Telecommunication is one of the fastest growing service industries in the world. While the accent of growth is one the value added service, such as e-mail, cellular phones etc in the developed countries. This sector is a crucial role in spurring growth, especially industrial and service, in any economy.
Multinational companies are investing in developing countries because of huge latest demand. Telephone penetration has reached saturation levels in the developed world. Telecommunication historically has been a state initiated and controlled sector in all countries. The last two decades has witnessed a restricting of the entire sector across the globe, in terms of privatization and competition. Opening up of economics and privatization in the developing countries has triggered influx of foreign capital and technology.
Telecom density is only 2 per 100, which is less than that of China (4.5 per 100) and the world average (10 per 100). Cellular penetration is also low at 0.1% compared to China (1.1%) and Malyasia (2%). To improve penetration will imply an investment of over Rs. 600 billion in next 5 years.
The industry had received the Telecom Policy of 1994 with enthusiasm. It was hoped that this would usher in a new era in the telecom Sector. Unfortunately, delays in implementation and resulting confusion have derailed the same. The initial enthusiastic responses to building have given way to litigation and subsequent delays. Out of the 22 circles made available to the private sector for basic telecom service, only 2 are operational after 5 years.
Despite all the delays, India has managed to take steps towards privatization and introduction of competition in basic telecom services. The government has announced a new telecom policy, which clarifies the future role of Department of Telecommunication. The new ISP policy will promote the use of internet. All this aims to promote investment in the telecom sector. The sector will undergo a dramatic transformation in the next 3-5 years.
The building process was also adversely affected by Himachal futuristic which submitted bids of Rs. 850 Bn for 9 licenses leading in an impasse. The solution formulated by the policy makers to copies number of licenses per company ostensibly, to avoid competition also led to confusion. The bids were made on optimistic demand estimates, which have not yet materialized. This has resulted in most of the companies facing cash losses. Most of the Indian partners do not have the strength to withstand long genestations and selling   out to their foreign collaborators. The new telecom policy has addressed this issue also.
A number of MNCs set up joint ventures for manufacture of telecom equipment in the last 3 years. The capacity builds up outstripped demand from the service providers. Due to resource crunch, DOT (the dominant single buyer) delayed placing orders. This resulted in an adverse impact on the bottom-line. A shake out local players (including some PSUs) who are technologically not competitive is bound to happen.
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