India has the lowest telephone charges in the world. Our government and telephone operators are very proud of this fact. They think this reflects some virtue or heroism on their part. But it was never anybody’s deliberate act; it is just a historical accident. In the rich industrial countries, almost all businesses and households had got wireline telephones before cellphones arrived. Cellphones had to compete with wireline phones which had already captured the market; and they had to offer an equally extensive service to be able to compete. So cellular operators had to cover the entire country from the beginning, and to incur the capital costs for doing so. Because of the high costs, the number of cellular operators was small, and competition was limited. Cellular services were offered as a premium service, and their charges were higher than of wireline services.

In India, however, BSNL and MTNL had covered such a small part of the potential market that there was a large market for cellphones even in towns. Teledensity — the ratio of the number of telephones to the population — was only 1.9 per cent in 1991. That is why the cellphone market in India became a mass market, and its large scale brought down costs to low levels. The average charge per minute in the first quarter of 2008 was 99 paise for GSM and 84 paise for CDMA service; that is really low by world standards.

Charges have been low also because of the low cost of servicing customers. In December 2007, prepaid cellphone users accounted for 68 per cent of the GSM minutes of use and 71 per cent of the CDMA minutes of use. Most of these calls were local; although prepaid users used over two-thirds of the minutes, revenue from them was just about a third. But the profit margins on their calls were high. Prepaid callers paid 4 paise more per minute for GSM calls and 8 paise a minute more for CDMA calls than post-paid. Prepaid users did not have to be sent bills, and could not complain, so they cost the operators nothing beyond the cost of their calls.

Finally, Indians are passionate talkers. People love to talk to their relatives and business partners far away. Such people are important telephone users. The 2001 census counted 1.02 billion Indians. Out of them, 180 million were living somewhere else than in their place of birth; 120 million were not even living in the district in which they were born. One might think that these must be mostly women, who generally leave their homes and go elsewhere when they marry. But out of the 180 million, 60 million were men. Most goods have to travel a considerable distance before being sold; even fishermen and fruit growers have to talk to traders they deal with. So there is much long-distance business talk as well. We have 6 million public call offices; that is one for every 190 people. Calls from PCOs give operators much better profits than from subscriber telephones. Private operators have realized this, and set up large numbers of PCOs. Out of the 6 million PCOs at the end of 2007, only 2.2 million belonged to BSNL and MTNL. Bharti had set up 2 million, Reliance 1.9 million and Tatas 1.4 million.

Because it has been large and highly profitable, the telecommunications market has grown some very large firms. Bharti is the country’s largest or second largest company; Reliance Communications is one of the two Reliance companies that are among the largest. Tata Teleservices and Vodafone are also huge. The telecommunications market has made them big and rich.

The Telecom Regulatory Authority of India announced in a press release on April 25 that India had become the world’s second largest wireless network, as the base of subscribers touched 30 crore, and teledensity crossed 26 per cent. TRAI does not say it in so many words, but it does not mind if we go away with the impression that over a quarter of Indians have telephones. This includes every man, woman and child. Of these, 43 per cent were children under 14 or old people over 60. So if we assume that the very young and very old do not have telephones, teledensity amongst people aged 15 to 60 comes to 45 per cent. That is, almost a half of the adults have a telephone.

Villagers have roughly 12 million wireline telephones and 52 million cellphones — which gives us a total of 64 million rural telephones. So townsmen have about 236 million phones, or 78 per cent of the total. The share of urban population in 2001 was 28 per cent; let me assume it had gone up to 35 per cent by 2007. I then get the result that every adult townsman has one telephone per head. It is probably true that most people who own a wireline telephone nowadays also have a wireless telephone; so let me subtract the 42 million wireline telephones from the calculation. Even then I get a figure of 0.84 wireless telephone per adult townsman and townswoman. If no one had more than one cellphone, this would mean that only 16 out of a hundred adult townspeople lacked a cellphone. This is my estimate. If I use TRAI’s figures, they confirm my calculations. In its January Consultation Paper on access deficit charge, TRAI gave urban teledensity of 56 per cent. If 57 per cent of the urban population is adult, we get one telephone per adult, including fixed-line phones.

It is possible that these figures of teledensity are overestimates. TRAI does not itself count telephone subscribers. It merely adds up the figures it gets from telephone operators; and the operators may be exaggerating the figures. Why might they do so? It is because whenever fresh spectrum is distributed, one parameter that is bound to be used to allocate it will be the subscriber base. So operators prepare for that moment by blowing up their subscriber base. We have no number portability; every operator is given a ration of numbers. When he runs out of his ration, he has to go and ask for more. So when subscribers leave an operator, he hoards their numbers. We have only the operators’ word for the number of subscribers they have, and at least some may be exaggerating the number.

But even discounting such exaggeration, cellphone ownership in Indian cities has risen greatly. It is so high that the growth of new subscribers in the towns must slow down soon. This financial year, 2007-08, will probably see an addition of 100 million new cellphones. At this rate, the number of cellphones will grow to 400 million by 2009, 500 million by 2010, and 600 million by 2011 — that is without any exponential growth in numbers. Such growth cannot continue for long. This is in a country where the urban population is not much greater than 400 million, growing perhaps by 5 million a year. So we are adding to our cellphones at a rate that cannot continue. Either the growth must slow down soon, or the business model of cellphone operators must change in some way.