Policy Watch: Covering Long Distances

As long-distance telephony finally gets its dial tone, players look forward to clarity on revenue sharing and operational issues.

It was supposed to be a New Year offering. But it's turning out to be an Independence Day gift. On August 15, 2000, national long-distance telephony (NLDT) will finally be freed from the long-held monopoly of the Department of Telecommunications (dot). Private operators will then be able to partake of a piece of the Rs 12,000-crore NLDT pie.

When Prime Minister Atal Bihari Vajpayee announced, on July 15, 2000, that NLDT services would be completely de-regulated, with no restriction on the number of operators, he brought the curtain down on yet another messy chapter of India's telecom liberalisation story-a chapter that saw two different orders by two regulators, amidst much dissent and bickering (See Crossed Wires). Finally, the Prime Minister's Office (PMO) stepped in to throw its weight behind the telecom consumer who will now have more choice.

THE LONG-DISTANCE FRONT-RUNNERS

Bharti group
>> One of the biggest cellular service providers
>> Was the first private company to start basic services
>> Has set up Bharti Telesonic to spearhead the NLDT foray
>> Has laid 3,600 km of optic fibre in Madhya Pradesh, 5,000 km in Andhra Pradesh and Karnataka, 100 km in Delhi and 80 km in Chennai

British Telecom
>> Was at the receiving end of monopoly busting in the UK in the mid-1980s
>> May choose to extend its cellular and ISP partnership with Bharti to NLDT
>> Keen to invest, but waiting for the remainder of the policy to unfold

Reliance
>> Immense financial muscle
>> Clever cellular strategy that ensured low licence incidence
>> Setting up a sub-sea fibre link to Singapore with several landing points in India

In the process, it rejected dot's point of view completely, though the denizens of Sanchar Bhavan (which houses the Ministry of Communications) would have everyone believe otherwise. All through July 15, 2000, they were burning up the wires, asking journalists to write that the PMO had taken the dot into confidence before making the announcement.

The industry is understandably jubilant. ''It is a long-desired step, which will revolutionise the telecom sector and catalyse the growth impulse across the country,'' said the Federation of Indian Chambers of Commerce & Industry (FICCI).

The controversy over the opening up of NLDT had largely revolved around the number of operators, with the dot and the earlier Telecom Regulatory Authority of India (TRAI) headed by Justice S.S. Sodhi, clashing on the issue. dot had argued that, with the entry criteria prescribed by Sodhi and his team, there would be between eight and 10 operators, each with a marketshare of not more than 5 per cent. This would, its reasoning went, result in a negative return on investment, even without any revenue sharing. DOT, therefore, wanted the number of operators to be limited to just four, including the Department of Telecom Services (DTS).

The new TRAI-headed by former State Bank of India Chairman M.S. Verma-went along with this view and recommended that the number of operators be limited to five, including the DTS.

That kicked up a storm, with one TRAI member-Rakesh Mohan, 52, Director-General, National Council of Applied Economic Research-dashing off a dissent note. He saw the move as not only limiting to competition, but also leading to bidding for licences. In the past, the bidding for telecom services has invariably led to litigation because the licensees were unable to pay the fees and sought extensions, while dot insisted on the payment being made. There are several instances of companies submitting exorbitant bids in order to grab licences but not being able to sustain the bids when they began operating.

Asserts Mohan: ''Limiting competition involves a bidding process that will inevitably lead to greater cost for the licensees and eventually the consumers.'' The observation readily found an echo across associations such as the Telecom Industries Services Associations and the Cellular Operators Association of India, as well as apex industry associations such as the Confederation of Indian Industry and the Associated Chambers of Commerce and Industry.

Artificially restricting the number of operators was also construed as wholly unnecessary. For one, the stiff entry criteria-a net worth of Rs 2,500 crore and an entry fee of Rs 500 crore, of which Rs 100 crore will be non-refundable-would automatically limit the number of entrants. Moreover, having burnt their fingers earlier on cellular services, lending institutions were also expected to act as a filter, keeping out non-serious players. Communications Minister Ram Vilas Paswan sees the sense of this argument. He says: ''Once you have fixed such stiff criteria, why limit the number of players as well?''

But industry players, though happy, are holding back the celebrations. Equally contentious issues, on which Vajpayee was silent, remain to be tackled. Take intra-circle calls, for instance, which account for close to 50 per cent of the total NLDT business. Sodhi's TRAI had proposed that NLDT operators be allowed to carry inter-circle as well as intra-circle long-distance traffic. However, Verma's TRAI-once again toeing the dot line-is against this, saying that it will lead to ''disruptive competition''.

Dot argues that the existing basic telephone service licence permits licensees to carry long-distance traffic of their subscribers within the service area. If NLDT operators are permitted to carry the long-distance traffic within a circle as well, it will affect the viability of the existing service providers. There's little doubt about whose financial health dot is worried about, considering that currently there are only three private basic operators with a circle-wide network, in addition to the dot's nationwide network. Although licences were issued in three other circles too, they have not been operationalised.

Mohan has a solution: a change in the existing licence condition for basic service providers, which limits them to carrying the traffic of only their subscribers. If these providers are allowed to carry others' traffic as well, it will improve their viability by sharply increasing the amount of traffic available to them. Says Mohan: ''The fixed service providers will also have the opportunity to provide a larger set of services over the next few years.''

The dot, in another competition-limiting move, favours bids on the basis of entry-fee quotations with a pre-determined revenue share percentage. The new TRAI went along with the old one's stipulation of Rs 500 crore as the entry fee. In addition, it has suggested a minimum revenue share of seven per cent. Telecom Commission Chairman Shyamal Ghosh says the revenue share may be fixed at 10 per cent in addition to a Universal Service Obligation (USO) to be fixed by TRAI. The former TRAI had seen five per cent as the right revenue share for USO. Calculations for arriving at the entry fee, Ghosh says, will revolve around TRAI's recommendation of Rs 500 crore.

As these issues remain unresolved, potential investors remain non-committal. Says Arun Seth, 48, Managing Director (India & SAARC), BT Worldwide: ''British Telecom is a candidate for NLDT in India, but investments are subject to these issues getting clarified. In the end, there may be no investment if the rules are not right.''

Take the revenue share issue, which could be a clincher for investments. If the NLDT market is taken to be Rs 20,000 crore, which it could well be if the sector is opened up under an investment-friendly regime, the government stands to make huge gains. A five per cent revenue share could result in earnings of Rs 1,000 crore; while a 15 per cent share could yield Rs 3,000 crore. The government, obviously wants a higher revenue share. However, if it relents a bit, the country as a whole could benefit with larger investments. Points out Seth: ''A five per cent revenue share can fetch you $5 billion worth of investments.''

The managing director of another transnational wants the government to understand that investors take huge risks in committing long-term funds. Even the most sophisticated technology gets obsolete within months. Take the case of the Motorola-led Iridium consortium. Two years ago, its satellites boasted of providing global connectivity. Then came the global roaming facility on cellphones. Six months ago, Iridium had to burn down its satellites.

The signals are loud and clear: design an investor-friendly environment and there will be no looking back. Is someone in Sanchar Bhavan willing to take this call?