Determinants of Aggregate Access Demand for Telecom Services in India: Evidence from a Regional Study

Article excerpt

This paper argues that institutions in social and economic sectors are major creates of demand for telecommunication (or telecom) services. Using the panel data models, determinants of aggregate access demand (measured by teledensity) for telecom services are estimated by types and number of institutions in social and economic sectors and by employing district level data from Karnataka State (India). This approach is unconventional with no familiar income and price determinants. The estimation results offer evidence for positive and significant impact of number of industrial, educational, and financial institutions on aggregate access demand for telecom services. These results have implications for formulation of national and sub-national policies for promotion of access demand by both public and private providers of telecom services in India.

INTRODUCTION

A telephone company provides switchboard, to its subscribers along with a connection which enables them to use basic services (e.g. receive incoming and place outgoing phone calls) and value added services (e.g. Integrated Service Digital Network and Internet services) over the telephone network. Demand for this telephone connection in the form of a direct exchange line (DEL) is called access demand for telecom services. In fact, access is essential for usage of telecommunications (or telecom) services.

Teledensity (i.e. number of telephones or direct exchange lines (DELs) per 100 population) is a standard measure of access demand for telecom services. Before the introduction of cellular mobile phones, teledensity was defined by DELs of fixed telephones or landline connections. At present, it is distinguished separately for fixed telephones or combinedly for fixed and mobile telephones.

This paper argues that, in addition to individuals and households, economic institutions are the major sources of access demand for telecom services. These institutions are widely spread in primary, secondary, and tertiary sectors of the economy. Notwithstanding the availability of secondary data on types and number of institutions, no estimates of their impact on the access demand are available in India. However, this paper fills in this gap.

This paper develops a simple empirical framework for estimation of access demand for telecom services by number and types of institutions by using the standard panel data models. The framework is implemented for district level data from Karnataka State (India). The framework and estimations aim at providing with empirical bases for design of a sub-national telecom policy to promote access to telecom services. Subject to the comparability of socio-economic institutions and provisioning of telecom services, the approach and implications of this paper are of general relevance and applicability for promotion of access to telecom services in other States in India or at national level of aggregation.

The paper is organized as follows. The next section provides with a critical review of the policy and professional literature on determinants of access demand for telecom services in and outside India. It is followed by a framework for estimation of aggregate access demand. Data and variables for estimations are described next. Analyses of the estimation results is discussed next. Conclusions and implications are presented in the end.

REVIEW OF LITERATURE

A standard policy framework for estimation of determinants of access demand for telecom services in India is the ITU Cross-Country Regression Model, presented in Government of India Special Report (1997). In this model, teledensity is regressed on per capita Gross Domestic Product (GDP). Using the estimated income coefficient, teledensity is projected depending on the nature and magnitude of increase in per capita GDP. This implies that economic growth as a whole and as a single variable determines the access demand for telecom services. In this framework, however, determinants of access demand for telecom services are not estimable by sources of economic growth, such as, the growth of primary, secondary, and tertiary sectors in the national economy. …