Monday, August 28, 2006

Technology & Innovation can end Monopoly

"Technology and innovation can be a monopoly killer". This statement made by one of the professors was still resounding in my ears as my thoughts raced across to the telecom sector in India. BSNL (Bharat Sanchar Nigam Limited) in the socialist 70s and 80s was the state owned monopoly in fixed land lines and had developed an extensive mesh of lines that criss-crossed the country linking Assam to Gujarat and Kashmir to Kanyakumari. Competition never threatened BSNL as it had the blessing of the central governement to run its business in a way that profited it the most.

Then came the liberalization era in the 1990's and classic capitalist ideas started gaining the upper hand. Every sphere started opening up and competitive markets started becoming the norm of the day. A host of new players entered the market initially providing wireless cellular services which was an area that did not have monopoly players yet. Technology played its role too as it was the same time the world as a whole was facing a telecom wireless revolution in terms of mobile phone miniaturization, feature intensification and cost reduction.

Once these new entrants namely Airtel, Tata Indicom and Reliance gained a foothold in the cellular wireless market they embarked on a plan of diversification and this was when they used technology to topple BSNL from the distinct status it held of being the only firm to have land lines across India. Reliance and Tata Indicom used technology to lay high bandwidth optical fiber cables (OFC) across the country. BSNL was forced to adopt similar measures. However the gap between BSNL and the new entrants was still a chasm.
Enter Wireless Local Loop (WLL) technology. Reliance and the Tata group quickly jumped the wagon . This enabled them to lay optical fiber cables between major towns and villages and avoid last mile connectivity issues which incidentally is what requires the most capital investment. Instead WLL enabled them to erect towers in towns and villages and still issue the subscribers land line phones that connected wirelessly to these towers. The same door-to-door access that BSNL had achieved over a span of 2-3 decades by laying phone cables right till the subscriber's doorstep was achieved by the new entrants in a span of half a decade. Today the Tatas and Reliance groups boast of a network comparable in size to BSNL and still be proud of the fact that it was done at a fraction of the cost that BSNL incurred. And in doing so, it also marked the end of monopolistic market practices of one of India's telecom behemoths.

Truly "Technology and Innovation can convert monopolistic markets to competitive ones"

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