Using data for 16 major states in India from 2001 to 2015, this paper examines the patterns, distribution dynamics, and the drivers of telecommunications (telecom) services across different states. We apply both parametric and nonparametric econometric techniques to study the distribution dynamics of telecom services across the states. Further, we employ the generalised method of moment (GMM) to examine the determinants of telecommunications services in India. Our results indicate that the interstate gap in telecommunications services has been declining over time and there is a tendency for convergence in teledensity towards the national average. The regression analysis suggests that per capita income and network externality are significant determinants of teledensity across states in India. Furthermore, literacy rate and relative size of the service sector are independently significant predictors of teledensity. If we consider rural and urban areas separately, there are some important differences. For example, while the interstate gaps in telecom services in rural areas seem to have declined, there is little evidence of such a tendency in urban areas. However, the regression results with respect to the importance of per capita income and network externality for telecom services are robust to the rural-urban divide and to the inclusion of additional explanatory variables. The findings of this study have important policy implications.

Introduction

Telecommunications (or telecom) services are essential for accessing and reaping the benefits of modern information and communications technology (ICT). As technologies get integrated and a wide range of services (telephone service, messaging, the Internet, music, movie, radio) are being delivered through a single device, the demand for telecom services increases by leaps and bounds. The economic growth enhancing effect of ICT in general and telecom in particular has been documented in the economics literature. For example, according to Leff (1984), modern telecommunication facilitates faster transmission of information which eventually promotes overall economic development by reducing transaction and information cost. A well-developed telecommunication infrastructure improves efficiency in an economy by reducing information asymmetry among producers and consumers (Abraham, 2007; Eggleston, Jensen, & Zeckhauser, 2002; Sen, 1994). Studies by Lam and Shiu (2010) for European countries, Roller and Waverman (2001) and Datta and Agarwal (2004) for OECD countries, and Ghosh and Prasad (2012) and Ghosh (2016) for India present further evidence to highlight the importance of telecommunications for economic growth and development. As one of the fastest growing emerging markets, India receives special attention from the researchers.