The Indian Techonomist: bulletin

Copyright (C) 1996, Rishab Aiyer Ghosh (
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India's general elections slow telecom reform

May 2, 1996: Since last Saturday when the world's biggest democracy went to the polls, telecom companies hoping to venture into the potentially vast Indian market have been waiting. As much of the country's 590 million electorate started voting in general elections - in a multi-stage process of which results will start arriving only after the 7th - seven companies who have won ten of the twenty licences for basic telephony in regions across the country watched as the government dithered over signing licence agreements.

Having received letters of intent (LoIs) from the Department of Telecommunications (DoT) as long as five months ago, the licensees-in-waiting - whose foreign partners include Israel's Bezeq, Hughes, NYNEX, Bell Canada, Japan's NTT and Swiss PTT - have been unable to act upon their licences as uncertainty remains over the actual signing. The government blames procedural delays. Both the licence agreement and the interconnect agreement, which governs access between the competing networks of private companies and the DoT, are being vetted by the Law Ministry. The Law Ministry is reputed to work slowly, but it also provides a convenient excuse for government departments that wish to stall for any reason. Even if legal clearance is received soon, the agreements are not likely to be signed before the middle of this month - by which time a new government will be in the process of forming.

Luckily, this is not the problem being faced by the 14 licensees for cellular services (two each competing in 18 regions) - they face more bureaucratic delays. Although their licence terms stipulate stiff penalties if they do not start providing service within a year of receiving their licence, they have been unable to get frequency clearance from the DoT's wireless advisor. This is partly because of the complexity of assigning so many frequencies; partly because the DoT lacks the efficient machinery to plan for and allocate large numbers of frequencies, having had till now very few users of the airwaves; and partly because the biggest user, the military, is reluctant to give up some of its frequencies to civilian use. The DoT has already said that the penalty clause will be waived if there are "genuine" problems in starting service; presumably delays in frequency allocation by the DoT itself will be seen as such.

Yet while the problems faced by cellular providers are truly procedural, even technical, those worrying would-be basic telephony operators right now are in many senses political. Unlike cellular licences, where the total fees to be paid over the ten-year licence period are a little over $6 billion, basic telephony involves big money. As much as $35 billion was at stake in the first round of bidding last August. There were strange bidding patterns: one company, HFCL- Bezeq-Shinawatra walked away with a theoretical nine licences for $27 billion (to be paid over the 15 year period); as HFCL annual revenues were closer to $27 million there appeared to be something fishy. Another consortium Reliance-NYNEX (the Indian partner had revenues above $2 billion) bid for every circle, winning the poorer regions for what the DoT thought was a pittance. The Communications Minister, Sukh Ram, went abroad for his health. He returned and announced caps on the number of licences awarded to a single firm, as well as reserve prices on bids across all regions.

An entire sitting of Parliament was wasted as Opposition parties charged the Minister with favouring HFCL, which happens to come from his home state of Himachal Pradesh. By the next sitting, this year, the Supreme Court had dismissed an assorted collection of legal challenges against the telecom privatisation process and the sudden changes in bidding norms, and no further mention was made of telecom. But there is a fair chance that the next government will not be formed by the currently ruling Congress Party; it may be a left-of-center coalition with or without the Congress, or quite possibly one based around the right-wing nationalist Bharatiya Janata Party (BJP). Both left and right wing parties promise to bring up the controversial basic telephony bidding process if they come into power. This will affect not only the seven licensees-to-be but also the fate of the remaining eight circles for which bids have been rejected as being too low, as well as two others involved in a dispute.

The left-wing approach will be to question the entire bidding process, particularly the notional loss of $18 billion thanks to the cap, which allowed HFCL to back out of many circles - although nobody expected it to afford that much anyway. The left - consisting of a loose coalition of parties from the Communist Party of India (Marxist) which rules the state of West Bengal to the Janata Dal (which formed a short-lived government in 1989) - is also likely to grumble about selling licences cheap. Purportedly to benefit the poor parts of the country, this approach which was adopted by the present government in its sudden decision to apply reserve prices is actually greed, pure and simple. Telecom reforms were to bring in much needed private and foreign investment to lift the telephone density from a miserable eight per 1,000 to at least 30. In chasing high licence fees instead, all that has happened is that while the wealthy regions will all receive investment, six of the poorest, all of which received bids in the first round (deemed too low) may well go without.

The BJP has always been against too much government interference and, drawing much of its support from the trader and small business community, has come out against bureaucracy. On these grounds, it will not oppose telecom reforms for ideological reasons; its opposition may relate to the actual implementation. It will probably want to do something about the caps and multiple rounds - its spokesperson recently said that the new government should "hold a proper inquiry" into the bidding process, which was "marked by [a] lack of transparency." It is unclear what purpose this could serve, as the only practical steps are either to accept the current process and quickly hold another round - open to all comers and without reserve prices - for the remaining circles; or to scrap the second and third rounds altogether and issue letters of intent based upon the first one. The main loser this way would be HFCL, who would then have to lose their earnest money on the bids on which they decide to renege. This could even benefit large bidders such as Birla-AT&T and BPL-US West, who could originally have won a number of licences once HFCL was out of the picture, but with the caps and multiple rounds have ended up with nothing (though they have won cellular licences). However this will not please second-round winners such as Reliance-NYNEX, RPG-NTT-Itochu and Tata-Bell Canada.

Telecom is not yet, unfortunately a concern in the elections. This is odd. Unlike the wider economic reforms, which are yet to reach the stage of trickling down to the villages, phones are extremely important to keep in touch with agricultural markets in the cities, and avoid high margin payments to intermediaries. For all his alleged corruption, the Communications Minister Sukh Ram is widely popular in his home state - he has made it a point to have payphones installed in every village. Perhaps five years later - if the next government lasts its full term - political parties will realise that contrary to conventional wisdom, it is the rural, often poor villagers who stand to gain the most from communications and information technology.

Basic telephony and cellular licences, and rounds one, two and three of the basic bids can be found at

Opinion polls and coverage of the Indian general elections are available on at least six web sites.
The Times of India -
The Indian Express -