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January 23, 2009

Even by the standards of the scorching pace set in the past five years, the next five years of India's telecom history promise to be good, if a report just released by Ficci and BDA, a telecom consulting firm, is anything to go by. According to BDA-Ficci, 308 million wireless phone users were added in the last five years (starting from 28 million in 2003), and another 410 million will be added in the next five years.

The total number of broadband-speed Internet connections will rise from the current 5 million (all fixed line, and all installed in the last five years) to around 46 million through 3G modems, broadband wireless access and fixed lines; the share of value-added services (primarily SMS and ringtone downloads just now) will rise from 9 per cent of total telecom revenue today to around 23 per cent in five years (once broadband-speed 3G mobiles allow serious Internet downloads to happen).

So what, you might be tempted to ask -- apart from what it means for various telcos and others in the eco-system like mobile handset manufacturers, sellers of Internet-ready devices like netbooks, application providers creating special software including games, media firms with mobile solutions, and so on.

Another report on telecom, coincidentally released the same day by the think tank Icrier in partnership with Vodafone, has some answers. According to analysis done by Icrier, the teledensity of a country/state plays a big role in determining its economic growth.

As is obvious, the relationship is two-way, but the researchers use accepted methods to isolate the impact of telephony on GDP growth; other methods are used to eliminate the impact of variables like length of roads and power supply on GDP growth. The relationship they come up with estimates that, beyond a certain threshold penetration level of 25 per cent, a 10 per cent hike in mobile phone penetration leads to a 1.2 percentage point hike in growth rates.

If that seems high, it is worth mentioning that other studies show an even greater impact of mobile phones on GDP growth in the rich, OECD countries. How wireless penetration translates into higher GDP growth is easy to figure -- there is increased efficiency and a reduction in transaction costs.

The study cites several examples. Qualcomm's work with the MS Swaminathan Research Foundation in Pondicherry has resulted in fishermen in the region getting, on their Tata Indicom mobile phones, data on wave heights, the best fishing zones for various types of fish, retail prices in various neighbouring markets, and so on -- the fishermen, naturally, are more productive and can retail their catch at higher prices.

Doing banking transactions through mobile phones and using bio-metric information dramatically lowers the cost of bank operations in the rural areas. Few therefore can doubt the impact of mobile phones on growth.

What are the policy implications? The first has to be the need for stability in policy -- if government policy on telecom keeps yo-yoing from one extreme to the other, or is biased, it will hit the growth of telecom and of the economy. And since the mobile phone is just an enabler, sub-sector policies have to be conducive too.

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