The Indian Techonomist: bulletin

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11 FEBRUARY 1996:

Telecom bids still stuck in court

February 5: Five months after the opening of bids for basic telephony and cellular services across India, they remain unimplemented; the private bidders (and the government) now awaits a decision from the Supreme Court.

The Court was faced with two problems. One, a series of public interest suits filed by sundry left-wing, consumer and labour organisations, challenged the very privatisation of telecom itself, with the usual accusations that private firms would fleece consumers and ignore rural areas. The Court curtly said that privatisation was a policy decision not subject to its jurisdiction - and in any case the bids did give importance to rural coverage (a weightage of 15%, as against 72% for the bid amount).

The other problem, on which the Court is expected to rule in the coming weeks, is the government's arbitrary announcement of "caps" - limits - on the total number of licences to be awarded to any single bidder. Set at three for both cellular and basic services in the wealthier A and B categories of "circles" - regions - this ended up being remarkably favourable to one bidder, HFCL. This outcome was first hinted at in a Techonomist bulletin on August 31, the day of the bids.

The caps in basic services allowed HFCL to get out of paying a phenomenal $27 billion for the nine lucrative circles where it had the highest bids. HFCL, supported with its foreign partners Bezeq (Israel) and the Shinawatra Group (Thailand), was never expected to find that sort of money, and by last October was indicating it would renege on some bids. The caps saved HFCL losing its earnest money. By coincidence, the caps in cellular services gained HFCL a lucrative circle it wouldn't have got otherwise.

HFCL comes from Himachal Pradesh, the home state of Indian Communications Minister Sukh Ram. In an election year, Parliament enjoyed itself flinging charges of corruption at every opportunity.

The government was stern, to begin with, and promised to go ahead an award licences according to the bids (with caps). After all, the tenders had clearly reserved the government's right to reject bidders for any reason whatsoever. When other bidders, such as AT&T-Birla and Essar-Bell Atlantic declined to match the bids of HFCL in its "capped" circles, the government issued another round of tenders, in early January, for these vacated regions. This was predicted by the Techonomist in September.

Compared to the first round, with 80 bids, the retender was miserable with only five. As it was barely a week to the Supreme Court's hearing date in the public-interest case, this was not unexpected. The government gave in, and said the Court would decide what to do.

The Court has few options. It could uphold the government's right to change bidding criteria, as it did in a tender on paging services two years ago. In that case it insisted that the changes apply equally to all bidders; here, the precise value of the cap determines who benefits (three suits HFCL fine). It could direct the government to issue fresh tenders with publicly announced criteria that don't change once the bids are opened. With elections expected in June, this would lead to much delay and confusion, so perhaps it will be thought too extreme a step to take.

The simplest option for the Court would be to uphold the originally announced tenders, and the bids opened in August, but without caps. This would be suitable to almost everyone; even HFCL stands to lose only some $50 million in earnest money, not much for a chance to pick its favourite parts of India from its nine highest bids. AT&T, which often came second to HFCL and could take what the latter couldn't afford, will not be unhappy either.

Agreement reached on sport broadcasts

February 7: Doordarshan, India's state broadcaster, reached an agreement with WorldTel, the private owner of rights to the Wills World Cup Cricket tournament, to terrestrially telecast all matches in India. After its slightly delayed third installment for the purchase of rights last year, the WorldTel-Doordarshan dispute reached the Supreme Court in a replay of a case in 1993, for another World Cup. That case led to a landmark Supreme Court judgement exactly one year ago declaring the government broadcasting monopoly unconstitutional, and protecting the immunity of free speech from monopolies even when it is commercial in nature.

This time, with legislation freeing Indian broadcasting waiting in the wings, the cricket controversy threatened to lead to an ordinance protecting Doordarshan's terrestrial broadcasting rights to major sport events (similar to laws under consideration in Britain). Luckily it did not come to that, and it probably never will: as part of the agreement, Doordarshan gave up its demand for rights in perpetuity to the World Cup tournament. Among the other terms: Doordarshan will pay the last installment; STAR TV will retain the satellite rights it bought when WorldTel cancelled the contract with Doordarshan; WorldTel will provide Doordarshan with live feeds of all 37 matches including those held outside India, for terrestrial broadcast.

Hewlett-Packard to market products of India's HCL

February 9: Hewlett-Packard (HP), the US-based computer firm, will use the products of its Indian partner HCL to meet clients' requirements worldwide. HP President Lewis E Platt, who is visiting India, said that this latest agreement, which is likely to concentrate on software developed in by HCL, is part of a continuing effort to work with India's largest computer company.

HCL dominated Indian computing well before forming its joint venture HCL-HP (1995 turnover: Rs 6.28 billion, or $197 million), in which the American multinational has a 26% equity stake. While HCL-HP leads the market in computers and computer hardware, HCL itself has diversified into a number of related areas, from computer training (a field in which its subsidiary, NIIT, was earliest entrant) to communications.

Its close relationship with HP has led to several rumours that the American firm would buy a larger stake, but these have been repeatedly denied by HCL founder and Chairman, Shiv Nadar. Mr Nadar would like HCL to become a multinational in its own right. This is perhaps why HP is now setting up a wholly-owned subsidiary HP India, and a software development centre in Bangalore.

HP does recognise HCL's considerable strengths, not least of all its knowledge of local preferences; HCL will retain exclusive marketing rights for HP products in India. Meanwhile, HCL and HP both see the convergence of computers and communications as an area of opportunities, and will continue to collaborate in developing applications for cellular, e-mail and other technologies.