Telecom Engineering
The Aam-Aadmi-Inimical Triumvirate
Dt: 20/11/12
The Aam-Aadmi-Inimical Triumvirate
Dr T.H.Chowdary
India’s telephone companies ( Telcos) which unlike in any other sector took the benefits of demonopolisation of many services and products due liberalization of our economy, to the aam admi ( as evidenced by the phenomenon of haath haath mein cell telephone) are showing unmistakable signs of ill health. The private telephone companies (P-telcos) which invested about Rs. 300,000 cr in their networks, have a mountainous debt of about Rs. 200,000 cr. The debt leaders are Bharti Airtel (about Rs. 72,000 cr); and Reliance Com (about Rs. 36,000 cr). For most part of their more than 15 years existence, the Telcos incurred losses; paid no dividends and for the last several quarters, their profits have been significantly declining continuously. More than 25% of what subscribers are billed, is going to the government as licence fee, revenue share, spectrum fees, universal service fund USF), service tax and so on. Nowhere else in the world are so many companies competing for the same telecom services in each state as in India. The hyper-competition has brought down prices to the second lowest levels in the world (Bangla Desh is the lowest). The average revenue per user (ARPU) per month is as stunningly low as Rs.75, which is less than half the daily wage of an illiterate, unskilled mazdoor! The wireless technology and hyper competition and new business models like prepaid, have brought down the average spend on an year’s telephone service from 2.5 times the per capita income (PCI) in 1951 to parity (1:1) in 1994 when the National telecom Policy (NTP-94) was promulgated and to 0.05 of the PCI in 2012 – a reduction to one-twentieth of the PCI in a matter of 18 years! And yet the government wants to licence some more companies! The reason for that is sinister, as I shall show later.
2. People oriented, aam-admi caring government agencies – the DOT, Telecom Commission TRAI – must strive to make telecom and IT applications (like e-payments, they support) and services less and less expensive, more and more affordable, to evermore sections of people, even in rural, remote and hilly areas. What however these authorities are scheming to do is to raise more and more revenues to government , no matter that these lead to increase in prices for telecom services . Some of the revenue-raising and maximizing moves are:
3. The TRAI proposed the cell tower companies should give a revenue-share to government. They pay rent to the property owner and an annual fee to the local body.
The DOT proposed that Internet companies should surrender a share of their revenue to government. Internet helps informatisation of society, human resource development and acquisition of knowledge by people and so the NDA government wisely decided not to levy any licence fee or revenue shares.
The TRAI proposed to “farm” that is, move mobile telecom services from the 900 MHZ band to 1800 MHZ band. This move alone will require replacement of 286,950 base stations, construction of 171,954 additional base stations involving an incremental capex of Rs. 54,739 cr, an additional annual opex of Rs. 11,762 cr ,write off of Rs. 23,310 cr of 900 MHZ equipment, additional capex of of Rs. 26,653 cr on new networks and write off of Rs. 1, 50,000 cr of 900 MHZ equipment. These staggering figures should daunt any entrepreneur and would certainly push up prices to users.
The TRAI recommended a fantastic reserve price of Rs. 18,000cr for a 4.5 MHZ all-India covering 2G spectrum auction. The 3G and Broadband Wireless Access (BWA) spectrum auctions took place in2010. They netted Rs. 1,08,000 cr. This amount is fantabulous and makes no business sense . Europe’s largest telecom companies faced serious trouble for having bid fantabulous amounts, $116 billions in the 3G auctions in the year 2001/2. The companies could not raise the monies; they petitioned for bail-outs and got them ( like India’s P-Telcos were bailed out in 1999 by migrating the up-front payable high licence fees to revenue-sharing). See box for what I wrote in March 2002)
6. 3-G Licences in Europe:
Europe’s largest telecom companies are in serious trouble for having bid enormous amounts- US 116$ billion to get radio spectrum for 3-G mobile telephone. 28 countries so far have awarded 3-G licenses. Outside Britain, Germany and Italy, the average license fee comes out to US $ 65 per capita. However in Britain, Germany and Italy where prices went through the roof, carriers paid an average of US $ 441 per capita for the license to offer 3-G services. Based on eth global average, the 12 bidders that spent US $ 90 billion for licenses in UK, Germany and Italy overpaid by a sum of US$77 billion. They are now in deep debt. They are not able to raise the capital required for rolling out the network They are petitioning for waivers as well as permission to share the network. In the Netherlands, the five companies that bid and got the licenses together petitioned the regulator to allow only one of them to build the network and all the five to compete for delivery of service, utilizing the same network.
The amounts paid by the largest telcos in Europe are:
VODAFONE - $ 19.4 billion
BY MMO2 -$ 14. Billion
DEUTSCHE TELECOM - $14.1 billion
FRANCE TELECOM - $12.1 billion
KPN - $10.0 billion
The debt of Voda Fone is $13 billion; of the Deutsche Telecom is $ $ 57 billion. The companies are trying to write down up to 90% of their investments in 3-G phone licenses. But then they would have to show loss and not profits and then no investor would lend or take up equity. This parlous and pitiable position is entirely due to the greed of Government s to raise money by auctioning radio frequency spectrum. We (India) auctioned the licenses in 1995. All private telephone companies were about to collapse. They had to be migrated fro license fee to revenue-sharing. India must learn from its own troubles and from the torments elsewhere. Government should not be greedy like Dhrutarashtra and his covetous son, Duryodhana enticing even righteous people like Yudhishtira into gambling and ruin. The license fees should be nominal and not phenomenal. There should not be any external costs, like entrance fee and revenue share. The telecom policy should not be shaped by old and retired Government servants of monopoly and Nehruvian socialist era. We should have young and dynamic forward-looking economists and statesman-like politicians who boldly facilitate competition, interconnection and reduction of prices. Sri Promode Mahajan, has the vision an d decisiveness to drive the Government organisations (Ministry, regulator and the PSUs) into doing the right thing rapidly. (Source: Journal of the C.T.M.S March 2002)
· The TRAI recommended the levying retrospectively charges for spectrum in excess of 4.5MHZ held by telcos, at prices “discovered” in the 2012 auction!
· The TRAI proposed and the DOT accepted not to auction all the freed spectrum thus creating a “scarcity”. Scarcity always creates inflated prices.
· The Telecom Commission, and the DOT accepted all these money-raising recommendations of the TRAI. Recommendations are advice; not mandates. What effect would they have on prices consumers pay on the financial health of Telcos and investments should have been considered by the Government and TRAI”s recommendations should have been modified.
· Government was wanting to levy a $2 bln tax on Vodafone in disregard of the Supreme Court’s verdict, by amending the tax law to be retrospectively effective from 1962.
The sole consideration behind all these moves and measures was raising revenues to cover Government of India’s fiscal deficits being imprudently incurred. Almost nothing of the lakhs of crores of monies taken from telcos during all these years was used to promote research and development and indigenous production of telecom/IT equipment. We are importing Rs.50/60,000 cr worth of telecom equipment every year; mostly from China our panch sheel and bhai-bhai friend!
5. The brutal and punishing facts are: the P-telco’s health is in decline; the state-owned BSNL and MTNL are hemorrhaging cash and are already on drip ( they surrender their spectrum or seek total waiver of payment); a little increase in prices is already resulting in discontinuance of subscriptions ( about 2.5 mln in Sept 2012; about 5 mln in Q II of 2012-13). The new demand is mostly in the capital-intensive ,low-revenue yielding rural areas. Competition being already hyper-active, we need no more companies to serve. Prudence requires that TRAI and DOT don’t feed the greed of the Government of India for ever more revenue to cover up its unsustainable, populist, vote-oriented “welfare” give –aways.
6. The bids ought to be for a share in the revenues companies get by using the spectrum. Then government will have a stake in the performance of the companies- the better they perform, the healthier they are, more will be the revenues to the Telcos and government. Yet another measure would be the government having nominal equity in the Telcos so as to be able to influence company performance for the good of consumer and country.
7. Telecoms sector which delivered the maximum benefits of economic liberalization and reforms should not be made sick by the rear-guard actions of die-hard monopoly practitioners (mostly aged and retired, re-employed) in regulatory bodies, commissions and departments. It is necessary that these bodies are vitalized by induction of forward looking, young economists, legal luminaries, entrepreneurs of repute and social philosophers. They can always engage engineers and other experts for technical advice needed.
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