The Hindu Business Line : Telecom: Finally, the right connection

When India began its tryst with the liberalistion of the telecom sector in 1994, it was expected to provide an impetus for other infrastructure areas.

The intention was to open up a host of telecom services ranging from fixed line, mobile and value added services to private sector investment in a phased manner.

By introducing competition, the telecom sector was expected to set the country on the path to high economic growth.

But by placing the proverbial cart — interests of the government — before the horse — those of the consumer, the privatisation process was botched by the government repeatedly over the past decade. The twist and turns were:

The licensing policy evolved by the government divided the country into four metros and 18 telecom circles. Though this was intended to prevent a monopoly, it led to a highly fragmented market.

The policy prescribed the payment of fixed licence fees to the government spread over 15 years. This meant that the Department of Telecommunications (DoT) was willing to enter into a contract with operators willing to pay the largest licence fees rather than those offering the lowest prices to the consumer. The licence fee mode was favoured over the revenue sharing arrangement adopted by most emerging markets.

In the initial round of licensing for basic services, the tendering process was not transparent and was manipulated to serve vested interests. Foreign operators/investors were disillusioned and left the country in droves between 1996 and 2000.

Till the Telecom Regulatory Authority of India (TRAI) was formed in early 1996, DoT operated as a service provider, regulator and dispute-settlement authority. The absence of an independent regulator eroded the credibility of the tendering process. Unfortunately for the industry, even though TRAI Act was passed in 1997, the powers of the regulator were not clearly defined. Using this loophole, DoT repeatedly attempted to undermine the powers of the regulator.

Caught up in the regulatory muddle for years, the consumer who is the lynchpin was all, but forgotten.

At different stages of the telecom reform process, key elements thrown up by policymaking have come to haunt the government and the industry:

HFCL imbroglio: The first round of tendering for basic services was started in 1995 for 20 circles. A single company — Himachal Futuristic Communications bidding an exorbitant Rs 85,000 crore and was the highest bidder for nine out of 20 circles. Coming to HFCL's rescue, DoT introduced a number of changes to the licence conditions such as rejecting the highest bid in 10 circles and introducing a cap of three circles per bidder. There was a second and third round of bidding for 13 circles; but both the stages elicited poor response. And eight out of 21 circles found no takers.

Switch to revenue sharing: While bidding for mobile licences for telecom circles (excluding metros), mobile operators bid fairly fancy sums in 1995. But their operations over the next three years proved that they had grossly miscalculated the ability to spend and penetration levels. Saddled with mounting losses, the operations of most mobile operators became fundamentally unviable. Based on the strident demands from the industry, in mid-1999, the government conceded to the switch from the fixed licence fee regime to a revenue sharing arrangement linked to the operators' gross annual revenues.

Limited mobility/unified licence: Based on the recommendations of TRAI, DoT allowed the introduction of limited mobility services (a mobile facility that could be used within a 50-km radius) under the basic services licence. In doing so, it had sown the seeds of a controversy, which festered for three years. The principal beneficiaries were Reliance Infocomm and Tata Teleservices.

Having allowed leeway to the limited mobility operators, especially to Reliance, the government had to find a way to resolve this controversy. In the garb of a policy move, in October 2003, the government pushed through a Unified Access Licence between basic and cellular operators. This allowed Reliance Infocomm and Tata Teleservices became full-fledged cellular players with low entry costs.

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