Table 3 - Structure of India's Telecommunications Monopoly

Until 1985, the Indian Telegraph Act of 1885 and the Wireless Telegraph Act of 1932 provided the legal basis for the central government's telecommunications monopoly. Under these laws, posts and telecommunications were combined in one P&T department run by the Ministry of Communications. In the late 1970s and early 1980s protests against poor service by subscribers, politicians, industrialists, and business leaders coincided with global and national pressure for liberalization. As a result, a parliamentary committee was established in 1981, which recommended numerous structural and service improvements. Under the advice of this committee, Rajiv Gandhi ordered the bifurcation of the Ministry of Posts and Telegraphs in 1985. A separate Department of Telecommunications (DoT) was established under the Ministry of Communications (see Table 3), and two supposedly autonomous public sector undertakings (PSUs) were created to expand, develop, and manage crucial segments of the Indian telecommunications system.

• The Mahanagar Telephone Nigam Limited (MTNL) was set up to run services in Delhi (the nation's capital) and Mumbai, formerly Bombay (the nation's commercial center), which together account for 25 percent of the nations phone lines.

• Telecommunication in the rest of the country continues to be run as a government department because of staff resistance to change.

• Videsh Sanchar Nigam Limited (VSNL) was set up to run international services.

• DoT was established as the exclusive, self-regulating provider of domestic and long-distance service.

Table 4 shows that DoT achieved significant success. From 1992-1996, DoT doubled practically every aspect of the telecommunications infrastructure in India, from the number of telephones in service to the long distance route kilometers. DoT did not, however, succeed in reducing the registered waiting list for telephones, and in 1994, the government acknowledged the need to liberalize India’s telecommunications market.

Table 4 - India's Network Development, 1992-1996

Source: Department of Telecommunications, India

The National Telecom Policy (NTP) of 1994 (see Annex IV) provided the basis for liberalizing the telecommunications market. It recognized the importance of liberalization and private sector participation as key elements of economic development. It also envisaged, among other things, the provision of basic telephone service by private companies that would compete with DoT; the establishment of an independent regulatory body; and the separation of DoT’s operational, policy, and ministerial functions.

The NTP has led to various liberalization successes. However entrenched bureaucracy, inefficient lobbying and poor public information campaigns have largely undermined the policy domestically, and demand for telephone lines in India remains extremely high (see Table 5). On the international front, the NTP has prevented India from making more liberal commitments to the WTO. India has refused to go beyond the NTP’s very limited policies in making commitments to the WTO Basic Telecommunications Agreement.

The NTP provides that:

• DoT will not be corporatized, which ensures that labor unions have no big issue to fight;
• Private sector companies will be issued licenses for statewide operations in competition with DoT for basic telephones. This establishes a duopoly system for 15 years in 21 statewide service areas (or circles);
• Mobile telephone services will be offered solely by non-DoT private sector companies, at least two in each service area. The initial license period is 10 years, extendable thereafter in five-year increments;
• Foreign equity participation will be allowed in public telephone operations of at least 500,000 basic telephone customers and 100,000 mobile phone customers;
• Private carriers must commit to public service obligations such as rural area coverage and public telephones;
• Interstate and international telecommunications will be the exclusive monopoly of DoT and its company VSNL.

Table 5 - Projected Demand for Telephone Lines in India

Source: Department of Telecommunications, India

The U.S. telecommunications industry (products and services) is the largest in the world, generating over US$ 450 billion in economic activity in 1996; employing close to two million U.S. citizens (Table 6); and contributing close to US$ 8 billion in taxes to the U.S. federal government (Table 7). Of the US$ 230 billion of manufactured telecom products, over $21 billion was exported (Table 8).

Despite the size and growth potential of the Indian telecommunications market, India imported only US$ 116 million, or 0.55 percent of U.S. telecommunication products in 1996 (Table 9).

Many sectors of the U.S. telecommunications market are approaching maturity and are increasingly forced to search for alternative telecommunications markets into which they can expand. India is in its primary stages of development and exhibits considerable latent demand for telecommunications products and services. As a consequence, the U.S. telecommunications industry is becoming increasingly focussed on its ability to take advantage of the unparalleled opportunities presented in India.

U.S. telecommunications companies have a strong interest in encouraging India to commit to all principles listed in the WTO BTA Reference Paper.

Table 6 - U.S. Telecommunication Products, Establishments, Revenue and Employment

Source: Handbook of North American Industry

Table 7 - Telecommunication Services Revenue

Source: U.S. Industry and Trade Outlook, 1998 and the Statistical Abstract of the United States (1998)

Table 8 - U.S. Exports of Telecommunication Equipment by Sector

Source: Telecommunication Industry Association

Table 9 - Top 10 U.S. Export Markets

Source: Telecommunication Industry Association

With a population fast approaching one billion and an underdeveloped telecommunications infrastructure, India’s unfulfilled demand for telecommunications products and services is huge. India is currently the world's second most attractive telecommunications products and services market:

• India’s teledensity is just 1.38 phones per 100 hundred inhabitants (one of the lowest teledensities in the world);

• 2.3 million people are on India’s registered waiting list for phones (it takes two or more years to get a phone in India);

• India has between 200,000 and 300,000 middle-class consumers;

• 97 percent of India's 600,000 villages have no telephone at all;

• The demand for basic telephones lines in India is expected to reach 31 million by 2001, 42 million by the year 2005, and 64 million by 2006, up from the current total of 9 million, and this will require an investment of at least $60 billion by 2006 (at current prices and import duty structures).

Table 10 - The Indian Telecommunications Market

Source: National Trade Databank

In addition to the pent-up demand for telecommunication products and services in India, Indian companies have a strong interest in the latest U.S. telecommunication products and technologies; U.S. telecommunication products and technologies are highly regarded in the Indian market place. But U.S. companies cannot afford to passively wait for market opportunities to open in India. French, German, Swedish, Japanese, Korean, Canadian, Australian, Singaporean, Finnish, and Hong Kong firms are all aggressively marketing their telecommunications products in India (see Tables 11-13 and Figure 1).

Table 11 – Non-U.S. Telecommunication

Companies Doing Business in India

Source: US Department of Commerce

According to the Economic Strategy Institute, the WTO Basic Telecommunication Agreement could lead to the creation of approximately one million more U.S. jobs over the next ten years—if all countries make additional WTO BTA commitments.

The Agreement will also save billions of dollars for American consumers. Executive branch agencies and the FCC estimate that the average cost of international phone calls will drop 80 percent, from an average of $1 to less than 20 cents per minute over the next several years. Every American with relatives or friends overseas and every business that operates internationally will benefit—if all countries make additional WTO BTA commitments.

Clearly, the biggest gains will come when countries with large unfulfilled demand make better BTA commitments. Accordingly, the United States should focus on opening the Indian market, the second largest economy in the world.

If U.S. firms were able to capture just 25 percent of non-U.S. telecommunications services markets around the world, U.S. firm revenue would increase by $72 billion, and approximately $3.61 billion in net income would be repatriated to the United States. If U.S. firms continue to maintain this share of foreign telecommunications services markets until the year 2005, U.S. firms would accumulate over $874 billion in revenues.

Table 12 - Largest 20 Foreign Telecommunication Markets (measured by export revenue), 1995

Source: International Telecommunication Union,

World Telecommunication Development Report, 1996-97

Table 13 - Investment in the Largest 20 Telecommunications Markets, 1995

Source: International Telecommunication Union,
World Telecommunication Development Report, 1996-97