Wednesday, December 9, 2015

UNSCRUPULOUS DEPARTMENT OF TELECOMMUNICATIONS

FROM BUSINESS WORLD OF 13 MAY 2006


Pathology of telecommunications


My journalistic career is just about as long as private entry into telecommunications, so I have watched its twists and turns closely. Initially there was a great disaster. All the new licensees went bankrupt. The, after various twists and turns, it looked as if the industry had turned into a star performer. Teledensity has been going up by leaps and bounds, and the handful of companies that have survived have a good financial performance. That was the rosy picture I started with when I decided in 2003 to write a history of Indian telecommunications.
The picture began to change when I began to put the events together. There was a time in post-independence history when industrial development was a game played between the government and big businessmen. Businessmen kept watching import lists. When they found imports of some new product growing, they would go to the government and get its imports banned. Then they would go to the exporters abroad that now that they could no longer export the goods, it was in their interest to sell technology to produce them to the businessman who had got the exports banned. For a few years the businessman would make monopoly profits; then competitors would spring up, profits would go down, and the businessman would go on to ban something else. I called this the gatekeeper game. The government made Indian businessmen gatekeepers of foreign firms’ entry into India; the gatekeepers collected fees from the latter for allowing them into the Indian market.
This business was abolished in industries after 1991, when industrial licensing was abolished and imports were liberalized. But it was precisely the gatekeeper model that the government adopted in telecommunications. Entry was open only to Indian businesses; they could bring in foreign partners – indeed, they were required to. But what happened differed from the gatekeeper model in one respect. In the model, the government closed the Indian market and ensured that Indian gatekeepers would make big profits on small and costly production. In telecommunications the domestic market was closed; but the government itself was the biggest, incumbent telecom operator. So by various means – auctioning licences at enormous prices, making private operators pay licence fees but exempting its own operator, setting absurdly high interconnection fees – the government ensured that the new private entrants would go bankrupt.
What happened next was also a leaf from the past: the businessmen persuaded – some say bribed – the politicians to bale them out, which they did. But telecommunications is a network industry. All firms in it do better if they interconnect. If they do not, the smaller ones lose out, while the biggest ones do better. That is why the industry requires a regulator who would force operators to interconnect and controls interconnection charges. In our case, the Department of Telecommunications (DoT) has systematically suborned and emasculated the regulator – by appointing moles in TRAI, taking TRAI to court, refusing TRAI chairman permission to travel abroad, and so on. The result is that TRAI has been pretty ineffective. It would make little difference today if TRAI was abolished.
But miraculously, DoT could not kill competition. Private operators are far more efficient than BSNL; amongst them, four who had deep pockets – Bharti, Reliance, Hutch and Idea – more or less created their own independent systems, survived and prospered. Out of the 17 business houses that entered the industry in the 1990s, only nine survive, and the above four have over three-quarters of the licences.
But unless the regulator polices interconnection, this structure will not last. One by one, private operators will sell out, until only one is left. The survivor cannot buy out BSNL; however poorly it does and however big its losses, the government will bale it out. So ultimately we will get duopoly. All the labour that went into introducing private competition will have gone waste.

That is a pity, for it is possible to create a telecommunications industry in which there would be thousands of operators who would keep prices down and who would spread telephones to every corner of India. But that will not happen with the present DoT and regulator. What it requires, cannot be explained in the space that remains, but is spelt out in the book (India’s Telecommunications Industry: History, Analysis, Diagnosis, Sage).