The Hindu Business Line : Ban the cell-phone nowhere...

It is hazardous to attempt a definitive study of an industry in which so much is happening," writes Ashok V. Desai, Consultant Editor, The Telegraph, in his recent book India's Telecommunications Industry: History, Analysis, Diagnosis, from Sage (www.indiasage.com) .

"Just as one thinks that one has reached the full stop, something happens that renders an entire chapter out of date." As a result, his book is out after `four drafts spread over a year'. So, hot on the heels of a review of his book (`Take a call on telecom', Business Line, April 20), eWorld sent him a few questions for some quick answers:

What, according to you, are the right metrics for gauging telecom development?

A. Proportion of articulate population with (a) a personal cell-phone, (b) a phone at home or in the office, and (c) a public phone within walking distance.

B. Ratio of the cost of (a) a phone call, (b) a phone connection to per capita GDP.

C. (a) The probability, (b) speed and (c) quality of a dialled call between any two subscribers belonging to different networks.

Should the telecom industry be free from public sector players?

The roles of the government as government and as a competitor in the telecommunications market conflict. Since the Government cannot divest itself of its role as government, it must give up ownership of operators. If it cannot do so, it must give full autonomy to its telephone operators, and give them freedom both to raise capital from the market, as well as to go bankrupt.

Will the exit of the incumbent public sector telecom players lead to neglect of social goals?

Presumably what you mean is USO, or extension of subsidised telephones to rural areas. The public sector operator provided this very inefficiently. It was setting up one telephone connection in each village, which hardly ever worked. The Government has recently set up a mechanism that separates the USO from BSNL.

Contracts are given to operators to connect specific rural areas; the lowest bidder wins. So the present USO would continue even if the public sector operator disappeared or was privatised. But in my book I have proposed another way of connecting rural areas, which involves public ownership. A National Interconnection Authority would be publicly owned. It would provide interconnection free in areas where teledensity is low, and raise them as it increases. Private local operators would provide last-mile connections.

Should cellular phones be banned from educational institutions?

There is no connection between the two. The objection to cellular phones is situational. If a phone goes off in a classroom, it disrupts many people for the convenience of one. Hence the use of cell-phones may be undesirable in classrooms for precisely the same reason as jaywalking on a highway; for the same reason it would be undesirable in clubs, meditation rooms, libraries, concerts and ballets.

Cell-phones should not be banned anywhere; their use in particular places and situations should be banned. Even this may not be necessary with new technology that which disables cell-phones.

Could the private cellular operators become an undesirably powerful lobby?

The fact that they are private cellular operators does not make them powerful; the fact that their owners included India's largest business houses does. The fact that the owners are large does not make them a lobby; if an issue arises that affects them all adversely, they will come together and form a lobby. They did when DoT ran their cell-phone companies to the ground in 1998. They moved the Government in their favour by influencing the politicians in power.

I understand that improper means of influence were used. But large private operators are not a permanent lobby; under normal circumstances they compete fiercely with one another. When the state acquires power to make or break them, they use influence to bend the state to their will. They normally do so individually; just once, in telecommunications in the late 1990s, they acted in concert. There is no reason to think, however, that such action is inherent to them; it was born of the circumstances.

How can the regulatory mechanism be strengthened?

To put it baldly, by privatising BSNL and MTNL and abolishing the Department of Telecommunications, abolishing the licensing of last-mile connections and transferring the rest of the Department's powers to the regulator. The regulator must not have any members who have served any of the operators it regulates; the members should be chosen for their independence and expertise.

Do consumers get fleeced by opaque schemes (such as lifetime offers) where costs can be hidden or services indefinite?

"Opaque schemes" cover disparate measures. For some time around 2002-2003, operators were offering so many combinations of initial, time-based and call-based charges that it was impossible for a subscriber to compare or make sense of them. They were offered in the belief that the market was segmented by income and frequency of calling. In the end, many schemes were terminated, and their subscribers were persuaded or forced to migrate to a smaller number of schemes. There was no outcry because costs were falling and migration was not necessarily unfavourable to subscribers. The more recent proliferation of lifetime offers is due to the operators' belief that subscribers are loyal — that they do not easily migrate from one operator to another. I believe this is wrong; the cost of cell-phones will fall to such a level that many subscribers who do not get good service will buy another phone and another number. But I do not think that a lifetime offer involves fleecing; the operator reckons that anyone who acquires a phone to receive free calls will be tempted sooner or later to make calls.

Does the telecom industry portray a situation of perfect competition?

No. The Government ensured an oligopolistic structure by means of its licensing policies, and an oligopoly it is. Oligopoly does not preclude keen competition. If oligopolists see a large untapped market, they will compete to appropriate it. But that will not prevent them from colluding if the growth of the market slows down.

Is consolidation through M&A good for the consumers?

It is good for subscribers of small and weak operators; in the extreme case, it is obviously better for the subscriber if his operator is taken over instead of failing or forfeiting his licence. There are friendly and hostile bids and voluntary and forced mergers.

Bidders usually borrow to buy target companies; in that case the debt-equity ratio of the combined entity will be higher than that of its constituents. The higher leveraging will increase the level of risk. But it does not necessarily mean higher costs. If a company with high market reputation takes over an obscure or weak one, the former will be able to raise funds more cheaply than the latter would have; that may bring down costs.

Your views on applying game theory to spectrum auctions.

I do not know enough about this area of economics, but I have the impression that game theory has been applied to spectrum auction design. Spectrum auctions presuppose that it is good to maximise government's gains out of selling spectrum. I do not accept this objective. I prefer a system in which some spectrum is rented out for long periods and the rest pays rents determined over not-too-long periods in a competitive market.

Should cellular phones be banned from educational institutions?

Cell-phones should not be banned anywhere; their use in particular places and situations should be banned. Even this may not be necessary with new technology that whichdisables cell-phones.

Is the telecom industry stifled by tax policy?

I have no idea.

Do you foresee the entire country turning into one telecom circle?

Circles are artificial administrative constructions. They should never have been used in licensing; all licences should have been national. They cannot be global because governments have divided up the globe. But any further division is quite unnecessary. However, radio waves have varying geographical reach; this technical characteristic requires that the area of spectrum allocation should vary between different radio frequencies. Frequencies with limited reach may be given in licences for smaller areas, and vice versa.

On number portability x feasibility

What I understand is that number portability is technically feasible and might use numbers more economically. Telephone networks are huge, the software used for billing their customers is highly sophisticated, and it would have no difficulty in dealing with number portability. The same result could be achieved by offering easy call forwarding. Both may make migration from one operator to another easier and may thus intensify competition.

Does telecom growth lead to better human understanding?

No more than it promotes human misunderstandings.

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