Application of Competition principles
to Interconnection and Access
[Session – 7]
Training on Competition and Changing Market
Conditions: Impact on ICT Regulation
Addis Ababa, 6th – 9th November, 2007
By
Pradip Baijal
Director
NOESIS Strategic Consulting Services
[Former Chairman, Telecom Regulatory Authority of India]
Performance – Telecom sector
•
We do not meet targets very often.
•
Aggressive reforms in some sectors have helped us
change this perception about India.
Target set for Teledensity
National Telecom Policy 1999
2005
2010
-
7%
15%
in Target achieved after reforms kick
started in 1997
In 2004
In 2006
Likely for 2010 at present rate of
growth – 40-50%
2
Impact of Reforms started in 1991
• Till 1991, the Government was the monopoly producer and
fixed administered prices for steel. We gave up after 1991 and
allowed private investment. Today there is a huge growth in
the sector.
• In 1983, Government used to fix cost-plus prices for fertilizer
produced in each each factory. We still do. There is not much
growth and ever increasing subsidy outgo.
• Telecom sector had tariff based regulation with cost plus
pricing till 2003 - We gave up in favour of competition
pricing. Look at the results.
3
. . .Impact of Reforms started in 1991
• Automobile sector was rigorously licensed.
We gave up
licensing in 1991 phase of economic reforms. All the car majors
moved to India.
Doomsayers predicted huge NPAs for Indian
Financial Institutions. All companies created their own markets.
We produced more cars per year than China in not too distant
past. We are the highest exporters of automobile ancillaries in
the world today – in a booming sector.
• Government monopoly was given up in the airlines sector
through the backdoor initially – in 1993. We have the highest
growth in this industry today. Lowering air-fares and reforms in
the road sector have forced the monopoly Railways to reform.
4
. . .Impact of Reforms started in 1991
• Despite unbundling, power sector continues with cost-plus
tariffing and almost a monopoly government supply and
distribution even today.
• We have huge slippages in achievement of targets – almost
compromising our growth story.
• Utopia is perpetually promised by the sector-always five years
later.
• There is a hope now, with competitively bid mega projects. In
one project private players bid around 3 cents/unit. The
incumbent Government company bid 5.3 cents/unit.
• Let us come back to telecom sector.
5
Telecom Growth
– The Changing Scenario
25
Tele-density
24
20
15
11.5
10
6
5
0
1.94
0.02
1998
1948
Government Monopoly Supply
2005
2003 2007
II III IV
Year Ending
Increasing
competition
6
China always Outperforms us - Sometimes we do
Mobile Telephones
Mobile Subscribers (In Millions
450
400
350
300
250
China
200
India
150
100
50
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18
Year
Mobile subscribers (in Millions)
1
2
3
4
5
6
7
8
9
10
11
China
0.003
0.01
0.02
0.1
0.2
0.6
1.6
3.6
6.8
13.2
24
India
0.03
0.22
0.8
1.1
1.6
3.1
5.5
10.5
28
48
80
China 1 Year
India 1 Year
: 1988
: 1995
Year 20 : 2007
Year 13 : 2007
12
43
110
13
85
14
15
16
17
18
145
207
279
335
388
190
7
Growth in Mobile Subscriber base with fall in tariff
Effective charge (in Rs. per min
16.00
200.00
190.00
180.00
170.00
160.00
150.00
140.00
130.00
120.00
110.00
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
14.00
Telecom Tariff
Order
12.00
3rd & 4th
cellular
10.00
WLL
introduced
8.00
6.00
4.00
2.00
0.00
Mar-98
¾
¾
¾
¾
¾
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Sep-05
Dec-05
Dec-06
Mobile subscriber base (in Million
18.00
Introduction of Life-time
Scheme by Opertors
Mobile Growth and effective charge per minute
Fixed
Mobile (Rs./min)
Mobile Subscriber base (Millions)
Lowering of ADC
from 30% to 10%
CPP
of sector revenue
introduced
NTP '99
Dec-07
TRAI facilitated huge reduction in forborne tariffs in 2003-05 through competition
Measures indicated in boxes – and by moving from cost plus regulation to
competition regulation in 2003
Mobile growth stepped up significantly – once mobile and fixed line tariffs became
equal
Mobile then became the telephone of the common man
We internationalised in the network our main strength – our numbers
8
Restricted Coverage of Mobile Networks was
a problem till recently
• In 2004-05 Network (Population) Coverage was
25%.
• Network (Population) Coverage by 2006 – 40%.
• Now with sanction of common mobile towers
under USO for rural areas will increase network
coverage to 85% before 2010.
9
Cost of Power
Cost in paise / unit
Efficient
Regulation
Inefficient
Regulation
Remarks
65
130
The costs can go down with increase
in legal consumers & benchmarking
of costs and more generation, a
product of distribution reforms and
open access.
Local
5
8
Interstate
13
15
By inviting competition & bring
down tariffs
Inter-region
15
35
Cost of generation
at bar/pithead
120
250
Competitively bid Sasan project and
other cost plus tariffs in new stations
demonstrate the difference
Cost of Distribution
loss (converted into
appropriate cost of
additional power)
35
75
12% loss in efficient and 25% loss in
inefficient system. Loss is 1% in
private distribution in G. Noida.
253
513
Cost of Distribution
Cost of Transmission
Total
10
THANK YOU
11