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.