the UK mobile industry would be considered as a basis to frame similar maps for the Indian mobile industry. Issues specific to the Indian context would then be accounted for on the basis of recent industry reports.
4.5 Methodology
The research takes the realist route and will require a detailed analysis of factors contributing into the industry and finding the outward effects they bear. Papers and concepts in the telecommunications would be referred to look at the applied methods of dealing with network infrastructure prescribed by various authors. This would then be compared with the articles from journals on the telecommunications sector to bring out what the recent developments in the sector mean for the research. Then, news and critiques on the incumbent firms in the Indian mobile telephone market and their future plans would be analysed to see how the competitive elements in the industry match with the industry trends noted in the previous task. Then, the regulatory issues facing them would be examined via reports from and about the concerned authority, TRAI. Putting all of the above into perspective, a rough draft of what needs to be implemented in the process of liberalising infrastructure would be made. The opinions of industry experts would be consulted to sharpen the items and make a listing of what needs to be done. To this advanced report on analysis, the research would add its view of how the liberalisation needs to carried out and what the factors are to be addressed in the process. The
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Mobile Development Strategies in India qualitative report would then be summarised and recommendations will be presented as the result of this research.
4.6 Objectives, Hypothesis and Analysis

Based on the research objectives, three significant variables were introduced in the previous section Competitive Structure, Technology and Regulation. In order to identify how best to liberalise the network infrastructure in the Indian mobile industry, these variables will be scrutinised with context and the policy actions born out of them will be listed. The likely outcome of the regulatory moves on each of these variables will be analysed. The research will a qualitative analysis and use the results to evaluate the requirement for each of these variables. After considering the likelihood of events, the results on each of the variables are pulled together to frame the overall implications. The research foresees significant consumer and citizen benefits from the liberalisation of better spectrum bands. The deployment of better infrastructure could mean deeper and wider availability of communication services. A case for improving connectivity to rural areas would also be considered as means of closing the digital divide within the country. Future trends in the industry would be predicted based on the global technology scene and ideas for how to keep pace with them would be discussed. In its race to economic dominance, the mobile telephone industry development holds a key role. Whether the network infrastructure could be developed to enable India communicate itself with the world at large is the hypothesis to be tested.
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5. FINDINGS & ANALYSIS

5.1 Introduction Data pertaining to the identified objectives were collected from various sources to ensure full coverage and overcome any possible bias. In this chapter, the research shall present this collected data, process it and establish the out born of the analysis. Since the collected data and their interpretations are inter-related, they are connected stage-wise and their implications are laid out as they are being presented. This chapter will take the following structure. First an overview of the general scenario on the Indian Telecom industry in which the research is carried out is laid out. The next section shall combine the two primary variables Competition and Technology and present the data found on them. These shall be examined and their implications for regulation will be sketched. The subsequent section will focus on regulation in the industry. This will connect the previous section with what form of liberalisation is required. It will discuss the factors to consider, how to implement it and other facts that form a part of the results of this research. The last focus section shall bring out some of the future developments in the mobile industry to be considered. The chapter will end with an overall conclusion.
5.2 General Scenario

Indias telecom industry is in a phase of transition. Process of change is often volatile and responsive to intervention and global circumstances impacting it such as a Britian based telecommunication Vodafone investing in the indian market and taking over the existing company called Htuch. In such an inherently dynamic situation it is convenient to assume that cross-country experiences incubate the most recent seeds of change. This is because countries at various stages of development encapsulate developmental experiences that occur with the passage of time. The striking dissimilarity of mobile networks with infrastructure provision historically is the strong legacy of private provision. When it was introduced in countries of the developing world it initially was a small service commanding a huge price premium
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Mobile Development Strategies in India and more of a status symbol for a small wealthy fraction of residents. Over time, due to demand and supply side economies of scale, the profits accruing to the cellular providers grew. This supernormal industry profit attracted other firms that started providing cellular services like Airtel, aircel, and many more during this time and now india has more than 10 major cellular indusries. In most countries in Asia, entry into this industry was not particularly restrictive and by the late nineties it was not uncommon to have multiple providers of technology and fairly intense competition among these providers. The associated lowering of price that came with competition suddenly put this technology within the reach of the masses, and changed the character of mobile services from a consumer convenience product to an infrastructure service that often substituted for a mainline phone in countries where basic fixed line telephony was weak. This rapid growth in the late nineties and the early part of the millennium has found several Asian countries like India, Malaysia, Hong Kong, Japan and Taiwan witnessing tremendous competition in mobile provision. This has led to considerable erosion in profits for operators. Net profits of four mobile telecommunications service providers (VSNL, MTNL, Bharti TeleVentures and Tata Teleservices) in India declined as much as 47 per cent in 2002-03 (Chakravarthy, 2007). The Cellular Operators Association of India (COAI) put accumulated losses of its members (GSM cellular service providers) at US$1.42 billion (Pinto 2003). Falling profits for mobile providers is not endemic to the Asian economies and carriers like Vodafone and Orange in the EU have reported losses (Vodafone purportedly lost 6.2 billion [p] in 2003). The other side of this intensely competitive marketplace has been the rise in mobile technology adoption. The number of subscribers in Asia was close to 560 million in the last quarter of 2004 (ITU, 2003) and almost all countries have a mobile penetration rate higher than their fixed line penetration rate. This study finds that that entry and competition in the mobile market are the strongest influences on the rising mobile penetration rate. Secondly, the network effect between fixed line provision and mobile networks makes for an increase mobile penetration with expansion in fixed lines. Finally, the presence of independent regulation is seen to be a factor that is important for market growth, but considerably less significant visa via entry and competition.
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Mobile Development Strategies in India In this chapter, the issue of competition has influenced the mobile industry in India will be evaluated and how the existing competitors should be managed to improve infrastructure and increase quality penetration will be depicted. This would be in conjunction with a discussion of existing technology and the requisite infrastructure to accommodate the proposed rollouts and changes. This shall then lead to the chief results of this research pertaining to regulation of competition and infrastructure rollout and further liberalisation of this mobile industry.
5.3 Competition and Technology

India, like many other countries of the world, have adopted a gradual approach to telecom sector reform through selective privatization and managed competition in different segments of the telecom market. To begin with, India introduced private competition in value-added services in 1992 followed by opening up of cellular and basic services for local area to private competition (Bhattacharya, 2008). The Telecom Regulatory Authority of India (TRAI) was constituted in 1997 as an independent regulator in this sector. Competition was also introduced in national long distance (NLD) and international long distance (ILD) telephony at the start of the current decade (VSNL Annual Report, 2002). The paradigm shift from Government Owned Monopoly to Private Sector Duopoly / Oligopoly / Open Competition is where the role of regulating competition comes in. There are many reasons for why competition is important and managing competition is vital for developing the telecom sector:o Removing waiting list through increased investment; o Injection of fresh capital o Improving efficiency of Service Providers; o Introducing new technology in the country; o Improving service quality and network performance; o Meeting international commitments such as WTO; o Reducing tariffs
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Mobile Development Strategies in India o Cash income to reduce debt o Roll out of network in unserved areas (Universal Service). Despite asymmetry in initial market endowments between public sector incumbents and private operators, the act of opening up of the market unleashed dynamism that was hitherto latent in the sector. This is evident from a number of performance indicators (Figure 5.1 and 5.2). It can be seen how tele-density has shot high in 2002 and the level of investments are increasing all the time.
Figure 5.1 Increase in Tele-Density
Source: ITU (2004) Notes - Combine Mobile & fixed Teledensity more than doubled 10.6 (1995) to 28.3 (2000) while it increased from 6.6 to 10.6 between 1990 & 95; mainly on account of growth of Mobile Services.
Figure 5.2- Increase in Investment
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Source: ITU, 2004
Klein (1999) says that that free entry is the strongest agent of market growth (as measured by mobile technology diffusion). With this is mind, it is worthwhile to ask the question--if entry is indeed the main engine for growth of this industry, are there any good reasons against liberalization, corporatization and foreign ownership? In the face of growing markets and falling tariffs associated with the increase in the number of providers in Asia (as concomitant to market liberalization), it is difficult to posit arguments that recommend the limiting of capital ownership or entry into telecommunication markets. However, in the context of developing countries some caveats do need to be exercised regarding the opening up of markets. Specifically with respect to mobile telephony, one salient aspect of its diffusion in emerging economies is its role as universal service provision. This applies to populations of many countries whose governments do not have the fiscal strength to supply basic telephony to a majority of its citizens. Countries like Pakistan, India and Sri Lanka have accordingly seen a liberalized mobile market right from its inception. It is however true that corporate entities do not have the responsibility of performing any kind of developmental / redistributive activity and this may be the main loss arising from corporatization of an essential resource like telecom. However many scholars argue that governments are devising means of achieving these universal service objectives without sacrificing competition, by creating and promoting universal
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Mobile Development Strategies in India service funds that can be competitively allocated (Fink et al., 2001). A second concern with unrestricted entry into the market may be that gains from liberalization may be appropriated by foreign entities and repatriated to countries in the developed world. This is a valid fear for most small economies and the only real solution to this (not counting that of a rollback to state owned monopoly) is to establish a credible regime of independent regulation that monitors the behaviour of service providers and steps in when necessary to defuse anticompetitive and myopic actions that may hurt consumers and stem the future growth of the industry. Figure 5.3 shows how entry and subsequent competition is managed in the Indian Mobile Scenario. It is beyond the scope of this research to go deep into this aspect. It should be taken up in a research which delves on the Competition policy in the Indian Telecom industry in specific.
Figure 5.3 Competition Management in ITI2
Source: Singh, 2003 for TRAI, India
Cellular markets in Asia however have displayed competition that has risen considerably in intensity in the first half of this decade resulting in the bidding down of prices of services (Chakravarthy, 2007). This has for now rendered the antitrust function of regulatory agencies somewhat redundant. However this does not mean that regulation needs to be removed, as intense competition in most industries is
2
ITI Indian Telecom Industry
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Mobile Development Strategies in India often followed by a consolidation phase that may witness a rise in anticompetitive behaviour, collusion and revenue sharing agreements. The concern regarding repatriation of profits by foreign firms who feel little impetus to perform developmental activity or provide universal service is a real one. An important function of regulatory agencies in developing countries with the mobile market in a growth phase is to ensure that the benefits of such growth accrue not just to foreign shareholders and the wealthy, but filter down to the average citizen. This would now be addressed. To facilitate this discussion, the existing technology requirements are briefly discussed and followed by combining the findings of the three variables competition, technology and regulation. The subscriber base in India, though near 100 million, is only a quarter of Chinas current figures (Rajan, 2009). Given that the quantum of spectrum is equal in both cases, India has managed its allocation of spectrum poorly. One of the reasons often quoted for the shortage of spectrum in India, is that the defence forces occupy significant chunks of spectrum bands. The US and China are examples of how civilian and economic needs were satisfied while maintaining the interests of national security. The Spectrum Management Committee in 1998 recommended changes and creation of a new fund for the reallocation and shift. Though spectrum reallocation for the defence forces would be a daunting task, the financial implications of the policy and the future impact for India would be far greater beneficial. Proper and efficient management of reallocation of spectrum to all service providers will enable them to have sizeable chunks of spectrum for their services and will contribute to the execution of advanced wireless and 3G services. About 40 per cent of users in Japan and Korea are already 3G service users and India has a lot of catching up to do if we are to compete with them. These are some of the present conditions permitted for incumbent operators as laid out by the TRAI (Singh, 2003):o Liberalised framework for Internet
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Mobile Development Strategies in India - No license fees - More than 400 ISPs licenses - More than 100 operational o Infrastructure sharing has been permitted o Internet Telephony has been permitted; - PC to PC and PC to Phone (outside India) o Competition in International long distance with permission to use IP.
5.3.1 Competition - Technology - Regulation

In an interview to the Wharton School of Business (2007), Bapna 3 and Sundarajan4 said that in a phase of growth, the Indian mobile industry should be regulated efficiently. They say that competition should be managed in such a way that the spectrum revenues should be used to enable infrastructure rollouts. This interconnection between competition, infrastructure and regulation by the TRAI (2003):o TRAI specified the Port charges, revenue sharing mechanism, location and number of Points of Interconnect. o Mandated Operators with significant market power to publish a Reference Interconnection Offer. o An interconnection usage charge regime in place. o Migrated from Mobile Party Pays to Calling Party Pays after 3 years of consultation. - Low tariff difference between Basic and Cellular has reduced the resistance to migration. Bapna and Sundarajan (2007) reckon that this interconnection of variables is enriched by the fact that the growth in the number of subscribers is forecasted as a
3
Ravi Bapna -- a professor of information systems at the Indian School of Business in Hyderabad and executive director of the school's Centre for Information Technology and the Networked Economy.
4
Arun Sundararajan, a professor at New York University's Stern School of Business.
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Mobile Development Strategies in India huge figure. While it is hard to provide specific numbers for pricing, the Indian mobile market is getting close to 250 million subscribers, and Indian mobile operators should have several opportunities to make money. The sub-connection between subscriber growth and tariff can be derived from this. Figures 5.4 and 5.5 depict the subscriber growth and tariff behaviour respectively. This is followed by Table 5.1 which shows Indias development in the global stage in terms of telephone lines. This shall help to demonstrate where India is heading in the near future.
Figure 5.4 Subscriber Growth Fixed and Mobile
Source: Singh for TRAI (2003)
Figure 5.5 Tariff Decrease
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Source: Singh for TRAI (2003)
Table 5.1: Top 14 countries in the world in terms of number of main telephone lines in operation
Country
USA Japan Germany China France UK Russia Italy Korea, Rep. Canada Spain Brazil Turkey India
No. of lines in 1995 (000) 159,735.2 62,292.0 42,000.0 40,705.7 32,400 29,411.4 25,018.9 24,845.0 18,600.0 17,567.0 15,095.4 13,263.0 13,215.7 11,978.0
Ranks (1995) 1 2 3 4 5 6 7 8 9 10 11 12 13 14
No. of lines in 2001 (000) 190,000.0 76,000.0 52,280.0 179,034.0 34,032.9 34,710.0 35,700.0 27,303.0 22,724.7 20,319.3 17,427.0 37,430.8 18,900.9 34,732.1
Ranks (2001) 1 3 4 2 9 8 6 10 11 12 14 5 13 7
Source: World Telecommunication Development Report 2002, ITU
Another important aspect to consider would be network sharing. If operators like Airtel are going to share their infrastructure with smaller players within states to gain penetration and share, this would affect the way spectrum is managed as well.
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Mobile Development Strategies in India Also, it will have accompanied by appropriate billing systems to support the CDR system (TRAI, 2003). Regarding the conundrum of managing spectrum for competition, government is getting into with the Defence Ministry to discuss the sharing of certain bandwidth dedicated to defence as mentioned in the literature review. Earlier the estimates were near to Rs. 1,000 crore just for the infrastructure (Bapna and Sundarajan, 2007). But there were some complications with the department of defence they said that the cost was going to be four times more thatthe cost is for the range and for refarming it out. It has to be improved. For taking it to the rural areas a good supervisor body can inspire the workers. Issues like this can be taken care by auctions. An important factor to consider while initiating discussion of liberalisation is the handling of the two government operators BSNL and MTNL. There might be a few arguments at the regulatory level regarding awarding them spectrum rights without them bidding for it citing rural penetration and excessive private-power. These issues should be played down as the private players would be expected to contribute to the rural penetration requirement as a part of the bidding criteria. BSNL and MTNL has the larget right now in the country. The primary users are going to be in the metros, in the large cities. But again, looking at the overall usage, the operators will have to free up the spectrum, which is getting really crowded in these areas. So essentially, the market has to separate out, 3G will allow this. It's interesting that the research started about networks not being available: If you can move the high-end segment out to the 3G, that makes a lot of room for expansion at the base of the pyramid. That would be an ideal consideration for infrastructure to be rolled out. Looking at the business opportunity for the operators, the numbers are there to support a very strong case. The likeliness of the industry slowing down to the extent that mergers or acquisitions are not seen is less, at least in the near future. But there are signs of it happening in recent times (Bapna and Sundarajan, 2007). If anything can be done to accelerate that, it would be highly beneficial to accelerate this development.
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Mobile Development Strategies in India A lot of what's going to happen will depend on the nurturing of innovation in the provision of applications and retailing platforms and content. This might be something that the service providers or the infrastructure orders might want to nurture through the kinds of development networks that can be seen in companies like Microsoft, Google and Yahoo fostering here (Bapna and Sundarajan, 2007). The infrastructure, once put in place, along with the spectrum and the ability to carry this back and forth, is like a platform. But the value of this platform is going to be highest when it has a whole bunch of content and applications and things that plug into it. And there is certainly going to be a lot of unique application development in the India context. 5.3.2 Rural Penetration The relativity between spectrum liberalisation and rural penetration was mentioned in the previous section. Opening up new frequencies for advanced features like 3g, etc. would free up the existing spectrum ranges that can be used to cover the rural areas. A likelihood of rural teenagers using 3G-enabled mobile phones by 2015 is also present (Bapna and Sundarajan, 2007). The one rationale might be that should be made sure in the process of liberalisation is that there is some attention paid to rolling out infrastructure in the rural areas, as opposed to just having it focused in the urban areas. One of the two government operators, BSNL off late, is focused on that, but it would seem that rather than allocating them spectrum exclusively and outside the scope of the auction, the government might be able to better implement this kind of rural rollout using subsidies to private operators rather than a centrally owned government authority being given the responsibility to do that. Also to some extent, the span of services that rural consumers are going to want is clearly going to be a lot less than what the urban consumers demand. The rural customers would be more concerned about the facility available to them as a necessity rather than latest applications as a symbol of status or luxury. The revenue potential is going to be less in the rural areas. It could be argued that this is perhaps the most viable way to get any form of mobile telephone and Internet connectivity to a vast majority of the country. TRAI has been somewhat thoughtful about choosing the right technology (Bapna and Sundarajan, 2007). They have chosen a lower bandwidth, a lower region of the spectrum that actually has characteristics of it that are more amenable to 56
Mobile Development Strategies in India rollout in rural areas in terms of power requirements and so on. So yes, it's not going to be a great revenue opportunity relative to the urban areas, but it is going to provide essential infrastructure. Internet connectivity versus no Internet connectivity is probably going to rest on 3G and subsequent technology rollouts for the rural areas. If the TRAI decides to make any changes to the mechanism of liberalisation by which they are going to be allocating the spectrum, the one that would be suggested is the tying of license revenues to subsequent subsidies for infrastructure rollout, but as pointed out earlier, a lot of this is dependent on the way the regulatory bodies manage the liberalisation of the spectrum. 5.4 REGULATION It has been reiterated throughout this research on how regulation of the competition and infrastructure holds the key for developing the Indian mobile telephone industry. As in the past, centre and state will play an important role in this development both as a proactive policy maker and also by taking a position in the market. Major policy trust of the government to promote IT was through provision of Technology Park, fiscal incentives, simplification of administrative rules and procedures, promotion of institutional finance including venture capital and liberalization of foreign equity participation. In the area of software, policies to encourage global presence included market support, overseas campaign for export promotion, quality certification, information security management and R&D support. India is moving from a stage of Liberalisation without privatisation to Privatisation with competition (TRAI, 2003). The phase of policy reforms marking this transition is given in Figure 5.7.
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Figure 5.7 Phases of Policy Reforms
Source: Singh for TRAI (2003); Data till 2003.
According to the report by Singh for TRAI (2003), the following are the regulatory issues addressed by the TRAI. USO Comprehensive USO Policy in place. Interconnection Issues have been addressed through various policies and directives; one of the few countries to publish RIO; a comprehensive IUC regime is in place. Tariffs Tariff Order & Amendments; de-regulation of cellular and Long distance tariffs; close monitoring of tariff to protect consumer interest. Licensing Based on TRAI recommendations, open competition has been introduced in all sectors with frequency limitation. QoS End user Quality of Service regulation; publicly available customer survey. Competition Structural separation, Accounting separation, RIO by service providers with significant market power, Merger issues.
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Now, a discussion of what needs to be done further to incorporate liberalisation of the spectrum in order to efficiently manage infrastructure and develop is presented. The discussion regarding liberalisation is based on the approach proposed by the OfCom for the UK Telecom industry (2009). 5.4.1 Liberalisation The process of liberalisation should start with a proposal from the industry for a set of spectrum trades that would address potential distortions of competition arising from liberalisation of the GSM and CDMA spectrums, and promote efficient use of these spectrums, for the benefit of consumers. At the same time it is concerning that some approaches to liberalisation might have the potential to distort competition and result in these benefits not being fully realised. Therefore the approach to be taken to liberalisation of these bands should be holeproof in order to ensure that the approach is delivering what is intended. Liberalising 900-1800 MHz spectrum further is particularly important to consumers and citizens because it could allow operators to offer faster and more reliable mobile services. Both bands, 900 MHz and 1800 MHz, could provide additional capacity for mobile service and mobile broadband in the future, helping operators to offer more VAS and megabytes per month to more consumers. Such changes could bring considerable benefits to consumers of communications services, by significantly improving mobile services without requiring many more mobile phone masts (OfCom Report, 2009). The 900-1800 and 1900 MHzs spectrums are currently used for, and restricted to use for, 2G mobile services (GSM) that is the provision of voice, text and lower speed data services. Liberalisation would allow it to be used for better services, including mobile broadband using 3G (in particular UMTS) and other technologies. The licensing of these spectrums should also be managed properly. Invitation of any foreign operators as fresh entrants or in the form of tie-ups with incumbent operators
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Mobile Development Strategies in India should also be planned as foreign investment in the Indian Telecom sector is prominent (Figure 5.8). Figure 5.8 Pro-Investment Climate
Source: Singh, for TRAI (2003) 5.4.2 Factors to consider for liberalisation It should be considered whether simply liberalising the spectrum in the hands of the existing holders would secure efficient use of this spectrum and promote competition between providers, or whether it might be appropriate to take another approach to ensure the benefits to consumers are fully realised. It also needs to give regard to significant external developments in the mobile market and other spectrum policy developments which may be relevant to a decision on this issue. It is necessary for member authorities in states to examine whether the existing assignment of the 900-1800 MHz band to the competing mobile operators in their 60
Mobile Development Strategies in India territory is likely to distort competition in the mobile markets concerned and, where justified and proportionate, Member States must address such distortions in accordance with the appropriate regulations regarding radio spectrum distribution. In other words, the draft would require Member States to look at existing spectrum holdings in the 900 MHz band and to address distortions of competition by amending existing spectrum holdings. The chief aim should be to: Promote competition. Secure the optimal use of the spectrum. When identifying which, among several options which would meet the Directive requirements, is the best option for the Indian Mobile Industry, TRAI will also have particular regard to its duties to secure the optimal use of the electromagnetic spectrum when carrying out its functions and to promote competition. The option which best meets these objectives will also meet its overarching duty to further the interests of consumers and citizens in these circumstances. In addition, TRAI has to ensure that the option identified is nondiscriminatory, proportionate and transparent. It should carefully consider stakeholders responses as well taking into account important external developments, both developments in the mobile market and in spectrum policy. It should set out a linkage of the most important market and spectrum policy developments relevant to the issues being considered, including the growth of 3G, mobile broadband and developments affecting the future availability of 1800 MHz spectrum for mobile services.
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5.4.3 How to Liberalise
Based on the literature review which highlights the sunk nature of the industry, the following options need to be evaluated before making any decisions and subsequent investment:o The availability of 1800 MHz spectrum as an alternative to 900-1800 MHz spectrum. o The differences in costs in deploying 3G networks using different frequencies. o The impact of changes in competitive intensity in the provision of mobile services. o The cost of clearing and releasing the 900-1800 spectrum for rural usage this would determine the price bid. The following option of liberalising spectrums is presented in the Table 5.2.
Table 5.2 Liberalisation of Spectrum through Incumbent Operators
In the case of the 900-1800 MHz, and 2.1GHz spectrum bands, the research proposes that a regulatory solution would comprise the following key steps to address potential distortions of competition and facilitate the efficient use of these
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Mobile Development Strategies in India spectrum bands for the provision of mobile services, for the benefit of Indian consumers: a) To prevent the technology restrictions that currently apply to these bands: in the first instance to allow 3G (UMTS) technology to be used in the 900 MHz and 1800 MHz bands; in the longer term to allow any technology that will not cause harmful interference to neighbouring users to be deployed in both these bands and the 2.1GHz band. b) To allow spectrum in these bands to be traded, so that those who can make best use of this spectrum have the opportunity to gain access to it through commercial negotiation, rather than regulatory intervention. It is also proposed monitoring transfers of spectrum in the 900 MHz band to ensure that there is no adverse effect on competition arising from any trading of this spectrum. c) To require the current holders of the 900 MHz spectrum to give up a proportion of the 900 MHz spectrum they currently hold (2 x 2.5MHz each, out of a current total of 2 x 17.4MHz each) to allow other operators to have access to this particularly important spectrum. Two years of time should be given in which to clear and release this spectrum a period that is judge long enough for them to be able to clear this spectrum without causing significant disruption to existing customers (OfCom, 2009). It is also proposed holding an auction for the released spectrum (to be awarded as a single lot of 2 x 5MHz) as soon as practicable likely to be about a year in advance of the spectrum becoming available with the existing players prohibited from acquiring the released spectrum through this auction. d) To review the level of Administered Incentive Pricing (AIP) applying to the 9001800 MHz spectrum so that in future it reflects the full economic value of this spectrum post liberalisation, so as to encourage its efficient use.
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5.5 Future Developments in the Industry When considering the implications of liberalisation an important consideration is the extent to which there are other bands available which would offer similar benefits. although international negotiations had identified 798-862 MHz as potentially suitable for mobile, and that in pure propagation terms the respective frequencies are similar, there were uncertainties over many aspects of its potential future use for mobile services. The advantages associated with use of 900 MHz spectrum stem from the physical characteristics of the frequencies. Lower frequency signals, such as those at 900 MHz, can travel further and pass through walls more easily than higher frequency signals, all other things being equal. For operators, this may translate into fewer masts, as each mast can cover a bigger area, saving costs. For consumers, this may translate into better services, especially indoors, because signals using those frequencies travel better through walls. We also now believe that operators without 900 MHz spectrum may be able to acquire and use 800 MHz spectrum and that this spectrum may in time be able to offer comparable services at comparable costs as 900 MHz spectrum.
It is important that the industry keeps track with the latest developments to chase the Indian dream of growth. The following developments in the market after liberalisation should also be considered:The demand for mobile broadband and attention from operators, market analysts and consumers has increased significantly. A number of factors seem important, including: The increased take-up of mobile broadband dongles;
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Mobile Development Strategies in India Handset developments that make internet access easier; Data tariffs, particularly for dongles, becoming cheaper and clearer; Mobile network operators upgrading their networks to deliver faster and more reliable mobile broadband; The UMTS 900 roll-outs outside India. Other Development Although dongles seem to be driving the increase in demand for mobile broadband, 3G and HSDPA handsets, and other smart-phones, are also increasing in range and usability. The user experience of browsing the internet from a mobile device has improved dramatically in the last few years. Several components of mobile handsets have improved by a very large margin, and simultaneously: screens, batteries, memory, user interfaces and processing power. The most powerful handsets, providing the best mobile broadband user experience, are still relatively expensive and limited to a small proportion of mobile subscribers. However, past experience suggests that the performance of todays high-end devices will become the norm within a few years. In addition, software developers are beginning to invest significantly in applications for mobile phones which may support improved usability of mobile internet for consumers. UMTS 900 networks and handsets are now a reality There continues to be a lack of momentum, both with UMTS 1800 networks and UMTS 1800 handsets. We understand that vendors can produce UMTS 1800 equipment if necessary, but that to date, demand from operators has been almost non-existent.
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Next generation technologies continue to develop Next generation wireless technologies, including Long Term Evolution (LTE), which is designed to deliver existing mobile broadband services with increased quality, speed and capacity at a lower cost to operators (Ericsson, 2007) and WiMAX, developed with a strong input from the internet and IT sectors and optimised for data services (with voice over IP being one of the potential data applications) and equipment is ready and available now for operation in unpaired (TDD) mode, have continued to develop since our previous consultation. Market developments such as the significant growth in take up of mobile broadband services and network sharing arrangements should also be considered. Technology developments, including LTE and WiMAX developments. Developments in spectrum availability, in particular the spectrum made available through digital switchover (800 MHz spectrum) and the spectrum coming to market through the 2.6 GHz award are relevant to our discussion of potential alternatives to both 900 MHz and 1800 MHz spectrum. Evidence about the rapid take-up of mobile broadband services is striking. For example, by July 2008, nearly one quarter (23 per cent) of people who access the internet away from home or work said that they did so using a USB dongle or data card almost as many as did so using their mobile phone (31 per cent) (Communications Market Report 2008). If these patterns of take-up become widely established, mobile broadband services could well become a significant influence in the wider picture of the broadband market, and potentially act as a similar catalyst for innovation and market development. However, currently there remains considerable uncertainty about the role mobile broadband will play and to what extent it will fulfil its potential. Nonetheless, given the potential importance of mobile broadband for the mobile sector and for consumers and citizens, it seems particularly important to encourage the efficient use of spectrum for mobile broadband services and their competitive provision. 66
5.6 Conclusion The chapter clearly showed how technology and competition is affecting the Indian mobile industry. This analysis was then extended to stuffy the interconnection between these variables and infrastructure development. The regulatory importance of these factors was identified and the process of liberalising the spectrum was presented based on a developed model for the UK by OfCom (2009). If India wants to board the train of expressive growth and live up to its potential of competing with countries like China to the executive economic position, it has to consider the development if communication and the future as national priority and act on it soon.
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Appendix 1 GSM refers to Global System for Mobile Communications is a cellular network, which means that mobile phones connect to it by searching for cells in the immediate vicinity (GSM Associations, 2008). CDMA refers to Code Division Multiple Access, which is a channel access method utilized by various radio communication technologies. CDMA employs spreadspectrum technology and a special coding scheme (where each transmitter is assigned a code) to allow multiple users to be multiplexed over the same physical channel. Quality, of mobile services, means how good the coverage is and how fast the service is, in terms of the data rates consumers actually experience (considering only the speed of the mobile network itself, rather than any particular handset or influence of applications). 800 MHz spectrum means the spectrum in the upper sub-band to be released as part of the digital dividend, which the report considers later on. 900 MHz spectrum means 880.1 MHz 914.9 MHz paired with 925.1 MHz 959.9 MHz. 900 MHz incumbent operators refer to operators that are using this. 1800 MHz spectrum means 1710. MHz 1781.7 MHz paired with 1805.1 MHz 1876.6 MHz. 1800 MHz incumbent operators refer to operators operating in this band. 2100 MHz or 2.1 GHz spectrum means 1920 1980 MHz paired with 2110 2170 MHz for frequency division duplex (FDD) and 1900 1920 MHz for time division duplex (TDD). 2100 MHz operators refer to H3G, Orange, O2, T- Mobile and Vodafone.
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2600 MHz or 2.6 GHz spectrum means 2500 2690 MHz. 2G spectrum means 900 MHz and 1800 MHz spectrum. 3G refers to UMTS technologies comprising the W-CDMA radio network technologies standardised by 3GPP. GPRS refers to General packet radio service (GPRS), a packet oriented mobile data service available to users of the 2G cellular communication systems global system for mobile communications (GSM), as well as in the 3G systems. UMTS refers to Universal Mobile Telecommunications System, which is one of the third-generation (3G) mobile telecommunications technologies, which is also being developed into a 4G technology. Mobile broadband refers to mobile data services which can only be provided, or are best provided, using 3G technologies and beyond. W-CDMA means Wideband-CDMA, the modulation and multiple-access scheme used by 3G UMTS technology. WiFi Phones : A relatively new type of mobile phone. These phones deliver calls over wireless internet networks as opposed to traditional CDMA and GSM network.
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Appendix 2 Mobile Operators (IndiaFocus, 2008)
Aircel Popular provider in Tamil Nadu Airtel Airtel comes to you from Bharti Cellular Limited - a part of the biggest private integrated telecom conglomerate, Bharti Enterprises. Bharti Enterprises has been at the forefront of technology and has revolutionized telecommunications with its world class products and services. Bharati-AirTel is a GSM mobile phone service provider in worldwide and the surrounding areas. It offers various pre-paid and post-paid plans, as well as value added services.
Alcatel Alcatel provides communications solutions to telecommunication carriers, Internet service providers and enterprises for delivery of voice, data and video applications to their customers or employees. Alcatel brings its leading position in fixed and mobile broadband networks, applications and services, to help its partners and customers build a user-centric broadband world.
ASC ASCEL is a multi venture corporate heralding the "convergence" era in our country, focusing on nationwide retailing of TIME (Telecom, Information & Learning, Media, Entertainment) products & services, satellite and digital wireless communication ventures for provision of infrastructure, services and solutions among other initiatives.
Bharat Sanchar Nigam BSNL is the largest Public Sector Undertaking of India and its responsibilities include improvement of the already impeccable quality of telecom services, expansion of telecom network, introduction of new telecom services in all villages and instilling confidence among its customers.
Bharat Sanchar Nigam Ltd, Shimla (HP) BSNL provides World Class Telecom services to millions of Indians spread throughout the Country. 70
Bharti Enterprises Established in 1985, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit, ranging from being the first mobile service in Delhi, first private basic telephone service provider in the country, first Indian company to provide comprehensive telecom services outside India.
BPL Mobile Having started its services in 1995, BPL Mobile operates in Mumbai, Maharashtra, Goa, Kerala, Tamil Nadu and Pondicherry- with a network spanning across 209 cities currently. Today, BPL Mobile, India's premier mobile phone service provider serves over 2 million happy and satisfied wirefree citizens across all our markets. It provides cutting-edge solutions, services and products in the broader areas of Enterprise Communications, Digital Consumer Electronics and Information Technology, with a dedicated focus towards hardware and software solutions for highly competitive global markets.
Escotel Mobile Servicing Kerala, UP and Harayana Essar Group The Essar Group is one of India's largest corporate houses with interests spanning the manufacturing and service sectors in both old and new economies: steel, power, shipping, constructions, oil & gas and telecom.
Hamirpur Telecom This website provides information about Hamirpur Telecom and its various services.
Handygo Handygo is a leading global wireless solution provider offer diversified entertainment related services and mobile space based solutions.
Hutch One of the bigger players in India. Bought in 2008 by Vodafone of the U.K. Some of the figures shall refer to them as Hutch.
Idea Cellular Servicing Mumbai
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IndusMobile Communications IndusMobile provides technology, media and consulting to help companies effectively communicate with mobile consumers. They also provide Bulk SMS Gateway Solutions.
JP Mobile, Inc. JP Mobile is a solid, well-established company, a true pioneer in the enterprise mobility market. They are a privately held company with solid financial backing. They offer SureWave Mobility Suite, a comprehensive wireless mobility solution for enterprises, carriers, system integrators and independent software vendors.
MTNL Delhi MTNL was set up on 1st April, 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of Indias key metros Delhi, the political capital and Mumbai, the business capital of India.
Reliance Infocom The Reliance Group founded by Dhirubhai H. Ambani (1932-2002) is India's largest business house. Reliance Infocomm will offer a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services.
Shyam Telecom Shyam Telecom is pioneer in telecom industry. It has revolutionized the industry with development of innovative products. Shyam group commenced its operations in 1974 to introduce up-to-date telecommunication technology.
Spice Telecom Spice Telecom the brand name of Spice communications Limited is presently operating Cellular Phone Services in the states of Punjab and Karnataka. Considered as one of the best providers of mobile telephony in India. Spice brings you quality cellular services at attractive prices. These include Auto Roaming facility, special services like voice-mail, and Spice Plus, and the option of charging your cell phone account with pre-paid Spice currency, the easiest way to pay.
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Tata Indicom Tata Teleservices ltd offers its products and services to customers across India under the name of "Tata Indicom". TATA Teleservices limited is India's leading Private Basic Service Operator.
Telixo Promoted by Sabeer Bhatia, this product enables the user to access the PC through a mobile
TouchTel A Bharti Group company offering landline, DSL in metros Videsh Sanchar Nigam Limited VSNL was incorporated on April 1, 1986 under the Indian Companies Act , 1956 to take over the activities of the erstwhile Overseas Communication Services (OCS). The company operates a network of earth stations, switches, submarine cable systems, and value added service nodes to provide a range of basic and value added services.
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References
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Mobile Development Strategies in India Cave, M. (2007) Essentials of Modern Spectrum Management. Cambridge University Press
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Mobile Development Strategies in India Available at http://infotech.indiatimes.com/articleshow/msid-1701107,prtpage-1.cms Ros, A. (1999), "Does Ownership or Competition Matter? The Effects of Telecommunications Reform on Network Expansion and Efficiency" Journal of Regulatory Economics, 15: 1, pp. 65-92. Saunders, M.N.K, Louis, P. and Thornhill,A (2003) Research Methods for Business III edition, Financial Times/ Prentice Hall. Singh, Rajendra (2003) Competition: Good practices in India, TRAI Report Telecommunication, tele- and communication, New Oxford American Dictionary (2nd edition), 2005. Telecom Industry Revenue to Reach $1.2 Trillion in 2006, VoIP Magazine, 2005. Van Maanen, J. (ed.), Qualitative Methods (re-issue of Administrative Science Quarterly, 24, 4, 1979). Beverly Hills, CA: Sage Publications, 1983, 247-268. VSNL, 16th Annual Report, 2001-2002, p.5. Wallsten, S. (2002), "Does Sequencing Matter? Regulation and Privatization in Telecommunications Reforms" World Bank Policy Research Working Paper No. 2817. Wallsten, S. (2001), "An Econometric Analysis of Telecom Competition, Privatization, and Regulation in Africa and Latin America." Journal of Industrial Economics, 49: 1, pp. 1-20. Wellenius, B. and P. A. Stern (1994), Implementing Reforms in the Telecommunications Sector: Background, Overview, and Lessons, in Wellenius, B. and P. A. Stem, (eds.), Implementing Reforms in the Telecommunications Sector. Lessons form Experience. Washington, DC: The World Bank.
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