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Telecom Sector in India

Essay by   •  September 29, 2016  •  Term Paper  •  9,570 Words (39 Pages)  •  533 Views

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Prakash Gopal Srinivasa - PGXPM

Executive Summary

This report provides an insight into the Global and Indian scenario in the Telecom sector. An analysis of the policies of the government, post liberalisation, and their effects on the Telecom Sector in India is done. Also the effects of the policies of the Government in this previously highly regulated Telecom Sector and the consequent number of entrants and the price wars being fought to maximise customer base and revenues generated is studied. Also, consequent to the increase in disposable income and high demand for data, how the sector has reacted to this and how the end user has benefitted and will continue to benefit have been detailed.

The methodology used for arriving at conclusions are qualitative study of the sector through data available and also extrapolation of the data for the past years for income, spending patterns to arrive at demand for the future.

Results of the data analysed show that the consumers in India will enjoy the cheapest voice and data charges for the decade to come. As technology changes wireline services are going to be marginalised by the wireless segment in the years to come. Also, the entering of new global players is very likely. There is likely to be a tying of the cost of handset, voice and data plans which may lead to changes in perception of the Customer as to which is really the most cost effective proposition for him leading to a perfect competition by the end of 2020.

The report finds that the sentiments towards the sector are very positive and that India may become the fastest growing Telecom destination in the next decade. The major area of concern remains policy framework of the Government.

Recommendations include adoption of free market for the Telecom sector and gradual disinvestment of the Public Sector operators viz. BSNL and MTNL.

The report does not take into account unpredicted technological changes and does not look into the other components of the Telecommunication Industry like manufacturing of handsets, laying of cables and towers etc.  Also Cable TV and allied sectors have not been considered.

Introduction:

The Indian Telecom Sector is an example, from an economic point of view, as to how a transition takes place from a Monopoly to an Oligopoly to a Perfect Competition. The Telecom Sector can be divided into two Wireless and Wireline depending on technology.

When Cellular Serviceswere relatively new in Mumbai in 1998-1999, the cost of an Outgoing Call of BPL used to be Rs. 11/Minute and Incoming Call of the same service provider used to be Rs. 4/Minute. Today incoming is free and outgoing is much cheaper. What has caused this and are we in the middle of yet another price war?

While the Indian Telecom sector is more than 165 years old, telephone services were formally introduced in 1881. The Indian telecom sector remained entirely under the Government ownership until 1984. In 1984, the Government set up an autonomous body - Centre for Development of Telematics (C-DOT) - to develop state-of-the-art Telecommunication technology to meet the growing needs of the Indian telecommunication network. The actual evolution of the industry started after the Government set up the Department of Telecommunications (DoT).

The entire evolution of the telecom industry can be classified into three distinct phases.

  • Phase I- Pre-Liberalisation Era (1980-89)
  • Phase II- Post Liberalisation Era (1990-99)
  • Phase III- Post 2000

Until the late 90s the Government of India held a monopoly on all types of communications. Until the industry was liberalised in the early nineties, it was a heavily government-controlled and small-sized market, Government policies have played a key role in shaping the structure and size of the Telecom industry in India. But today, the Indian telecom market is one of the most liberalised market in the world with private participation in almost all of its segments. The New Telecom Policy (NTP-99) provided the much needed impetus to the growth of this industry and set the trend for liberalisation in the industry.

In 1985, the Department of Telecom (DoT) was separated from Indian Post & Telecommunication Department. DoT was responsible for telecom services in entire country until 1986 when Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were carved out of DoT to run the telecom services of metro cities (Delhi and Mumbai) and international long distance operations respectively. DoT used to provide basic telecommunication services. This function was shifted to BSNL after its formation in October, 2000. Presently, the main powers and responsibilities of the DoT are:

  1. Formulation of policy, allocation of licence and co-ordination with matters relating to telephones, wireless, data, and telematic services and other forms of communications.
  2. Co-operation with international bodies on matters related to telecommunication
  3. Promotion of standardization and R&D in the telecom sector.
  4. Promotion of private investment in telecommunication industry
  5. Allocation of spectrum mobile and radio communications.
  6. Administration of laws
  7. Supervision over the functioning of telecom related Government organizations

Telecom Regulatory Authority of India (TRAI) was established on 20 February 1997 to regulate telecom services and tariffs in India. TRAI's mission is to create and nurture conditions for growth of telecommunications in India. One of its main objectives is to provide a fair and transparent environment that promotes a level playing field and facilitates fair competition in the market. TRAI regularly issues orders and directions on various subjects such as tariffs, interconnections, quality of service, and mobile number portability. In January 2016, TRAI ordered that consumers will be compensated for call drops.

All Telecom operators have to operate under the TRAI Guidelines. The DoT and TRAI while trying to ensure a level playing field create a barrier since TRAI regulates the tariffs and BSNL and MTNL being Public Sector Enterprises come under DoT. Hence, the Telecom Sector in India is not a perfect competition. But, considering that TRAI has allowed Mergers and Acquisitions and is slowly deregulating tariff, India is moving towards being a perfect competition.These steps of slow but steady deregulation are reflected in the growing Teledensity of India.

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