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Our Corporate Bureau
New Delhi, Jan 24: The group on telecom seems to be veering towards duopoly in basic telephone services in each circle instead of allowing multiple operators.
The draft discussion paper released by group on telecom lists out in detail the rationale for duopoly in fixed service. The reasons given are that market size supports duopoly, guarantee of the market to attract private investment, frequency spectrum constraints, scenario in developed countries especially Europe and certain factors which apply to India.
Since the basic service telecom projects are highly capital intensive, the break-even is normally achieved only in the sixth or seventh year of operation. Even with a single private operator in addition to department of telecom (DoT), the projects of private operators are reportedly unviable in the beginning. Thus, if more than two operators have to share the cake, the size of each wil be much smaller making the projects all the more unviable.
The draft paper says that operators tend to build uptheir own infrastructure not only for carriage of their intra-traffic but also of inter-operator traffic (inter-connection linkage). In case a multi-operators system is put in place, it would lead to avoidable duplication of building of infrastructure of transmission and other linkages.
Duopoly, to a certain extent, guarantees a market to the service provider on the basis of which the provider makes a reasonable business plan predicting a safe rate of return on its investment. In an uncertain market if multipoly is implemented, private investors may not come forward with investments and financial institutions may also become reluctant to finance the projects.
Frequency spectrum is a scarce resource which needs to be carefully planned and allocated. Although the provision exists for last mile linkage to the subscribers (local loop) by way of optical fibre or wireless in local loop (WLL), more often than not, the operators opt for WLL technology initially since laying of cable involves a lot of time besideshaving other constraints.
Therefore, in the multipoly scenario, there will be constraints of allocation of frequency for WLL. Besides this, frequencies are also required for transmission links, which will pose further problem if the number of operators is large.
The multipoly system will lead to stiff competition. Operators will target the creamy high revenue areas of country. The profits will also tend to decline and there will be a tendency to neglect universal service obligation (USO) and development of communication in hinterland will be affected severely even after getting reimbursement from USO fund.
The draft paper cites the example of several European countries which till recently had monopoly in basic telephone services except UK. The UK commenced the competition with duopoly which continued for about seven years with British Telecom as the dominant operator. France, Germany and some of the other European countries have opened up their telecom sectors but not many operators have come in asyet.
The draft paper has also cited several India specific features which justify duopoly. The teledensity in rural areas is extremely low which requires massive investment in rural areas. In case number of fixed service providers are large, the tendency will be to focus on urban areas and neglect the rural areas.
The paper states that WLL is still not cost effective and provision of fixed service will require access to each individual or house-hold by cable either in form of conventional cable or cable TV with special equipment. Digging of roads by multiple operators is not good environmentally and will cause inconvenience to public.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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