THC_CTMS S359_Sept07 1

Reforms in Power & Telecom Sectors Comparisons & Contrasts

&The Way Forward

BY

* Information Technology Adviser, Government of A.P* Director, Center for Telecom Management & Studies

* Chairman, Pragna Bharati (Intellect India), AP* Former Chairman & Managing Director

Videsh Sanchar Nigam Ltd., Bombay

T: +91 (40) 6667-1191, 2784-6137(O) 2784-3121®F: +91 (40) 6667-1111, 2789-6103 (O)

Hanuman.chowdarya@tcs.com thc@satyam.com

Talk @ Institution of Engineers, Hyderabad : 2nd Sept 2007

THC_CTMS S359_Sept07 2

Reforms in Power & Telecom Sectors Comparisons & Contrasts

•Conventional Wisdom-Natural Monopoly Undermined by technology and Consumption Volumes•Visions of Inventors & Liberalisers

“We will make electricity so cheap that only the wealthy can afford to burn candles”

- Thomas Alva Edison“Cities, countries and continents will be connected and people will talk to one another from anywhere, any time, to anyone…

- Alexander Graham Bell

Ghar Ghar mein radio; Gaon gaon mein telephone – Dr T.H.ChowdaryWe will make telephony cheaper than a post card – Dhirubhai AmbaniHaath Haath mein (cell) telephone; Goan Gaon mein Internet Kiosk

- Dr T.H.Chowdary2/16

THC_CTMS S359_Sept07 3

Purpose of Reforms

• Purpose of Reform: Increase supply, Invite investment

• Cost-oriented pricing

• Differential pricing (Rural/urban; industrial/commercial/domestic)

• Control of Cross-subsidies

• Quality improvement

• Customer Choice?

THC_CTMS S359_Sept07 4

Power:Characteristics & Issues

• Single consumer- SEBs• PPAs, “ sovereign” guarantees• Fuel costs & energy prices• Metering:• Time of day prices• Prepaid consumption• Citizen Charter - Quality of Power• Penalties, Compensation and Damages• Cost Discovery/ Admissibility• Board of Directors• Accountability• Consumer Involvement in Regulation• Captive Power- Bulk Consumers

8/16

THC_CTMS S359_Sept07 5

Energy ConsumptionKWH/person/year

Norway Japan USA Brazil

120,000 52,000 97,000 14,000

Russia China India

6,200 13,000 4000

World Av: 2,328

Source: Department of Energy USA (quoted in Bhavan’s Jounal, 31/8/07)

THC_CTMS S359_Sept07 6

Electricity Capacity & Generation

1980-81 1990-91 2004-05 2007

MW 33,400 74,700 1,37,500 1,50,000

•An increase of 2.1 times between 1991&2007.•In the same period telephones increased 44 times

THC_CTMS S359_Sept07 7

Gap Between Demand & SupplyPower:

2005-06 peak demand 90,119 Mega Watts

2005-06 peak demand met 80,631 Mega Watts

Shortage 10.5%

In A P peak touched 189. 3 mln units on 21/8/07

May go to200 mln

A P Transco wants o buy 400MW from private power traders

• In telephones supply capacity is more than demand (except for the PSUs – BSNL & MTNL)

THC_CTMS S359_Sept07 8

Significant Legislations: Electricity

• Electricity Act 2003 (intrduced competition & protect consumer

investment power for all)• Electricity Regulatory Commissions Act 1998• A P Electricity Reforms Act 1999 ( A P got: World bank Loan $ 210 mnl)• DFID £ 28 ($ 56 mln) • A P GENCO• A P TRANSCO (& Discoms)

THC_CTMS S359_Sept07 9

Rural Electrification

• Bharat NirmanRajiv Gandhi Grama Vidyuteekaran Yojana-

lunched April 2005

• Rural Electricity Corporation

• Experiment of Taluka/Mandal level Discoms in1990s (Anakapalli, Rajampet) Failure?

THC_CTMS S359_Sept07 10

Per capita consumption of electricity (kwh/person/year)in India

1950 1960 70 80 90 2001 2006

15.6 34.8 83.5 138.5 238 408 520

Tele-density1950 1994 20070.025 0.80 21Power Consumption:•Increase: 33.5 times•Tele-density increase: 840 times

THC_CTMS S359_Sept07 11

Villages Electrified/ telephoned

1947 50 70 90 2003 2007 2012

1500 3061 74,000 471,000 494,000 534,000 587,000

• Villages electrified : 82% [325 times]

• Villages telephoned (2007): 92.3% [6000 times]

THC_CTMS S359_Sept07 12

Corporatisation

• Rural Electricity Corporation• Power Trading Corporation• Power Grid Corporation• Power Finance Corporation all Central PSUs• State PSUs (Genco & Transmission companies)• Pvtes: BSES, Tata, AES, RPG, AEC, SEC …

plus Genco• Telecom Corporations:• BSNL (2000) & MTNL (1986)• 41 P-Telcos (1995 to date)

THC_CTMS S359_Sept07 13

Electricity Regulatory Commission

• CENTRAL:– Tariff of Gencos owned or controlled by

Union Government – Gencos (Pvte) which generate & sell power

in more than one state –Inter state xmission of energy

• State Electricity Regulatory Commission(s)

[Captive Power imposed cess/tax)!

THC_CTMS S359_Sept07 14

Regulation

Power Telecom

•CERC•SERCs

TRAI& TDSAT

• Telecom Regulation is continuously improving; promoting competition; company & consumer friendly.

• Power Regulation: No impact anywhere•TRAI & TDSAT’s mandate creatively extended to cover cable TV & DTH TV

THC_CTMS S359_Sept07 15

Power& Telephone Growth Rates

1996 2006 2007

PWR cap 95.1 MW 143 MW 150MW

Telephone 12 mln 150 mln 220 mln

Growth between 1996&2007Power: 1.6Telephones: 19.0

THC_CTMS S359_Sept07 16

Reforms in Power

Electricity Boards become Corporations

No change in ownership & control and personnel

Populist, welfarist, direction

loss, theft, collection - Seemingly out of control

Regulation: State & Central - not yet benefited

consumers Impact imperceptible

6/16

THC_CTMS S359_Sept07 17

Telecom Outcomes

• From “Apply, apply - No Reply”

To bounteous supply• We now have 240mln phones, 85% mobiles

– far in excess of 11th plan target• Teledensity increased from 0.9 in 1994 to

21% now (2007)• Telephones work during rains and floods

and storms – New Technologies OF cables and Wireless

THC_CTMS S359_Sept07 18

Telecom Outcomes contd..

• Cell-phones are now mass consumption appliances.• Their prices came down to one-tenth to one-fifteenth in

eh last 10 years• 85% cell subscriptions are prepaid

- no billing; revenue before costs/ service!- Users control expense

• Affordability increased 15 fold sine 1951; 6 fold in the last decade

• Electricians, drivers, plumbers, carpenters, masons, welders, street-vendors; mazdoors have phones!

• 600k/650k villages have telephones

THC_CTMS S359_Sept07 19

Telecom Outcomes

Demonopolisation brought • New technologies• Capital costs came down (by 90% from

Rs.40,000/line to less than Rs.4,000/-)• Prices came down ( by 97% for ISD calls 90% for others)• Myriad new services ( on the cell-phone-digital

cameras, Internet Access)• 90% reduction for global tele-links; enabling

India’s software companies to be competitive spread to Tier II cities [like Visakhapatnam, Mangalore, Coimbatore.....]

THC_CTMS S359_Sept07 20

Telecom Outcomes

Demonopolisation brought contd..• BPO, KPO & software companies enabled

to be born & remain competitive due to drop in band-width price & bandwidth even in II tier cities

• E-governance, e-procurement, e-education, anytime, anywhere banking;

• e-public relations• India becoming R&D & design center for

the world eg. Satyam’s digital car

THC_CTMS S359_Sept07 21

Affordability of Telephone

1951 1994 2007

Revenue/Line Rs. 625 Rs.10,000/c Rs. 5000

Rev. PCI+ 2.5 1.0 0.12

Affordability PCI = 20 times rise

Tel. Svce.Price

THC_CTMS S359_Sept07 22

Affordability of Electronic Devices:Ratio of Price of Device to Per Capita Income

1951 1974 1994 2007

Radio 2.0 0.5 0.02 0.005

TV Set NA 1.9 1.2 0.37

Year’s Telephone Service

2.5 1.0 1.0 0.12

PC NA NA 6.0 0.75

THC_CTMS S359_Sept07 23

Telecom Outcomes Demonopolisation brought contd..

• We are the lragest(7.5 mln cell phones / month) market in the world-larger than China (5 mln/m)

• Rs. 90,000 cr of private investment came into the sector

• P-Telcos are investing about Rs. 40,000/yr

• Telecom revenues are Rs. 1,10,000 cr/yr

THC_CTMS S359_Sept07 24

Size of Power& Telephone companies

• India is the 6th largest producer & consumer of electricity• India’s is the 3rd largest (after China, USA) telephone

system and 2nd largest market in the world ( after China)• Power consumers: 90 mln• Telephone subscribers: 220 mln• Telephones are consistently exceeding the targets for

growth• Electric power generation capacity target for 1992-97 : 40,000 MW Achievement: 17,000• Telephone provisions exceeding targets & imagination.

THC_CTMS S359_Sept07 25

Comparison/ contrasts

Telecom Power

Productivity Increased 5 fold in BSNL

P-Telcos: Better than EU and US because of a new business model

( no. of phones/ employee)

Only a little increase

Profitability 45% of revenues

are surpluses

Losses

Cross-subsidies Only BSNL’s rural phones are subsidised

Agriculture &”poor” are subsidised

THC_CTMS S359_Sept07 26

Comparison/ contrasts

Telecom Power

Customer Choice- Enhanced - NonePrices - Going down - Going UpQuality - Improving - No DifferenceInvestment - Copious - A little

( domestic/foreign)Growth - Tremendous - A little

11/16

THC_CTMS S359_Sept07 27

Down side of Telecom Liberalisation

• Indian equipment manufacture almost dead• Indian R&D – reduced to “nominal”; hardly any

user• Indian contribution to network construction• Low-end; labour intensive (towers, batteries,

A/C; shelters, trenching & cable –laying…)• All network equipment imported/India

Assembled• Indian R&D personnel creating IPR for foreign

owners ( i/c Chinese!)

THC_CTMS S359_Sept07 28

Reforms in Power & Telecom Sectors

•What must be done in Regulation:Revamp body to make it consumer-caringBuild expertise/ capacityFill with talentsAvoid civil servants, ex-monopolistsMake Appointments TransparentConstitute Regional & National Consumer CouncilsPublish Consultation PapersAssist Research by Consumer bodies & ProfessionalsTRAI to have offices in State capitalsFund consumer bodies to build them into counter wailing power against companies

16/16

THC_CTMS S359_Sept07 29

What we should aim at

• Power to be in Union jurisdiction upto District Level [generation and transmission]

• Corporatise & Privatise Power Companies - State to Disinvest

• Privatise BSNL & MTNL and break up BSNL into State-wide Companies

THC_CTMS S359_Sept07 30

Dhanyawad:Thank You