Bell bottoms, long hair and telecom

Having been engaged in telecoms since the mid 1980s with opening of telephones and EPABXs to the 90s of mobile cellular telephony starting with 1G of MOTOROLA in 1993, when there were just 500 connections in Delhi (and I had access to one) to today’s 4/5G and true convergence. I can’t help, but compare this industry with those bell bottoms and long hair of the crazy 70s, when we were students! What goes up, goes down and whoops, it’s back again!

I recall the trepidation at BT HQ in 1995 when we bought into Airtel (it was just a simple, one-city license with less than 100k or so customers by the way), and we eventually acquired 45% of the company. That was soon after saying a no bid (thankfully) to the crazy bidding in ‘95 for fixed and circle licenses that led to the first of many crisis of making ourselves unviable with fixed fee license fees in the thousands of crore.

I recall swearing on our hearts that we in BT India would not venture outside the three metros—in fact, called it the Golden Triangle in the investment paper!

Exactly 20 years ago, the industry had pronounced itself dead in the waters like most of it is pronouncing today. Licenses to 34 circles were given to an overenthusiastic telecom industry with their mandated foreign partners over bidding to the extent of lakhs of crores of license fees—one company had bid even Rs 85,000 crore.

Revenues never materialized to the extent planned and the industry was looking at an abyss of death and gloom. Even in Airtel where BT had a stake the license fee was some Rs 6,000 per annum per subscriber—an unbelievingly large sum even in those days.

BT itself forgot the wisdom of its decision of not over bidding in India with its disastrous 3G license Bids in UK and Europe leading to its near death, but has managed to survive today, albeit in a weaker form of what it was but the key is its surviving!

I recall BT was close to increasing its stake in Airtel in 2001 by consolidating into the holding co that was finally taken to IPO finally, but we did a 180 degree turn around with a looming bankruptcy and became a seller for cash from a buyer and lost a golden opportunity to create value - that stake went to Singtel!

Fast forward to the decision of the NDA government of Atal Behari Vajpayee that time in 1999 to move to a revenue share formula with its NTP 99 that enabled the industry to survive and grow to what it is today. There was no RTI or CAG or pervasive Internet and social media to raise a hue and cry about how the government was “writing off” a bid that was voluntarily given by the industry for a share of future unknown revenues! I would leave it to the reader to imagine that scenario in their own fertile mind, if it were to happen today.

Mobile phone goes mainstream

In the intervening 20 years mobile penetration has grown from a tele-density of just three in 1999 to a staggering 95 in 2019, with prices dropping exponentially making India the lowest cost telecoms globally. So the vision of 99 did deliver what it promised in number of users and the fundamental premise of 1% investment in telecoms leads to 1.5 to 2% increase in GDP as you can see the situation where today the E-commerce giants get majority sales from tier 2 and 3 towns. This could not have happened without ubiquitous telecom.

But, in the intervening period, like the drain pipe trousers of the 1960s going to bell bottoms, the govt also added a good number of additional players leading to the Supreme Court decisions to cancel licenses allotted and thankfully the number of players reduced, but with a lot of pain all around with bankers getting singed with bad debts for example and international players exiting and the pain to the people in telecoms being laid off.

The multiplicity of licenses led to highly inefficient use of scarce spectrum as all operators had sub-optimal quantity of spectrum that meant higher opex costs.

A collateral damage was possibly to the environment as a small spectrum allotment per telco meant a large no of towers to serve the same number of users and a degradation of service. A wise veteran was led to say the telecom industry spreads pain democratically, with not even the PM being spared, and with no regard to caste and creed of income.

The Jio launch in 2016 led to a bruising price war which led to much needed consolidation and the last nail was of course the Supreme Court judgement on AGR. It is still being played out in the courts and market but who knows—then there may be two if I were to believe what the papers say. The collateral damage, however, has been suffered by telecom infra providers like Railways, gas and transmission pipeline companies of the government.

They are now being asked to pay tens of thousands of crore as AGR dues with penalty on their overall revenue than just on the small amount they earn from telecoms. It’s going to be interesting to see how that will play out but the only certainty is that the legal fraternity will get a huge revenue boost.

What started as a self-goal by the industry before 1999 with high prices bids leading to an unviable industry to very high growth to a massive consolidation through extreme competition and legal decisions will hopefully play out to an Industry with higher tariffs as has happened just weeks ago but with far better service quality with a larger spectrum allotment and just three players.

The Indian consumer deserves this as great telecoms will spur GDP growth in the smaller towns and enable India to compete globally. I only hope that something similar can happen to the woeful situation in air quality and water availability too.

India is unique that it’s the only country where the original incumbent BSNL has been reduced to a bystander. That’s a major opportunity lost. At one time, BSNL was valued over a 100k crore. It’s still not too late in my opinion to revive it, especially with the long-awaited VRS being closed.

We, at BT want through a similar situation but pragmatic policies allowed it to flourish including reducing form 250k people to sub 100k and inducting professional management and flexibility to compete. They have the opportunity to leapfrog to the latest tech which customers want and more important a network in rural areas that is needed, but needs open wholesale policies and thinking of its competition as customers for its wholesale business.

That’s what they always said of telecoms; it’s a natural monopoly or a three players market with a strong regulator. It’s taken 20 years to come around. It seems its bell bottoms and long hair in its pendulum like fashion journey! Oh, how I long for those happy days!

- Arun Seth

-- The author is Former Chairman, BT