Agenda Before The New Government

Every time when a new government
takes charge, media gets flooded with industry reactions
suggesting (setting) priorities before it to accelerate the
economic growth of the nation. If asked what should be the agenda
before the new government for telecommunications, pat comes the
reply from the industry, in unison "Implement the National
Telecom Policy in letter and spirit". It is relevant and
critical too.

 

It has been four years since the telecom policy was announced. Yet, the players, with the Department of Telecommunication (DoT) as driver, are moving in circles. And all the more, the players in telecom have begun to feel jittery. Reason, there is no "mai-baap" of the telecom industry. It has been left orphaned, soon after its birth, to face the rough weather of uncertain politics, monopolistic DoT, suspicious banker/lenders, apathetic customer, and toothless regulator. size="2">However, at the very outset it is important to look into why we could not achieve what we set out for, before plunging into solution-seeking exercise for the same. The idea is not to blame or instigate someone but to analyze in retrospection "what was planned and where have we reached". Moving In The Circles Let alone the consumer, neither the government (DoT) nor the industry is happy with the outcome of telecom liberalization so far. One would not be looking for more justification for the poor state of affair in telecom after knowing what the chairman of the Telecom Regulatory Authority India himself feels. "There is not even a single telecom user in the country without his woe" Justice SS Sodhi told in Telecom Users’ Conference in New Delhi. Moreover asking industry men whose fates have directly been attached to the fate of telecom sector about what went wrong in the upbringing of telecom as an industry, everyone came up with a distinct reason for the failure. size="5">"There is not even a single telecom user in the country without his woe." – Justice SS Sodhi, chairman, TRAI Says Vivek Mehra, executive director, Coopers and Lybrand, "When viewed in absolute terms, the liberalization process was faced with a few reverse decisions thereby dampening the confidence of private investors particularly the foreign investors." Air Cmde SS Motial (retd), CMD, ITI feels that it would have been more prudent to put the regulator first in place and then to go in for licensing. He also feels that while, world-over, telecom sector was opened up gradually to competition unlike other sectors of the economy, here in India, telecom sector was opened up with direct competition in both services and manufacturing. Of a similar view is Abu Shafquat, general secretary, VSAT Service Providers Association (VSPA), "While living under the dark clouds of Indian Telegraph Act 1885, we went about deregulation with a big bang approach instead of a phased manner as in the other countries." The Gap Between Promised And Delivered Gap between planning and execution of the National Telecom Policy–one of the major factor for having derailed the whole liberalization process–gets clear just by comparing what was promised and has finally come through. color="#FF0000" size="1">1. color="#000000" size="1"> Promised size="1">: Telecommunication for all and telecommunication within the reach of all. Fact: - Even after four years basic services are yet to take off. - Value-added service operators are already crying for their money. - Telephone on demand is still a dream. 2. color="#000000" size="1">  size="1">Promised: India to emerge as a major manufacturing base and major exporter of telecom equipment. Fact: - Manufacturing industries are finding it difficult to sustain and are set to leave Indian shores 3. color="#000000" size="1">  size="1">Promised: Private investment would be used to complement the department’s efforts to raise additional resources. Fact: - Private industry was looked upon as the milking cow to fill government coffers than investing in the core projects. Another interesting misnomer brought to notice by Ravi Sharma, vice-president, BT India, about the opening of the Indian Telecom segment is the way the whole game is being played. Says he, "If telecom is considered as a game with industry as one player and DoT the another then who do you think is the referee? DoT again!" Supporting the argument is Justice SS Sodhi, TRAI chairman who contends that when DoT and MTNL act as monopoly, there are rules which can take care of the problem. But when the question of implementation comes it becomes a bottelneck. AM Joshi, Hony Advisor to PTC India Foundation, argues the sanctity of the National Telecom Policy (NTP) which he says was not debated in the parliament, let alone discussing it with the industry. "Besides those who prepared the draft were themselves unable to understand and implement it in right spirit," promptly says, TV Ramachandran, vice-president, Cellular Operator Association Of India (COAI). He continues, "There was no mention in NTP that government should maximize its revenue while liberalizing the sector which unfortunately has become the norm." Policy Recommendation size="1">A. size="1"> The prevailing regulatory paradigm of managed competition must be modified or eliminated to overcome the substantial financial hurdles that private sector firms face in committing funds to network infrastructure development. size="1">B. size="1"> Incentive-compatible regulation (i.e. price cap) should replace earnings regulation. That means that only the price levels of essential services provided on a monopoly basis–e.g. residential basic access lines and public network interconnection arrangements–should continue to be regulated. Everything else should be completely deregulated. C. color="#000000" size="1"> Freedom of entry is essential. All operating restrictions that prevent entrants and incumbent firms from entering into competitive or cooperative arrangement should be eliminated. As in other industries, general business laws will continue to be available to protect against potential market abuses and anti-competitive behaviour in the telecommunication market. D. color="#000000" size="1"> Only incumbent monopoly network operator be subjected to residual regulations regarding non-discriminatory prices, terms, and condition governing public network interconnection agreement. E. color="#000000" size="1"> Competitively neutral and sustainable funding mechanism be implemented. Adds Pravin Kumar, president, Indian Paging Service Association, "Keeping the highest licence fee as the prime criterion for award of licence and not giving weightage to the price of service and the capital cost per line has also created serious distortion." He further says that late establishment of TRAI and then the fact that judgements of TRAI can be challenged even in the High Court has not helped in creating a powerful regulator. There are many more such instances which led to the poor show of the industry. But the two most crucial factors, derived from discussion with the industry stalwarts, that have affected the most are short-sighted NTP and delayed setting up of the regulator. Not only the regulator came in late but it came up without being fully equipped. The Way Out If a historical examination of the traditional institutional process for governing the telecommunication industry around the world be analyzed, it could best be described as a study in the political economy of monopoly turf allocation. The monopoly provider paradigm has always been questioned. But even the new paradigm, more often than not, is the one that of regulated competition rather than just plain competition. Which unfortunately is the case here in India too.

Basic Objectives Of Telecom Liberalization

In starting the process of telecom liberalization, the basic underlying objective was to bring in the private investment. For, size="1">1. size="1"> technological innovation; color="#FF0000" size="1"> 2. better planning and implementation of projects; color="#FF0000" size="1"> 3. making telecom accessible to all. And to achieve these objectives: 1. Liberalization of telecom was ushered in; color="#FF0000" size="1"> 2. Licences were awarded in cellular mobile service, basic telephone service, radio paging, trunk mobile radio, electronic mail, and other value-added services. 3. Telecom was included in the infrastructure sector, thereby extending it fiscal benefits, concessional duties on project imports; color="#FF0000" size="1"> 4. Statutory "Telecom Regulatory Authority of India" was established to separate the "regulatory functions" from "policy formulation" and "operational functions"; size="1"> 5. ECB limit was raised from 35 percent to 50 percent of the project cost; size="1"> 6. Licence assignability was permitted.

Industry observers strongly feel that
it is high time for the policy makers to bite the bullet
on free market entry for there is no more powerful engine
for investment than the freedom to pursue cash flow
opportunities. World-over those monopoly policies of the
past have failed. And it has failed in India too.

It is time for the government to
stimulate private investments in public network
infrastructure which is essentially in two ways:

• By pursuing a policy of
  deregulation and open market competition, which
  means that the government should get out of the
  way and allow the private pursuit of profits
  through productivity and innovation; and
• Government pro-investment
  initiatives such as flexible allocation of radio
  spectrum, tax breaks, universal service
  subsidies, and seed funding for achieving a
  critical mass for fledgling but promising
  technologies.

For instance, let us analyze what
open competition has done in the United Kingdom.

• By year 2000, 70-80 per cent of
  population will have three different access
  networks. Businesses, especially in city centres,
  will have many more.
• Retail prices have fallen by
  around 50 per cent in real terms and are
  continuing to fall.
• With over 200 licensed operators,
  a lot of capital investment is from abroad.
• There are five national carriers
  and four mobile operators.
• Over the last five years, cheaper
  calls and new services have led to huge growth in
  the market–8 percent per annum.

And all these have has happened due to
an effective and powerful regulator therein.

In India too, we should empower the
regulator:

• to choose policy option which
  maximizes the competitive outcome, thus ensuring
  that the long term interest of consumers;
• to neutralize the advantages of
  incumbents and dominant firms by removing
  artificial entry barriers and set entry terms to
  ensure efficient and sustainable competition;
• to ensure that universal service
  costs are financed in a way that encourages
  rather than inhibits competition.

Then it is vital that the regulator has
the full armory of competition powers at its disposal.
For it will need the same to enable a smooth transition
from a regulated market to an effectively competitive
one. The new government must ensure a tidy division of
powers between different authorities (DoT, TRAI) in a
fast moving market.

 

size="2">

Navaid I Khan,

sr vice-president, Koshika Telecom

"Finance
is a major bottleneck. Indian banks are reluctant in
extending assistance to the operators. In my opinion, the
finance ministry should be pursued to make it compulsory
for a bank in the circle to be attached to the operator
there. And the chief minister of the state should
personally look into the growth and problems of the
operator. After all that has been successful in
Hyderabad."

 

Ravi Sharma, vice-president
(operation), British Telecom

Government
in India has subsidized the basic education for a larger
mass to follow, grow, and enable them to earn. Then it
taxes their income. Either adopt the same strategy in
telecom whereby letting the industry grow and stand on
its feet and then seek revenue. Or kill the gold laying
goose in one go.

 

height="116">

Vivek Mehra, executive director,
Coopers & Lyberand

The
government needs to first set in place the appropriate
framework for the economy as a whole. These policies
should be drafted after detailed discussion with the
private and public sector and the industry associations.
However, it needs to adopt a co-operative approach,
rather than view their demands with suspicion. It might
mean that the government review the licensing norms and
for the new services being opened up, it might charge
licence fee as a percentage of revenues or based on the
number of subscribers.

 

Air Cmde SS Motial,
chairman, ITI

Encourage
larger number of private operators to come in even in the
circles where no bidding has been made. Also encourage
indigenous production with adequate value addition,
rather than screw driver technology. And declare
manufacturing of telecom equipment as infrastructure.

 

Pravin Kumar, president, IPSA

Need
of the hour is a clear demarcation in the
responsibilities of TRAI and DoT with a view to create
powerful regulator. Issues pertaining to the paging
industry like deferment of licence fee for the third year
by two years, fixation of licence fee from the fourth to
the tenth year for city-wide paging licence, private VSAT
network for carrying text messaging traffic between
various cities should be resolved on urgent basis.

 

Abu Shafquat, general secretary, VSAT
Service Providers Association

The
telecom regulator and operators must agree and adopt a
mutually acceptable agenda. Once adopted, both must
wholeheartedly support and act to fulfill these. But for
the VSAT industry to save itself from untimely demise,
first and foremost need is the fair, equitable, and
immediate allocation of satellite transponder capacity
besides allowing interconnectivity with other networks.

 

K Ganesh, CEO, Bharti BT

Telecom
policies need to be drafted not in isolation but keeping
in mind the entire spectrum of telecom services in
offing. Also allow VSAT services to be used by others
like the cellular and basic service providers and ISPs.
It would enable the VSAT service provider to deploy their
services in time, with minimal initial investments and
will also address lack of infrastructure issues.

 

TV
Ramachandran,

vice-chairman, COAI

While
the government should ensure the financial viability of
the telecom projects, strengthen the regulator and
restructure DoT, it should also restructure the licence
fee. Why cannot we have a revenue sharing system like in
Singapore, the UK, and also between DoT-MTNL? While in
the United Kingdom, it is on cost basis, in Singapore it
is revenue based (varying from 6-8 percent of revenue).

 

PK
Sandell,

president, TISA

Most
important issue to be faced on a priority basis is the
issue of access to adequate financing by all type of
service providers and operators. The current regulatory
framework, as existing over the last 50 years, which
controls lending and borrowing money in India needs to be
changed because it is unable to cater to the exorbitant
financial requirement of the industry.

 

TH
Chowdary,

Information Technology Advisor, Government of Andhra
Pradesh

Within the
state, telecommunications should not be regulated by the
Union Government but regulation should be delegated to
the states because telecommunications are essential
infrastructure for economic development and states are
competing for attracting investments.

alt="Dr Gunter Hecker, manager, transport and communication division (West) of Asian Development Bank (ADB"
align="right" vspace="3" width="118" height="80"> color="#358662" size="6">"What Is Most Required Is
The Political Will"

Dr Gunter Hecker, manager, transport and
communication division (West) of Asian Development Bank (ADB),
was recently in the capital for talks with the secretary,
ministry of communication regarding funding of the Madhya Pradesh
rural telephone network. Dr Hecker spent some time with Puneet
Kumar sharing his thoughts on what ails the Indian Telecom
liberalization. Excerpts ...

The purpose of your visit to
India ...

It has been over an
year-and-a-half since ADB is offering DoT a loan worth $120
million for rural telephony in Madhya Pradesh. Since it is DoT
which has to evaluate the tender for the same, nothing has moved
so far. It is really very distressing that on one side the
country is looking for an effective and efficient rural telecom
network, while on the other DoT is not very keen to start. It
gives a wrong signal to investors abroad, investing in the
country.

What is the outcome of your
meeting here with the secretary, DoT?

Unfortunately, so far, I have
not been received by the secretary.

What do you think would be
the reason of such an apathy?

It seems there are two groups
in the DoT working in favour and against the process of
liberalization. Which leads to a lack of consensus and initiative
among the policy makers.

So what exactly, in your
opinion, ails the Indian Telecom industry?

There are a number of companies
that are keen to invest in the country. But these are not too
sure about the operation of the Indian legal system, and the
rules of the game are not well defined. For instance, in the
neighbouring country, Bangladesh, once it was decided to lease
out the railways communication systems to a private joint
venture, it was never put to any debate later. And growth there
is for everyone to see. Whereas here in India, licensing
arrangement has been a big failure. So much was the absurdness
that I myself, if I were a financial institution, would not have
lent money to the private operator. The result of such exorbitant
bids is that the final cost of the service cannot just remain
within the affordability limit of an average user, without
sacrificing the operator’s margins. Setting up of the
regulatory authority was a good initiative, but DoT’s
hegemony once again is creating the problem.

What do you propose the new
government to do to strengthen the telecom industry?

First and foremost, the new
government should make up its mind whether it wants telecom
liberalization or not. Everything else falls later. If yes, then
it must fix up targets and deadlines. And also strive to achieve
them.

There are a number of role models which can be
followed. However, it is important that the government must put
all its weight behind TRAI. And the regulator should take up
issues related to frequency allocation, interconnection, and
tariff setting more seriously. It has to ensure that the licences
are given in a fair manner so that no other monopoly can develop
and also that no short-term price undercutting takes place.

What about DoT?

Knowing that an effective
regulator is the need for the healthy upbringing of a
liberalizing industry, DoT should not raise objection to it.
However, DoT should not be ignored or neglected. After all, it is
the only operator with maximum experience. So it can play a
crucial role in safeguarding the pitfalls.

Do you have any new plans at
ADB to help the Indian industry come out of its own imbroglio?

We are trying to supply a new
look to Indian telecom industry. We have already extended our
technical support to Railways to help them lease out their
excessive network for building up the country-wide backbone.