BSNL's imminent entry into cellular services and the GoI's stand on limited mobility could see connectivity boom...

...but endless litigation and thorny issues in the Convergence Bill could see India's telecom reforms mired in no-man's land.

By  Bharat Ahluwalia 

Heaven On Air

It's been a humdinger of a month for phone users. And so too for the self-anointed messiah of the poor, Union Communications Minister, Ram Vilas Paswan. All through the month, in press conference after press conference, he has done what he does best: hand out freebies.

On January 5, 2001, Paswan slashed long-distance phone call charges up to 100 km to a whopping (take a deep breath!) one-eighth of the original, while halving charges in the 100-200 km bracket. A few days later, he was back in the spotlight setting off a tariff war in the metro cellular circles even as he announced MTNL's entry into cellular services.

But he wasn't done yet. On January 25, 2001, he announced that the Telecom Commission had decided to allow basic phone operators to offer limited mobile services. That, in effect, meant that Bharat Sanchar Nigam Ltd (BSNL), MTNL and the six private basic operators could offer cellular services (that worked within a radius of about 50 km and without a roaming facility) at Rs 1.20 for three minutes. The poor man's mobile was finally here. In fact, Shyam Telecom and HFCL, the licensees in Rajasthan and Punjab respectively, sold their first Wireless in Local Loop (WiLL) based mobile phones on January 27, 2001. Paswan also announced that he expected cellular phone rates to fall even further, since the licence fee commitments of cellular operators had been reduced to 8-12 per cent, from the earlier 17 per cent.

But Paswan wasn't the only one to hog the limelight in January. BSNL Chairman, D.P.S. Seth, announced that the monolith's cellular phone service would roll out in August, 2001. The target: 600 cities and 40 lakh GSM cellular phones in three years. All at an expected cost of Rs 1,600 crore. Then, in a first for India, the Telecom Regulatory Authority of India (TRAI) finally made itself heard by directing cellular phone companies to refund extra money charged from customers. That's expected to put anywhere between Rs 400 crore to Rs 750 crore in the customers' pockets.

After many a disastrous attempt, is India's telecom revolution finally here?

Have the ghosts of India's flawed telecom policies finally been laid to rest?

Is the customer finally the beneficiary of the telecom boom that will be?

Let's ignore these announcements and look at what's been happening on the ground. The number of cell phone users in India doubled to cross the three million mark in the year 2000. But the real boom is expected only now. ''By the year 2008, we could have up to 100 million mobile phones if we have consistent GDP growth between 6-8 per cent, and of course, stability and consistency of regulation,'' says Manoj Kohli, CEO, Escotel.

And tariffs are expected to fall further. ''As volumes rise, we can be viable at even a little less than Rs 2 a minute,'' says Sudershan Banerjee, CEO, Sterling Cellular. Courtesy MTNL, we've already seen the impact of the third operator on tariffs. Besides, after burning its fingers once, the government appears to be quite clear that revenue-sharing is the only way out. ''Affordable communication and high licence fees are incompatible,'' says P.K. Sandell, Founder President of the Telecom Industry and Service Association (TISA). In fact, that's exactly the reason preferred for the number of cellular phone owners in China being 20 times India's at 60 million: China has no licence fee and customers don't have to pay a monthly rental.

Besides, lower equipment prices are expected to ensure that the eventual cost to the customer heads only one way: down south. ''Network equipment prices have come down by about 50 per cent, compared to what they were four years ago,'' says K.S. Jayant Kumar, Managing Director, BPL Communications.

Internet rates, too, have been on a downward spiral and subscription-bases are swelling rapidly. The country's largest ISP, VSNL, has seen an 85 per cent year-on-year growth, with its subscriber base touching 5.5 lakh in December, 2000. This, when it has been operating only in six cities. ''We'll be operating from 24 cities in the next four months and expect our subscriber base to grow 135 per cent this year, and touch 12 lakh,'' says Amitabh Kumar, Director (Operations), VSNL.

Bandwidth doesn't seem to be that big a worry now. From 40 mbps of bandwidth in March, 1999, VSNL will have 1.2 gbps in March, 2001. And by the end of 2001, it'll add another 1 gbps in bandwidth. But even this is overshadowed by what the Bharti Singtel combine has planned: 8.4 tbps (that's terabytes, silly). Then, there's Sivasankaran's undersea cable of 1.2 tbps. In fact, there's a worry that there might be too much bandwidth.

"Network equipment prices have come down by about 50 per cent in the last four years" K.S.Jayant Kumar, MD, BPL Communications

There's more good news: BSNL's reduction in std tariffs could well be followed by a fresh round of tariff rebalancing by TRAI, making std rates drop again. Ditto's the case with international phone rates, which came down last year. That's allowed a lot many more people to call abroad. In the first nine months of this fiscal, international phone traffic out of India has grown 22 per cent. It'll only get better, with a new set of international phone rates to be decided by April, 2001. ''I expect the rates to come down drastically,'' says S.K. Gupta, Chairman and Managing Director, VSNL. ''In two to three years, customers in India should be paying Rs 25 a minute for a call to the US, compared to the Rs 48 they pay now.''

The Real Rationale

Let's get back to the impact of limited mobility. While cellular operators might cry foul and refer to it as a disaster, this decision virtually turns around the fortunes of basic operators. No wonder the government has received 47 licence applications for basic phones. So far, barring Bharti Televentures in Madhya Pradesh, the other five existing licensees have either kept their operations on a slow burn or haven't commenced operations until recently. The rationale being that the licence fee commitment pinched enough, so why throw good money after bad, since it was never going to be economically viable.

The poor man's mobile phone is expected to change that. On an average, it costs BSNL about Rs 32,000 to install a basic phone with a copper wire. And thanks to the high cost of the handset (Rs 15,000-20,000), using will, in the pre-limited mobility age, offered no advantages barring fast installation. But now, with people expected to pay regular rates for... well, nearly mobile phones, basic operators expect many people in the cities to begin using will phones in lieu of mobile, or even their regular fixed phones. Says Sanjive Kanwar, Vice-President, HFCL Infotel, the licensee in Punjab: ''The market will just boom. It's ridiculous to even put a number to it.''

More than anyone else, will mobile phones will help BSNL in a big way. With two-thirds of its revenue coming from STD calls, BSNL was severely hit by the TRAI-ordered reduction in STD rates. It clearly needed an alternate revenue stream. And since BSNL is the largest provider of basic phone services, it is the biggest beneficiary. Combined with the other revenue streams, GSM-based cellular services, BSNL should be adequately compensated for the revenue it is losing on the STD front. Hopefully, this will give BSNL enough revenue surpluses to invest in rural telephony, and turn India into a telecom paradise (regained).

Hell On Wheels

"As volumes rise, we can be viable at even a little less than Rs 2 a minute" Sudarshan Banerjee, CEO, Sterling Cellular

Run a Google search for the oft-used acronym, COAI. And you'll get directed to the official website of the Clowns Association of America International. If you think that's an uncalled for dig at our cell phone companies, hey, we've only just joined the party. There are others who came in much before we did.

On January 25, the party was rocking. First, the Telecom Commission allowed basic operators to offer limited mobile services. Then, cellular operators woke up to reports in the media that a posting on the TRAI website directed them to refund between Rs 400 crore to Rs 750 crore to customers. If that wasn't enough, they received notices from the government, directing them to pay fines for not fulfilling their rollout obligations.

But isn't all this good for the customers? Yes and no. It's good because cheap mobile phones will finally be available to Indians. And it's good that someone is finally looking at things from the customer perspective.

The no in this case is a lot more resounding. For, if one goes through the fineprint, it's obvious that the reasons behind the Telecom Commission and TRAI's activism are all about strengthening Bharat Sanchar Nigam Ltd's (BSNL) case. This is bound to have serious implications for India's telecom sector. After all, it is the cellular companies that have accounted for over half the $4-billion foreign investment in this sector.

''It's possible that 50 per cent of my customers may shift to will phones,'' says Jayant Kumar of BPL Communications. Virtually every cell phone company CEO echoes these sentiments. ''Less than one-third of my subscribers in Delhi use roaming and other services that GSM offers,''says Sudarshan Banerjee, CEO, Sterling Cellular. ''That means that two-third of my subscribers will see value in a CDMA-based will phone.'' In fact, according to industry estimates, value-added services like WAP, roaming and SMS can at best account for only 12-15 per cent of revenues.

To add to this, it's obvious that India isn't exactly everyone's favourite investment destination. Already, Hutchison, with investments of half-a-billion dollars in India, has officially put all investments on hold. And it won't be much different for others. ''There is a slowdown in the global telecom market,'' says Virat Bhatia, Managing Director, AT&T Public Affairs. ''With many western countries liberalising their telecom sectors, the ability of big companies to invest overseas is limited.'' AT&T is itself $62 billion in debt, while Deutsche Telekom owes creditors $70 billion. It's natural that the impact spills over to the IPOs of the Bharti and BPL groups.

But are these companies exaggerating the damage caused by the recent pronouncements of the TRAI and Telecom Commission? For, if Code Division Multiple Access (CDMA) based will phones can provide limited mobility at Rs 1.20 a minute, why should customers patronise GSM-based phones? The first thing to be considered is whether tariffs are sustainable. ''Network infrastructure for mobile telephony based on the CDMA platform is not cheaper than (that for telephony based on) the GSM platform,'' says telecom consultant, Mahesh Uppal. So why are CDMA-based services cheaper?

That differential comes from two things. First, even after the migration to revenue sharing, most cellular companies are carrying the licence fee payable till July, 1999, on their balance sheets. Customers are still paying for this. In contrast, the licence fee for basic circles was much lower, and a company like BSNL, which is expected to offer the maximum number of CDMA mobiles, has no licence fee to pay. The cellular operators would like the Telecom Dispute Settlement Appellate Tribunal (TDSAT) to take this into account, but it remains to be seen whether the tribunal is willing to level the playing field to such an extent.

Where cellular companies have a legitimate claim is the differences in interconnect charges payable by basic and cellular operators. If you make a three-minute std call from your mobile, you pay airtime charges (retained by the cellular operator), Rs 1.20 as local access charges (passed on to BSNL or MTNL) and the regular std charges, 95 per cent of which goes to BSNL. So, all the cellular operator is left with is the airtime charge and five per cent of STD charges. In contrast, an operator offering will mobile phones can retain upto 55 per cent of STD charges. And if the service is offered by BSNL and MTNL, they retain the entire STD money. With this they can subsidise a customer's airtime. That gives basic operators an unfair competitive advantage.

But isn't that great for the customer? It may be true today, but won't be so tomorrow. And it isn't going to be possible to stifle Voice over IP (internet telephony) forever. ''Once std charges drop, the Rs 1.20 tariff won't be possible,'' says Kohli. Eventually, customers will have to pay the true cost of making a phone call.

Still worse, a CDMA mobile package may not be cost-effective as it seems. ''It doesn't have the mobility of GSM, nor the bandwidth of fixed-line networks,'' says Vineet Nigam, manager, ICRA. And with over 85 per cent of the world using GSM phones, the cost of GSM equipment will probably fall faster.

The Likely Impact

"By 2008, we could have up to 100 million mobile phones if we have a GDP growth between 6-8 per cent" Manoj Kohli, CEO, Escotel

So are we backing the wrong technology? And what will be the impact? First 3g (Third Generation) networks will be based on Wide Code Division Multiple Access (WCDMA), an upgrade from the GSM platform. But if India ends up using both technologies, it will deprive the country of the benefits of economies of scale, leading to higher costs.

The near-term doesn't look promising either. First, by allowing limited mobility and penalising cellular companies for not meeting rollout norms (the basic guys go scot-free), TRAI's reputation has taken a knock. ''The classical model of regulation is to regulate the incumbent,'' says Uppal. ''For instance, AT&T was restricted to long-distance and international telecom. Whereas here, BSNL is gradually increasing its scope of operations."

If anything, BSNL has managed to stifle competition unfairly. In January, BSNL announced a steep reduction in STD tariffs. But the fineprint said that the reduced rates were applicable within a telecom circle. The motive? To combat cellular companies that were charging local call rates for calls made within the circle, something that was hitting BSNL's revenue. And the government's domestic long-distance policy has ensured that not a single private operator has applied for a licence. ''The rollout obligations are so stiff, that anyone who applies will have to forego the Rs 400-crore licence fee that is refundable as you rollout,'' says a senior executive in a transnational TELCO.

Clearly, BSNL doesn't believe that competition is India's path to salvation. A decade ago, China had one phone per 100 people, today it has five times as many lines as India and 20 times as many mobile phones. In contrast, courtesy BSNL, India has a teledensity of three per 100, and now that the monolith is stifling competition, what gives us reason to believe that it'll do better?

-Additional Reporting By Ashish Gupta & Ashutosh Sinha

One Bill To Bind Them

Battered, bruised, and pretty well licked. That's the state cellular operators would like us to believe they are in, post the Telecom Commission's decision allowing limited mobility for basic phones. But the fight they've just lost was a mere skirmish. The real battle for all telecom-and this time even broadcasting-companies is still ahead in the form of the Communication Convergence Bill. A draft of the Bill was okayed by the Group of Ministers on January 16, 2001, and for the next month it will be on a government website, inviting comments and suggested changes from the public. After that, Jurist Fali S. Nariman-the author of the Bill-will give it finishing touches, following which it could become an Act as early as the next monsoon session. When it does, the Act will overwrite all telecom and broadcasting laws that currently exist. Put simply, it'll be the mother of all laws pertaining to these sectors. But why introduce such a law? The rationale is that technological changes have blurred the lines between broadcasting and telecom, which are governed by different laws. For instance, ISPs are governed by telecom, but what if it's a broadband ISP that allows you to watch a movie? And what about your cable operator-governed by broadcasting laws-who turns into an ISP and then provides a cable phone service? It was felt that separate laws would lead to an overlap of regulators and slow down the process of technological convergence. But it's a walk down an unknown path. Barring Malaysia, no country in the world has such all-encompassing convergence legislation that includes both carriage and content. So, expect all cellular operators-their battered bodies notwithstanding-and all other telecom and broadcasting companies to focus all their lobbying efforts on this piece of legislation. All licences-cellular, basic, ISP, cable, and broadcasting-issued so far will automatically be governed by the regulations of the new Act. The Bill provides for the creation of the Communication Commission of India (CCI), which will, for the initial period, consist of the members of the current Telecom Regulatory Authority of India (TRAI). That, in itself, irritates broadcasting companies. Says Kiran Karnik, Managing Director, Discovery Channel: ''This is not desirable, as from the inception, the CCI will be dominated by telecom at the cost of other services.'' As the Bill stands now, it is extremely broad in scope, leaving the nitty-gritties to regulations that will be formulated by the CCI. And since there are no specifics that hurt individual companies, it makes objection, and hence the stalling of the Bill-as has been the case with many other stillborn laws-difficult. But unlike existing legislation, what the Bill does do, is vest immense authority in the CCI. So far, the government has always kept licensing and spectrum allocation powers with itself. But under the Bill, the CCI will manage and license spectrum usage, grant licenses, and determine and enforce license conditions and fees. The government will only provide the broad policy direction. But is that how it will eventually pan out, considering the ease with which members of the CCI and Communications Appellate Tribunal can be appointed or removed? According to earlier versions of the Bill, members would be appointed only after recommendations from a committee consisting of the Prime Minister, the leader of the House in the Rajya Sabha, leaders of the opposition in the houses of Parliament, and ministers of I&B, communications and it. As it stands now, the government can decide the staffing of these regulatory bodies on its own. As regards removal of members, the version drafted by Nariman envisaged removal only after an inquiry by a former judge of the Supreme Court. According to the current draft, the government retains the power with itself. While it's early days still, since most people in the business haven't seen a copy of the latest draft bill, those in the broadcasting business are quite concerned about some of the clauses that have been part of the Bill since inception. For one, the CCI will decide a programming and advertising code, for the TV channels we watch. ''This is a retrograde step and harks back to a different era,'' says Karnik. Not only that, every content provider (the Bill is silent on whether websites are included in this definition) will need to register with the CCI. Then, TV channels that want to uplink from India will have to carry a certain proportion of indigenous programming. Imagine, ESPN being forced to carry kabaddi or kho kho for eight hours every day. And we thought this law was all about being progressive!

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