FROM BUSINESS WORLD OF 13 MAY 2006
Pathology of telecommunications
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).
