Can Value Addition Be Reality In Indian Telecom Market?

Vasu Reddy from Chicago
vasureddy@aol.com

spectrum allocations as there are many global operators willing to invest long term and would like to participate in the Indian market.  It is fallacy to believe that the new operators will be more susceptible to longer periods on ROI.  When the number portability is adapted across the networks the user will simply go to where the value for his money is and will never be tied to an old or new operator.  Presuming that the newer technologies and value additions will be common place, the more choice the better the consumer.  Only the fittest of the operators who provide value and quality will get the subscribers.  All the global markets have demonstrated this formula, and the old operators in India should be vigilant to this dynamic of the mobile market.   Open the licensing process for honest bids and let the players spend freely on both the acquisition of spectrum and building the network.

Revenue sharing between the operators and GOI can be implemented through a simplified tax structure without much debate if it is across the board for all communications services.  The current taxes and revenue sharing models were put in place for operations implemented in 1990s and did provide adequate return for the GOI while parting with a monopoly and valuable spectrum.  In today’s environment they are outdated and contentious.  Now that the market has been maturing (may be less than 50% of what it can eventually be) and continues to grow beyond anyone’s reasonable expectations, it can be a wise idea to have a blanket Universal Communications Tax on all purchases made a communications user.  It can be one fee for all use of communications, and every time a purchase is made by an individual, groups, business or any type of person or entity, charge a fixed percentage of the sale that is collected at the point of sale and paid to the GOI.  That should eliminate the imbalances of fees collected on each type of service and eliminate the bias that exists.   Regular phone service, Value added services, new innovations, VOIP, broadband, mobile, satellite, WIFI, WIMAX and everything else will be taxed at the same rate and GOI gets exactly same percentage of the sale on all communications use.

Simple mathematics can be applicable for licensing, auction and uniform percentage of the sales as GOI revenue.  When someone bids and acquires spectrum or a license, they will have no value by just holding it.  The spectrum or license has to be operated at the highest sales that it can generate, essentially requiring infrastructure to promote sales, and with sales revenue for GOI.

By Simplifying licensing process and revenue management it will further allow for more innovative partnerships and investment into the communications industry.  The positive changes will not hurt the incumbents as they already have a great deal of value with their spectrum and installed user base.  The newer entrants will have a level playing field with uniform rules and clarity with operating guidelines.  Both the old and new operators will benefit from a single type of revenue sharing or tax on the sales, and GOI with a lot more revenue because of the innovations with additional revenue sources.

India is unique in its own corporate structure.  It has started to selectively shed the monopolies and licensed industries (“for sure not completely done”).  India already has created new heavyweights in Telecom who don’t have roots or dynasties.  It was possible because of the quick transformation on Telecom industry from a monopoly to a competitive market.  Even today majority of the Telecom services belong to big names in the Industry, with some consolidation already completed.  Foreign players such as Vodaphone have already priced the Indian market to global standards, and Hutchinson’s exit from India is not surprising.  But the Indian grown Telecom Majors are a model of wealth creation in rapid time which probably was not seen in any market forecasts.  The market values derived by the Telecom companies are from Indian consumer’s adaptation to utility of communications, and clearly reflects the possibilities of such vast growth in value creation.  By simplifying the rules of engagement it will only encourage more of such value creation, along with innovation, technology and value addition.

If Tata and Virgin, both global brands and formidable global corporations are having difficulty with the regulations to operate value added services, it is inconceivable for a smaller player to operate in the same environment.  It is however possible to simplify the guidelines and generate more revenues for GOI, while making sure the consumers get value, quality and choice.  We just have to pick the best practices available in the global market to make value addition a reality in the Indian Telecom market.

March 5th 2008
Vasu Reddy
President
Optus Technologies, Inc.

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