TELECOM SECTOR AND ECONOMICS

India, like many other countries of the world, have adopted a gradual approach to
telecom sector reform through selective privatization and managed competition in
different segments of the telecom market. To begin with, India introduced private
competition in value-added services in 1992 followed by opening up of cellular
and basic services for local area to private competition. The Telecom Regulatory
Authority of India (TRAI) was constituted in 1997 as an independent regulator in
this sector. Competition was also introduced in national long distance (NLD) and
international long distance (ILD) telephony at the start of the current decade.

Two state-owned public sector incumbents with a large existing subscriber base
dominate the fixed line service. As on December 31, 2001, the two Public Sector
Enterprises (PSEs), BSNL and MTNL owned 34.73 million Direct Exchange
Lines (DELs) against 0.45 million privately owned DELs. These two PSEs were
allowed belated entry into the cellular segment in the beginning of the present
decade. Consequently, their cellular subscriber base is tiny compared to the
private operators. Out of 7.3 million cellular subscribers in the country in June
2002, they had only 0.2 million subscribers.

Despite asymmetry in initial market endowments between public sector

incumbents and private operators, the act of opening up of the market unleashed
dynamism that was hitherto latent in the sector. This is evident from a number of
performance indicators. In terms of overall size of main telephone lines in
operation, India ranked 14th in the world in 1995. The rank improved to 7 th
position in 2001 (Table 1).

Table 1: Top 14 countries in the world in terms of number of main

telephone lines in operation

Country No. of lines Ranks (1995) No. of lines Ranks (2001)

in 1995 (‘000) in 2001 (‘000)
USA 159,735.2 1 190,000.0 1
Japan 62,292.0 2 76,000.0 3
Germany 42,000.0 3 52,280.0 4
China 40,705.7 4 179,034.0 2
France 32,400 5 34,032.9 9
UK 29,411.4 6 34,710.0 8
Russia 25,018.9 7 35,700.0 6
Italy 24,845.0 8 27,303.0 10
Korea, Rep. 18,600.0 9 22,724.7 11
Canada 17,567.0 10 20,319.3 12
Spain 15,095.4 11 17,427.0 14
Brazil 13,263.0 12 37,430.8 5
Turkey 13,215.7 13 18,900.9 13
India 11,978.0 14 34,732.1 7
Source: World Telecommunication Development Report 2002, ITU

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TELECOM SECTOR AND ECONOMICS

Network expansion in India was accompanied by an increase in productivity of

telecom staff measured in terms of ratio of number of main telephone lines in
operation to total number of full time telecom staff (Table 2).

One way of looking at the welfare gains to subscribers is to watch the trend in
prices for telecom services, whether such prices came down in the competitive
regime. What consumer ultimately pays includes rental as well as telecom tariffs.
Because of complications involved in summarizing differential rates applicable to
peak and non-peak hours, a convenient proxy for the change in telecom prices
could be constructed in terms of observed trend in revenue earned from
telephone services at constant prices expressed as a ratio of number of main
telephone lines in operation. Table 2 shows a significant decline in this ratio since
1995 in Indian fixed line segment. It may be noted that the National Telecom
Policy was announced in May 1994. Steps were intensified to introduce private
competition in the basic and cellular services thereafter. The beginning of the
declining trend in per line revenue at constant prices coincided with the period,
which witnessed emergence of competitive pressure in the sector.

Table 2: Trend in productivity and price

Number of main Telephone service
Year telephone lines in revenue at constant
operation per full-time prices(CPI 1995=100)
telecom staff per main telephone line
in operation (Rs. ‘000)

1991 15.58 9.13

1992 17.65 10.25
1993 20.32 11.04
1994 23.38 10.17
1995 28.45 9.23
1996 33.90 6.12
1997 41.89 5.62
1998 50.93 4.92
1999 62.97 4.24
Source: Computed from the data published in the Year book of Statistics:
Telecommunication Services, 1991-2000, ITU

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TELECOM SECTOR AND ECONOMICS

T R E N D IN P R O D U C T IV IT Y A N D P R IC E S
80 N O . O F M A IN T E L E P H O N E
60 L IN E S IN O P E R A T IO N P E R
40 F U L L T IM E T E L E C O M
VALUES

20 S TA F F
0
T E L E P H O N E S E R V IC E
1 2 3 4 5 6 7 8 9 R E V E N U E A T C O N S TA N T
Y E A R S ( 1 9 9 1 -1 9 9 9 ) P R IC E S (C P I: 1 9 9 5 = 1 0 0 ) P E R
M A IN T E L E P H O N E L IN E IN

GRAPH 1 showing the trend in productivity and prices

Table 3 shows the long run trend in supply and demand of DELs. The number of
DELs in operation (i.e., main line in operation) has been taken as supply whereas
demand has been computed by adding the number of subscribers in the waiting
list to the number of DELs in operation

Table 3: DEL: Supply and demand (millions)

Year ending Direct exchange
March 31 lines (DELs) Waiting List Demand
1981 2.15 0.45 2.6
1983 2.47 0.66 3.13
1985 2.90 0.84 3.74
1987 3.49 1.12 4.61
1989 4.17 1.42 5.59
1991 5.07 1.96 7.03
1993 6.80 2.85 9.65
1995 9.80 2.15 11.95
1997 14.54 2.89 17.43
1999 21.59 1.98 23.57
2001 32.44 2.92 35.36
Source: Indian Telecommunication Statistics 2002, Ministry of Communications,
Government of India.

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TELECOM SECTOR AND ECONOMICS

DEL: SUPPLY AND DEMAND

40

35
WAITING LIST,DEL AND TOTAL

30
DEMAND (million)

25

20

15

10

0
81

83

85

87

91

93

95

97

99
89

01
19

19

19

19
19

19

19

19

19

19

20
YEAR ENDING MARCH 31

Total demand
Waiting List
Del

Graph 2 showing the demand and supply of DEL

Table 4 indicates tele-density for the countries included in Table 1 as measured

in terms of number of main lines per 100 inhabitants.

Table 4: Number of main telephone lines per 100 inhabitants

1995 2001
Country
USA 60.73 66.45
Japan 49.61 59.69
Germany 51.33 63.48
China 3.30 13.81
France 56.01 57.35
UK 50.18 57.78
Russia 16.91 24.33

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TELECOM SECTOR AND ECONOMICS

Italy 43.33 47.06

Korea, Rep. 41.24 47.60
Canada 59.85 65.51
Spain 38.50 43.11
Brazil 8.51 21.69
Turkey 21.44 28.52
India 1.29 3.38
Source: World Telecommunication Development Report 2002, ITU

N U M B E R O F M A IN T E L E P H O N E
L IN E S P E R 1 0 0 IN H A B IT A N T S

1 50
NUMBER

1 00
50
0
20 0 1
Turke
USA

Spain
Germ

Russi
Franc

Korea,

19 9 5

C O U N T R IE S

Graph 3 showing the number of main telephone lines per 100 inhabitants

A comparison between Table 1 and Table 4 reveals that countries with smaller
network sizes than India are having much higher tele-densities. However, in
terms of total tele-density, i.e., the sum of fixed-lines and mobile subscribers per
100 inhabitants, India’s comparative ranking in the world improved from 160 in
1990 to 145 in 2000, an improvement by 15 positions

The present paper estimates that in order to attain the network size of USA in
2001 India has to expand its number of operational telephone lines at a
compound annual growth rate (CAGR) of 23.44 per cent between 2002 and
2020. The corresponding growth rates to reach China and Japan’s levels are
23.06 per cent and 17.63 per cent respectively. Even that is not going to mean

5
TELECOM SECTOR AND ECONOMICS

much in terms of tele-densities in comparison to most of the countries cited in

Table 4. Assuming no change in India’s size of population (i.e., assuming
population size to remain at 2001 level of 1.03 billion), India’s tele-density will be
18.48 lines per 100 people even if India’s network size reaches the level of USA.
Considering the fact that India’s DEL grew at a CAGR of 19.4 per cent during
1995-2000, significant effort would be needed to step up growth rate above 23
per cent.

Broadly speaking, technologies of mobile telecommunications and Internet are

going to set the contours of further technological progress in the current decade
and the next. The most recent initiative aims at convergence of voice and data
received from multiple sources, both web based and real time video streams, in
mobile handheld devices. Global satellite systems, mobile handsets and calling
cards have made virtual presence possible almost everywhere and anywhere
overcoming the barriers of distance, topography and remoteness.

There has been phenomenal growth in mobile subscribers in the world in the
nineties, increasing from 11 million in 1990 to 941 million by the end of 2001. In
1991, less than one per cent of the world population had a mobile phone. The
proportion has grown to the vicinity of one phone per every six people by the end
of 2001. Similarly, one-third of the total number of countries of the world had
cellular network in 1991. The ratio rose to over 90 per cent by end-2001.
Considering that the fixed telephone lines numbered just over a billion in this
year, it is likely that mobile phones would surpass fixed line in 2002. It is
interesting to observe that China has surpassed USA to become the largest
mobile market of the world. In Africa, mobile subscribers outnumber fixed line
subscribers in more than half the countries. Mobile telephony has emerged as
the major growth driver in this sector.

There are three important economic implications of mobile explosion for the
developing countries. First, by offering a viable techno-economic alternative it is
helping in improving telecom penetration bypassing shortages of fixed lines.
Consequently, it is bringing along with it all concomitant economic benefits of
enhanced telecom accessibility. Second, it is promoting a better entrepreneurial
culture and supporting employment generation through proliferation of kiosks.
Third, there has been a shift in investment burden from state to private sector
and the consumers.

Cellular mobile telephones subscribers in India increased from 77 thousand in

1995 to 3.6 million in 2000. By March 2002, it has grown to 6.4 million. Cellular
subscribers in proportion to total number of telephone subscribers (basic plus
cellular) have increased from 0.6 percent in 1995 to 14.6 percent in 2002. This is
still lower than the average of 24.6 percent achieved by the low-income countries
in 2001. The corresponding ratio for lower middle-income countries is 41.8
percent, 52.8 percent for upper middle-income countries and 50.2 percent for
high-income countries. India is yet to experience mobile explosion of the scale

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TELECOM SECTOR AND ECONOMICS

other countries have seen. One would expect a rapid growth in mobile telephony
in coming decades. India has also achieved significant quality upgradation of its
network in the 90s. Digital lines in proportion to total number of main telephone
lines have increased from 87 per cent in 1995 to 99.8 percent in 1999.

The technologies currently in use are Global System for Mobile Communications
(GSM) and Code Division Multiple Access (CDMA). There are primarily 10
companies providing mobile services in 19 telecom circles and 4 metro cities,
covering 2000 towns across the country. Presently there are 4 GSM operators
and 2 CDMA operators in each circle. There are 100 state-of-the-art Networks
(GSM + CDMA) on air with a total investment of $8 billion.

MARKET OVERVIEW

The wireless revolution will be fuelled by several factors. The affordability of

wireless for the masses will be sustained on account of low tariffs, cheap
handsets and attractive financing schemes. Wireless operators will continue to
focus on prepaid products in order to increase the adoption of wireless among
the lower middle income and low-income groups. Wireline users will increasingly
migrate to wireless, lured by the benefits of mobility and the attractive bundled
plans that are being launched by the wireless operators. Wireless data services
will also become a growing revenue steam. Some operators have already
deployed 3G technologies on their networks. With further rollout, it will account
for a significant portion of the wireless revenue pie.

As of February 2004 the total mobile market had reached 31.67 million, of which
24.65 million subscribers were GSM and 7.02 million were CDMA (excluding
Bharat Sanchar Nigam Limied [BSNL] and Mahanagar Telephone Nigam Limited
[MTNL]). Of these totals, Reliance Infocomm had 6.822 million subscribers
(6.065 CDMA and 0.757 GSM), Bharti had 6.199 million (GSM), BSNL had 4.954
million, (GSM) Hutch had 4.826 million (GSM), and Idea Cellular had 2.584
million (GSM). Mobile connections have reached to 56 million by the end of
2004, representing a 96 per cent increase over 2003, according to Gartner. As
per the Cellular Operators Association of India, GSM mobiles phone will reach
471 million by 2010. The pace of growth will accelerate with the introduction of
“full mobility” CDMA loop services and the adoption of unified licenses.

MARKET TRENDS

The market for telecom services in 2002-03 has been estimated to be $10.7
billion. The equipment market is estimated to have reached a turnover of $6.27
billion in 2002-03, up from $5.71 billion in 2001-02. The telecom industry
comprising services and equipment is expected to increase to $24.29 billion by
2006.

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TELECOM SECTOR AND ECONOMICS

Private players are steadily acquiring an increasing share of the telecom services
market. Ten years after the sector was opened to private participation, they
account for more than a third of the total subscriber base in India. Private
operators play the largest role in mobile services, where the 10 companies that
own more than 70 licenses are operating in 23 service areas (there are six
operators of mobile services in each circle). BSNL’s existing market position --
particularly its dominance in remote and rural areas -- has made it harder for
private players to operate. BSNL’s nationwide presence is also allowing it to
catch up with private players in the mobile market, where the state operator
provides the most comprehensive coverage.

Graph 4 showing the increasing trends of teledensity

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TELECOM SECTOR AND ECONOMICS

COMPETITION

As noted earlier, the government initially only permitted two operators in each
circle. But the government has now moved to unrestricted entry and unlimited
competition in all types of services. As a result, there are now multiple operators
in each service and in each license area. The entry of additional operators
(typically BSNL or MTNL) had led to drastic tariff reductions. Indeed, the
competition was so intense that the Telecom Regulatory Authority of India (TRAI)
stopped setting the price for mobile services and allowed the market to set
prices.

The unified access license and the liberal takeover and foreign direct investment
norms are expected to catalyze consolidation. In addition, in early 2004, TRAI
published norms that would, under certain conditions, allow intra-circle mergers
(i.e., at the regional level) between operators. Mergers will be allowed, for
example, if the new entity does not have a market share above 50%, or if the top
two firms in a given circle do not together account for a market share of 75% or
higher. If these conditions are not met, TRAI has asked the DOT to conduct a
detailed impact study on the proposed merger before granting its approval.

The competitive nature of the Indian market leads analysts to predict that there
will be a spate of takeovers at the national level in 2004 and 2005, and that only
the large operators - BSNL/MTNL, Reliance Infocomm, Tata, Hutchison-Essar,
Idea and Bharti - will survive. The consolidation has already begun. Aircel,
which operates GSM mobile services in the southern state of Tamil Nadu (except
Chennai), has in 4Q03 taken 100% stake in RPG Cellular in the city of Chennai.
Aircel will now be able to offer services in the capital city also. Aircel had
475,705 customers in Tamil Nadu while RPG Cellular has 212,823 customers in
Chennai.

Idea Cellular, the three-way joint venture between the Tata group, the Aditya
Birla group and AT&T, has signed a purchase agreement to buy 100% stake in
Escotel, which operates in the six states of Kerala, Haryana and UP (west), Uttar
Pradesh (east), Rajasthan and Himachal Pradesh. The subscriber base in these
states exceeds 800,000. The 100% buyout comprises the 51% stake held by
Escotel and the 49% stake held by First Pacific. Hutchison is consolidating all its
11 operating circle licenses into a single holding company, Hutchison- Essar.
Post consolidation, Essar is likely to have a 35% stake in the company. The
Tata- owned and recently privatized VSNL has purchased Dishnet Internet and
DSL business for $65.7 million while Tata Teleservices may buy HFCL Infotel’s
Punjab circle operations. Reliance Infocomm has acquired Flag Telecom for
$112 million. With this, Reliance Infocomm will become a leading supplier of
bandwidth to over 100 telecom players round the globe.

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TELECOM SECTOR AND ECONOMICS

There are three types of players in telecom services:

1. State owned companies (BSNL and MTNL)

2. -Private Indian owned companies (Reliance Infocomm, Tata

Teleservices)

3. -Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures,

Escotel, Idea Cellular, BPL Mobile, Spice Communications)

Graph5 showing the comparison between the growth of fixed and mobile
subscribers

BSNL

On October 1, 2000 the Department of Telecom Operations, Government of India

became a corporation and was renamed Bharat Sanchar Nigam Limited (BSNL).
BSNL is now India’s leading Telecommunications Company and the largest
public sector undertaking. It has a network of over 45 million lines covering 5000
towns with over 35 million telephone connections.

The state-controlled BSNL operates basic, cellular (GSM and CDMA) mobile,
Internet and long distance services throughout India (except Delhi and Mumbai).
BSNL will be expanding the network in line with the Tenth Five-Year Plan (1992-
97). The aim is to provide a telephone density of 9.9 per hundred by March
2007. BSNL, which became the third operator of GSM mobile services in most

10
TELECOM SECTOR AND ECONOMICS

circles, is now planning to overtake Bharti to become the largest GSM operator in
the country. BSNL is also the largest operator in the Internet market, with a
share of 21 per cent of the entire subscriber base.

BSNL plans to add 21.8 million GSM phone and 6.76 million CDMA phone
between 2002-2007. BSNL will buy GSM and CDMA switches and transmission
equipment and SIM cards.

BHARTI

Established in 1985, Bharti has been a pioneering force in the telecom sector
with many firsts and innovations to its credit, such as being the first mobile
service in Delhi, the first private basic telephone service provider in the country,
the first Indian company to provide comprehensive telecom services outside
India in the Seychelles, and the first private sector service provider to launch
National Long Distance Services in India. Bharti Tele-Ventures Limited was
incorporated on July 7, 1995 for promoting investments in telecommunications
services. Its subsidiaries operate telecom services across India.

Bharti’s operations are broadly handled by two companies: the Mobility group,
which handles mobile services in 16 circles out of a total 23 circles across the
country, and the Infotel group, which handles the NLD, ILD, fixed line,
broadband, data, and satellite-based services. Together they have so far
deployed around 23,000 km of optical fiber cables across the country, coupled
with approximately 1,500 nodes, and have presence in around 200 locations.
The group has a total customer base of 6.45 million, of which 5.86 million are
mobile and 588,000 fixed line customers, as of January 31, 2004. In mobile,
Bharti’s footprint extends across 15 circles. The company plans to invest $444
billion in the current financial year. It plans to install 29 mobile switching centers,
buy transmission equipment and also roll out new networks in five new circles
with an additional investment of $155 million.

MTNL

Mahanagar Telephone Nigam Limited (MTNL) was set up on 1st April 1986 by
the Government of India to upgrade the quality of telecom services, expand the
telecom network, introduce new services and to raise revenue for telecom
development needs of India’s key metros in Delhi, the political capital, and
Mumbai, the business capital. In the past 17 years, the company has taken rapid
strides to emerge as India’s leading and one of Asia’s largest telecom operating
companies.

MTNL operates basic, cellular and internet services in the metro cities of Delhi
and Mumbai. These two cities already have a high telephone density compared
to the rest of India. MTNL has over 5 million subscribers and 330,000 mobile
subscribers.

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TELECOM SECTOR AND ECONOMICS

MTNL plans to add 1.6 million landline/CDMA phones and 1.15 million GSM
mobile phones between 2002-2007. The company plans to invest $500 million
during 2004-2005 to expand GSM and CDMA services.

RELIANCE INFOCOMM
Reliance is a $16 billion conglomerate involved in businesses ranging from oil
exploration and refinery to power and textiles. It is also an integrated telecom
service provider with licenses for mobile, fixed, domestic long distance and
international services. Reliance Infocomm offers a complete range of telecom
services, covering mobile and fixed line telephony including broadband, national
and international long distance services, data services and a wide range of value
added services and applications. Reliance IndiaMobile, the first of Infocomm's
initiatives was launched on December 28, 2002. Reliance Infocomm plans to
extend its efforts beyond the traditional value chain to develop and deploy
telecom solutions for India's farmers, businesses, hospitals, government and
public sector organizations.

Until recently, Reliance was permitted to provide only “limited mobility” services
through its basic services license. However, it has now acquired a unified
access license for 18 circles that permits it to provide the full range of mobile
services. It has rolled out its CDMA mobile network and enrolled more than 6
million subscribers in one year to become the country’s largest mobile operator.
It now wants to increase its market share and has recently launched pre-paid
services.

TATA TELESERVICES

Tata Teleservices is a part of the $12 billion Tata Group, which has 93
companies, over 200,000 employees and more than 2.3 million shareholders.
Tata Teleservices provides basic (fixed line services), using CDMA technology in
six circles: Maharashtra (including Mumbai), New Delhi, Andhra Pradesh, Tamil
Nadu, Gujarat, and Karnataka. It has over 800,000 subscribers. It has now
migrated to unified access licenses, by paying a $120 million fee, which enables
it to provide fully mobile services as well.

The company is also expanding its footprint, and has paid $90 million to DoT for
11 new licenses under the IUC (interconnect usage charges) regime. The new
licenses, coupled with the six circles in which it already operates, virtually gives
the CDMA mobile operator a national footprint that is almost on par with BSNL
and Reliance Infocomm. The company hopes to start off services in these 11
new circles by August 2004. These circles include Bihar, Haryana, Himachal
Pradesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) &
West and West Bengal.

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TELECOM SECTOR AND ECONOMICS

Table5 showing the basic comparison between the top four mobile service
providers in India

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TELECOM SECTOR AND ECONOMICS

Graph 6 showing the increase in private sector licenses

Table 6 showing the market share of GSM mobile service operators as on

31march2007

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TELECOM SECTOR AND ECONOMICS

Table 7 showing the market share of CDMA mobile service operators as on

31march2007

Graph7 showing the cellular tariff decrease over the years

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TELECOM SECTOR AND ECONOMICS

Mergers & acquisitions (M&A) in Indian telecom industry:

India has become a hotbed of telecom mergers and acquisitions in the last
decade. Foreign investors and telecom majors look at India as one of the
fastest growing telecom markets in the world. Sweeping reforms
introduced by successive Governments over the last decade have
dramatically changed the face of the telecommunication industry. The
mobile sector has achieved a teledensity of 14% by July 2006 which has
been aided by a bouquet of factors like aggressive foreign investment,
regulatory support, lower tariffs and falling network cost and handset
prices. M&A have also been driven by the development of new
telecommunication
technologies. The deregulation of the industry tempts telecom firms
(telcos) to provide bundled products and services, especially with the
ongoing convergence of the telecom and cable industries. The acquisition
of additional products and services has thus become a profitable move for
telecom providers.

REGULATORY FRAMEWORK
M&A in telecom Industry are subject to various statutory guidelines and Industry
specific provisions e.g. Companies Act, 1956; Income Tax Act, 1961;
Competition Act, 2002; MRTP Act; Indian Telegraph Act; FEMA Act; FEMA
regulations; SEBI Takeover regulation; etc.

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TELECOM SECTOR AND ECONOMICS

Table 8 showing the various M&A deals in Indian telecom Sector

Revenue Generation and Efficient market structure

Disinvestment plays an important role in revenue generation. Disinvestment
receipts can help the government reduce fiscal deficit not only by way of equity
sale in PSUs (public sector units) but also by the subsequent cap in government

17
TELECOM SECTOR AND ECONOMICS

transfers to bleeding PSUs. But has the government been successful in its
disinvestment endeavor? Trends in the past few years present an abysmal
picture. There are wide differences in disinvestment targets and actual receipts.

Table 9 showing the targeted receipts and actual receipts over the years

Political hurdles in disinvestment, intervention of stakeholders and poor financial

state of sold PSUs have all contributed to this performance.

Apart from revenue generation, creating an Efficient Market Structure is also one
of the important goals of the disinvestment/privatization process. The
government seeks to establish a competitive market that would result in driving
down consumer prices (e.g.Privatization and Deregulation in the Telecom Sector
in India has reduced prices andincreased consumer base dramatically)
On the other hand the government would try to maximize revenue by divesting in
apseudo monopoly environment and using regulation to control rent seeking
behavior (e.g. When Reliance acquired IPCL a pseudo monopoly was formed in
the petrochemical market. But government control on crude prices as well as its
control on petrol prices led to some form of price regulation) The government
cannot try to maximize both, revenue and market structure. The following
example will explain the contradiction in the two objectives.

Consider the case of the Domestic Airline industry in India, an oligopoly

dominated by three players: Jet, Sahara and Indian Airlines. Consider a
hypothetical case of privatization of Indian Airlines, the government owned airline
company. How should the government privatize Indian Airlines? Should the
government encourage more players by offering investment incentives and
subsequently divest in a competitive market or should the government sell Indian
Airlines to a third new entrant say Tata Airlines or should it permit a current
player to buy Indian Airlines and increase the possibility of monopoly creation.
Table 10 depicts the given situation objectively.

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TELECOM SECTOR AND ECONOMICS

Table 10

Graph 8 explains the inverse relation between objectives of competitive market

Structure and revenue maximization. Competitive structure is plotted on Y axis
and Disinvestment receipts on X axis

As the number of players in the market increase the value of the government
entity to be divested decreases. In this situation how should the government
balance its objectives?
The government can look at three components to arrive at the solution.

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TELECOM SECTOR AND ECONOMICS

1) Different privatization strategies on the basis of the nature of goods i.e.

commercial, social, public utilities etc
2) Establishing a regulatory framework to lay down the rules of the market.
3) Withholding the sale, until the required market structure is created with the
help of entry incentives.

Diagram 1 explains about the promoting entry level-models.

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TELECOM SECTOR AND ECONOMICS

Diagram 2 shows the phases of policy reforms in India

21