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THE three-year long, bitter dispute involving introduction of limited mobility services has ended tamely, auguring well for the long-term development of the mobile market in India. There was hardly any surprise element in the latest decision of the Cellular Operators Association of India (COAI) to withdraw the petition filed against the limited mobility operators in the Supreme Court. After all, the build-up to this denouement was reasonably obvious by the first fortnight of November. When the Supreme Court declined to stay the conversion of the basic service licence to a unified access licence, the futility of prolonged litigation was evident to the private cellular operators. However, given the fierce battle, which had been raging between these two camps, a unilateral withdrawal of the petition by the cellular operators would have meant a terrible loss of face and respect for them. So, the cellular operators had all along kept the channels of dialogue open with the Government to work out an appropriate financial package, which will provide them the escape latch. On its part, the Communications Ministry (in consultation with other Ministries) has also acted smartly by playing its bargaining cards one by one.

First of all, nearly 75 per cent of the financial relief flowing out of the Rs 885-crore relief package in 2004-05, involving an across-the-board reduction in the revenue share for all players will accrue to the state-owned Bharat Sanchar Nigam and Mahanagar Telephone Nigam. In effect, this permanent revenue share waiver is expected to make available finances to BSNL and MTNL to emerge more competitive in the telecom marketplace. Secondly, the Government has managed prudently to sidestep the sensitive issue of compensation to cellular operators by providing prospectively a two-percentage point rebate in revenue share for the first and second operators in all circles (except metros) for four years. In doing so, the Government has ensured that it does not set a precedent of making compensation payments from the exchequer. And the notional revenue loss of Rs 83 crore annually will be more than offset by the increase in subscriber base.

The next obvious question is: Will this reduction in revenue share result in a fall in tariffs for the consumer? Inevitably yes, as outside the state-owned incumbents, the key beneficiaries are likely to be the four private sector majors namely, Bharti, Hutchison, Idea Cellular and Reliance Infocomm. For these players, bringing down the tariffs will be the crucial weapon to squeeze and test the staying power of the smaller non-integrated players without a national footprint. Since the Government has already paved the way for consolidation through intra-circle mergers, these weakened players may be ripe for acquisition for a lower consideration. If lower tariffs set the stage for consolidation, then the assurance given by the Finance Ministry to work out debt restructuring packages for smaller operators may become redundant, to a large extent.

Finally, the significant move from the Government was the revival of its earlier stalled proposal to hike foreign investment limit in telecom companies from 49 per cent to 74 per cent, subject to the approval of the Union Cabinet. The Government appears to have used it as a good bargaining chip to appease the big cellular players who call the shots in the COAI.

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Tame end to telecom tangle

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