Memoranda for Submission to the Chief Ministers of the Two Telugu States.

Articles

Telecoms: Progress to Plenty – Descent to Distress

Dt:  4/12/19

 

 

Telecoms: Progress to Plenty – Descent to Distress

 

Dr T.H.Chowdary*

 

If there is one consequence of liberalization of India’s economy, from the   Nehruvian permit-licence- quota socialistic pattern,  it is in the realm of telecommunications and Internet. The change from a situation of , “apply apply – no reply” to “hath hath mein telephone” and “gaon gaon mein internet” is the  remarkable outcome  of demonopolisation, regulated competition  and exemplary entrepreneurship  in our country.   In 1994 when the first National Telecom Policy (NTP-1994)  was promulgated by Prime Minister P V Narasimha Rao’s government,  the country had just  10 mln telephones for 1000 mln population,  a tele-density of one  telephone per 100. Today we have 1200 mln telephones; over 97%  are  mobile phones.  The teledensity is 93%. In 1994  the average per telephone revenue per year was Rs. 10,000, equal to the per capita  income of our people then. Today,  the Average  Revenue Per User (ARPU) per year at less than Rs. 1500,  is one-hundredth of the per capita income. Therefore even the  poorest of the poor  are able to  have a phone. Competitive private businesses  introduced the prepaid service  because of which every  persons can have as much usage as his /her income permits.  At the height of  hyper competition in 2010-11,  India  added 19 mln telephones in one month.  We had more than ten companies competing and soliciting users through outsourcing the sale  to lakhs of shop keepers .   The journey to this  great outcome has however not been without strain .

 

2. The end of the monopoly of the  Department of Telecom (DOT) and the emergence of super competition  went through an almost crippling phase during  1994-99 . The DOT was the licensor, a deprived service provider  and a  regulator laying down the conditions of licence  and regulating competition unlike anywhere in the world.  The deprived DOT  as operator -licensor -regulator put crippling  conditions on the competitors . To mention just a  few:

·         While the universal practice is that the  caller pays , the condition imposed by the licensor  operator DOT was that the called party also pays

 

·         The charges for the calls were fixed not by the competing companies but  by the  licensor-  operator   DOT

 

·          A private telephone company (P-Telco) may have an operating  license in  adjacent states. It has  network in both the states . A call from its network in one state to one  in the adjacent network state has to be handed over  by the  P-Telco to the  DOT at the secondary switching center that is,  usually the district headquarter town. The P-Telco was not allowed to inter-connect its networks in the two adjacent states. The carriage of a call has to be only by DOT between the  two states at   rates it has determined to charge.

 

·         The P-Telcos had an  obligation to  install public telephones and provide telephones in  rural  areas  as a certain proportion of its total  number of  subscribers. The P-Telcos  started with one telephone  exchange and through this  one exchange, it had to give public telephones and rural  subscribers all over the State !  This was an impossible task.  Non-compliance attracted  penalties. 

 

·         The license  fee had to be paid upfront .The financial  the P-Telcos raised mostly went into this upfront payment  and they therefore defaulted on the   roll -out obligations attracting penalties.

 

 

3. By 1999 the P-Telcos  were in dire financial straits. Fortunately, the Atal Behari Vajpayi government heeded  the  wise advice  of telecom liberalisers like me and economists and as importantly, the bankers who funded the P-Telcos  but were not getting the re-payments according to schedule. The result was the National Telecom Policy 1999 (NTP-1999) ignoring the  usual and  characteristic, destructive criticism of   leftists  and their  parties.  Sri Vajpayee’s government migrated the P-Telcos from upfront license fee payment regime  to one of revenue sharing.  The NTP-‘99 also converted the DOT -provided  telecom services into  a corporation – the Bharat Sanchar Nigam Limited (BSNL) in October 2000.  NTP-1999 let the  BSNL compete  with the  P-Telcos in every variety of telecom service including  Internet. This revolutionary  NTP-‘99 was the outcome of the acceptance of the recommendations of the  1998 Prime Minister’s (Vajpayee) National Task Force on IT & Software of which, the late N Seshagiri, Prof Indirasan, myself  and the unusual  IAS officer Sri N.Vittal  among others were members. We as a group were responsible for making 108 recommendations  which were accepted within one month  of   submitting the report and within  four months of constituting the Task Force .  The distinction between  telephony and data was ended because of the  electronification, digitisation and  computer - processing of every type of telecommunication  – voice , text, data and  picture.     After sustained criticism from telecom liberalisers within the country and foreign companies  investing in Indian telecoms, which were outraged by a competing  government  operator  and licensor  (DOT) regulating the private companies. To facilitate  fair competition, the statutory  Telecom Regulatory Authority of India (TRAI) was constituted in 1997. With a number of Telcos  in the field, disputes arose between the  licensor (government) and among Telcos  in regard to inter –connection,  interpretation of  licence conditions etc….the Vajpayi government therefore constituted another authority, Telecom Disputes Settlement and Arbitration Tribunal (TDSAT) in 2000. The NTP –’99, the TRAI-‘97 and TDSAT -2000 and the government Internet policy (1998) unleashed hyper competition leading to the   provision of  19 mln telephones in one month in the year 2010-11.

 

4. The PSU, Videsh Sanchar Nigam Limited ( of which I was the  first Chairman and Managing Director) was privatized in Feb 2008, again due to persistent campaigns by, among others, the Center for Telecom Management and Studies  (CTMS) which I founded in 1998   ( even when I was the  CMD of VSNL) to wage  a crusade for ending the telecom monopoly and  ushering, free market competition under proper  regulation.

 

5. There are two things which   have led to the end of the  euphoric telephone and   Internet plentitude and descent of Telcos into distress. The primary reason which so far has not been highlighted is the immoral claim of ownership of  radio spectrum (so essential  for mobile  telecommunications) by government and auctioning it as though it is its  property to realise the highest revenues.  Radio spectrum the Telcos use is not created by government or by God. It is created by the  operating companies.  It can be used  again and again  and is therefore  an unexhausting resource the companies  create. The  only legitimate function of government   is  to regulate its use by slicing it into different bands and allotting them  to different companies so that the use of the same spectrum  in the same service area by more than one company does not lead to disorder . The regulator can realise the cost of regulation- allocation of the  spectrum  and monitoring its use.

 

 

 

6. The second obnoxious licence condition is that after selling the spectrum, its usage is also charged. It is like the owner of a flat selling  it to some person and  taking money from him and yet charging for its  use by the buyer. The high amount realized through auction  and  the usage charges collected from the  companies are immoral.  There the highest anywhere in the world. 

 

7. The companies are required to contribute 5% of revenues to Universal Service Fund (USF) to extend variety of services  to rural areas.

 

8. These are  leading to financial distress of the  companies. The revenue share ought be only from  the telecom and information services that require   licence but the government (Supreme Court endorsed the government stand)  claims it from the  revenues through  business operations not requiring  licence like  sale of  telephones or other devices. Added to these  high levies, the entry of Reliance  Jio with a spectacular “no charge” service for some time and  bundling  telephone service  with data and video at fabulously  low prices has led to a crisis in the Telcos, aggravating the  distress of the  BSNL / MTNL which  have been ailing.  The more than  ten            P-Telcos are  now reduced to  three in the private  sector  and one in the  public sector ( BSNL, MTNL combined) . The private companies which were making   profits,  with the disputed  AGR   pending for over ten years are also making losses of late. The BSNL/MTNL just like the state owned Air India has not been able to  withstand  competition is deep in debt and losses even   unable to provide  4G services .  The P-Telcos have invested about Rs 10 lakh crores in the networks. They are  having a debt of Rs.7,50,00  crores owing to banks, and on top of this, they are now to pay  Rs.92,000 cr. To government. Government gifting  Rs. 82,000 cr to  BSNL/MTNL is a drain  on  tax payers money.

 

9. The desirable long term solution  is to  restructure the industry. The infrastructure comprising of cell towers,  terrestrial microwave  radio links and underground  optical fiber cables should be  deemed to be the common infrastructure on which different companies can provide various services. This is like the state -owned national highways  and  airports  using  which different companies competitively provide  different kinds of services and  rail tracks and signaling equipments  beginning to be used by private passenger train service providing companies.

 

10. The emerging giant R-Jio with an inexhaustible financial resource from RIL  may be separated into two companies, one for the infrastructure  and other for  services.  This restructuring requires  extensive consultation and deep thinking so that  a proper solution  for the long term health  of the  telephone companies and for  affordable service for the  poorest of the  poor continue to be  available as at present. That the  current situation is inexorably leading to higher prices   and near -monopoly is undesirable and harmful to the  nation. Just as  the NTP-1999 saved the  companies and  services, so should there be a new fundamental re-organisation and restructuring of the   telecom companies and services.  A national dialogue is called for Gas Authority of India Limited (GAIL), RAILTEL and PGCIL  have also some telecom infrastructure . All these  networks  should also form part of restructuring

I congratulate and extend my good wishes to Voice and Data and its Chairman Sri Pradeep  Gupta and the  editorial and other staff who have  been producing this journal.  The contents have helped the  liberalisers to bring about  beneficial reforms in our  telecom and Internet policies.  May it continue to inform and encourage and inspire us and  may it flourish too.

 

 

END