Telecom equipment costs must be lowered
BS Bureau
India has the sixth-largest fixed-line telephone network in the world, with an estimated 35.3 million fixed lines at the end of 2001.
However, cellular subscription were only 5.5 million at the end of 2001. Total telephone connections are expected to increase from 36.3 million in March 2001 to 46.1 million in March 2002.
Fixed-line installations increased at 22.6 per cent during 2000-01 to 32.7 million in March 2001, and are expected to increase 22 per cent to 39.9 million by March 2002.
Cellular subscription increased 90 per cent during to 3.6 million in March 2001, and is expected to increase 75 per cent to 6.2 million by March 2002.
Additional cellular subscribers are expected to account for 27 per cent of additional telephone connections during 2001-02, as compared with 22 per cent during 2000-01.
Cellular subscriptions are expected to account for 13.5 per cent of telephone connections in March 2002, as compared with 9.9 per cent in March 2001.
Key Issues: The provision of telecommunications services is limited to a small minority of the population. As of end-2001, telephone penetration in India was 3.9, as compared with 24 in China.
An estimated 30 per cent of the 607,491 villages did not have access to a public telephone. Telephone penetration is expected to increase to 4.4 by March 2002. Further, all villages are expected to have access to a public telephone by March 2002.
As of March 2002, government-owned and/or controlled operators -- Bharat Sanchar Nigam Ltd, Mahanagar Telephone Nigam Ltd -- are expected to control nearly 99 per cent of the market for fixed lines, and 86 per cent of all by telephone connections.
However, private operators dominate the cellular services market with a subscriber market share of 98 per cent at end-2001.
An overwhelming proportion of telecommunication service revenues in India are still generated by BSNL, MTNL, and Videsh Sanchar Nigam Ltd. These operators enjoy high operating and net margins.
By comparison, most of the new basic and cellular operators continue to report losses because of initial high licence fee payments, high capital expenditures and long gestation periods for infrastructure projects.
Revenue growth has slowed down in fixed services because of price reductions over the past three years, high growth in cellular subscription, and an increasing shift of traffic to cellular networks. Decline in prices of cellular services over the past three years have made these networks more competitive vis-a-vis fixed networks.
Regulatory decisions that can promote inter-network competition include allocating additional frequency spectrum to cellular operators, implementation of a calling-party-pays regime, and setting fair and non-discriminatory interconnect rates.
Factors that can be addressed in the Budget: In view of the extremely low penetration, a reduction in costs (and prices) is likely to make telephone services more affordable. Reduction of Customs duties on imported equipment will reduce capital costs. The reductions in Customs duties and abolishment of a 10 per cent surcharge on Customs duties in the previous budget had resulted in reduced equipment costs.
Telecommunication service providers are able to generate savings in project costs from extension of concessional Custom duties of 5 per cent on specified equipment up to March 31, 2002. There is a need for extension of concessional Custom duties of 5 per cent on specified equipment beyond March 31, 2002. Such an extension would benefit both existing and new operators.
Although Customs duties on cellular phones have been reduced in previous budgets, there still exists a wide differential between the price of an imported cellular phone and a cellular phone purchased from the grey market.
Although, cellular phone prices are declining steadily, a reduction in effective import duties will lead to further price declines and make a cellular subscription more affordable.
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