India Case Study

Posted on September 17, 2004  /  0 Comments

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Teledensity: 2% in 1999 to 7% in 2003. Telecom revenues are expected to triple to $24 billion by 2005-2007, driven primarily by wireless. Wireless accounts for 40%, up from 7% in 2000.

Payal Mallik discussed the transformation of the Indian industry from a static monopoly to a dynamic multiple provider system.

“Regulatory effectiveness depends on the monopoly wielding power of the incumbent. The stronger this is, the greater the chance of undermining regulatory independance. Regulation is required to safeguard against arbitrary government action and collusive behaviour between the government and the incumbent monopoly. Privatization per se is not the thing, it is privatization with regulation. The task of the regulator is to protect industry from the government, and consumers from both (paraphrase).”

(From text) “In India, like in many other developing countries, the abysmal performance of the state-owned telecommunications service provider and the increasing requirement to attract capital for the upgradation of the sector were the major drivers for the liberalisation of the sector. Moreover, technological changes in this industry made less tenable the argument that telecom is a natural monopoly. The end of the Indian planned economic development, which was inspired by socialist principles, lead to across the board policy changes the most important of which was the liberalisation of the industrial policy with a State commitment to introduce competition in some industries that had been previously served by government-owned monopolies. Telecom was one of them. By the early 1990s, it was eminently clear that the problems of government failure in most of the infrastructure industries made the remedy to absorb these industries into the state’s eminent domain worse than the disease of market failure. Simultaneously, there emerged a renewed faith in the forces of competition and the market. It was realised that provided the correct institutional foundations and properly designed mechanisms, greater reliance on competition and private investment need not be inconsistent with more equitable access. The more nuanced modern view that was gaining limited acceptance was to allow private provisioning of these services subject to independent regulation, so as to maximize social welfare, howsoever the political process frames it.”

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