Getting ready for the next 25 years

India is at the cusp of a global supply chain disruption. It is time to implement learning from the past and make the telecom sector Aatmanirbhar.

By Arun Seth

It’s been 25 years since 31 July 1995 when Jyoti Basu in Kolkata made a call to the Union Telecom Minister Sukh Ram in Delhi. Over the years, mobile communication has moved from being exotic and for the well-to-do to become the lifeline for the not-so-well-off, and a potential path out of poverty. However, as I start thinking of the day, memories start rolling.

Chandigarh mid-1950s: pick up the phone and ask the operator for a 3-digit number and she connects you. It means that less than 1,000 people have that device!

Lucknow 1960: India’s first STD call is made; it was amazing to be able to dial without asking an operator to connect.

Kanpur 1970: standing in line at a PCO in at IIT, Kanpur to book a call to parents and using a ‘tickler’ to make ‘free’ calls through the coin box phone in the hostel – part of growing up.

Bangalore 1980: working in Whitefield and booking a call to Bangalore City without even dialing.

India 1985: the PCO revolution takes over and creates employment with the proviso that only the disabled can get a PCO license; the only way to allow the DoT to share its revenue.

Delhi 1990: had the privilege of having access to a car phone; one of a few hundred – a Motorola analog one.

Delhi 1995: the first GSM call is made in India.

The rest is history

Having been in telecoms for ages, friends from DoT working on strowgers and crossbars recall tales of how they used to “fix” inauguration of telephone exchanges: hardwire two instruments so that no matter what number is dialed it will still ring the second phone. It seemed PM Nehru understood this and dialed a different number and the phone rang up. There were lots of red faces, but the key then was to make the phone ring.

DoT was kept out of mobile telephony because it was meant for the

rich. Today the poor use mobiles, while the rich use fiber-optic

high-speed fixed lines!

The government was slow in getting out of “telecom is a natural monopoly” mindset. When I was running a phone and EPABX company in the mid-1980s, we used to pay Rs 100 per line of EPABX as royalty. When I asked why I was told it was to compensate for the profit that DoT lost! It took a long time to change the mindset that set us back for many years.

The magic figure for a mobile call was Rs 16.80 per minute and one had to pay the same for incoming too. But the licenses were given only to private players and the DoT was kept out of it because mobile phones were believed to be only for the rich. Since the DoT had the welfare mandate it was expected to focus on providing fixed-line services for the poor.

Today the poor use mobiles, while the rich use fiber-optic high-speed fixed lines!

The policy fallacy

This philosophy of a government having a ‘sacred cow’ has worked against the interests of India at large. In the mid-1980s the PCO revolution was made possible by allowing only the disabled people to get a license. Then, we had to pay more per call if we consumed more. It was economics on its head to suit a political theme that the government is there to serve the poor only. As a result, mobile licenses were given to private companies. This had a negative impact on the state telecom providers’ BSNL and MTNL – causing poor health and near death. This is contrary to the global scenario where incumbents, including BT, AT&T, Singtel, and DT, etc. are very strong. However, India wasted taxpayers’ money by not nurturing public sector companies to compete with private players. What also impacted them was the decision at the initial stages not to allocate mobile licenses to them.

I recall it was Jagmohan as the Telecoms Minister who got them a license in 1999 when the industry had shot itself in the foot with high license fees in 1995/96 and got NTP 1999 with a revenue share and with DoT getting a license in the bargain. Why did we need a crisis to fix this?

The international telecom monopoly of VSNL was broken early and the company was privatized again on the basis that since international calls were for the rich, the company can be sold to the private sector. The era of 2000 was the period of glory for the telecom sector. During this period, the power of economics at scale played out and proved to be the basis of telecom as an elastic service in the classical sense – each rupee in price reduction increases volumes by a large factor thus growing the pie. Each rupee spent on telecom infrastructure also created a 3x return on GDP. Finally, we were talking fundamentals and not tinkering with basics of scale.

I saw the same thinking hold back manufacturing in electronics. The same woolly thinking of licensing and catering only to India demand literally killed manufacturing. Telephone licenses were the classic example, with 51 licenses being given for as low as 5,000 phones per annum, and the government “democratically” gave licenses to all states as well. The only people who made money laughing all the way to the bank were the capital equipment suppliers since irrespective of the volume one still need the same equipment. Sadly, all were sub-scale and none of them were able to hold ground. We ceded the ground to Chinese companies in the mobile phone sector as well.

The root cause was the denominator of manufacturing – we wrongly assumed that our players will cater to Indian demand only, but the denominator was wrong. Finally, with Aatmanirbhar Bharat Abhiyaan we are seeing the right balance of economic policies coming to play – build locally for global demand.

Lessons from the past

We have seen the magic in manufacturing happen when the country recently needed the PPE kits. The government and private sector worked in tandem to create a global supply chain and in months, including using Air India planes to get the capital goods and raw materials. I see the signs of replicating it in telecom manufacturing, medical equipment, and pharmaceutical sectors.

We are at the cusp of a global supply chain disruption, thanks to the geopolitical situation. It is time we play our cards correctly this time. We need manufacturing jobs as much as the service sector jobs for the well-educated in the country. We should grab it using a few simple rules that are in the heart of economics and that too without tinkering

• Economies of scale are real, don’t tinker.
• Enable scale funding of our companies for global scale; tech is necessary, but funding creates sufficiency to succeed – learn from the Chinese.
• Be very selfish about national security as telecom will build the economy of the future. So, no compromise, please.
• Security is not just cybersecurity. It’s about defining what strategic security is for the next 20 years, even in diverse fields like pharma. So, focus on creating next-gen industries in each of these spaces.
• Focus on software as a strategic priority. No point in worrying about making commodity servers, etc. Software is now 70% of the value in any sector and we are good at it. Just that our IT industry has been focused outwards not inwards.
• Align research in academia with industry. The government should make big bets with Indian companies in these well-defined fields.
• Lastly, the government should trust Indian companies to do the right thing for the country and work with rather than going for L1 and five years’ experience in tenders. This tilts the pendulum the wrong way around for local enterprises.

I can see this change coming; we can’t get back the past. In the future, please make new mistakes, not the old ones.

The author Arun Seth is a former Chairman of British Telecom in India

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