The Indian Techonomist: bulletin

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No progress on Indian telecom, broadcasting regulators

December 21: With the close of the winter session of Parliament this week, there has been little progress in the process of creating independent regulatory authorities for telecom and broadcasting. Legislation for the Telecom Regulatory Authority of India, the lack of which has stalled the telecom privatisation programme, is now likely to wait three months for the next session of Parliament.

For broadcasting, the government passed an order yesterday requiring licences for the use of dish antennas for reception of signals at 4800Mhz - this is meant to stall Ku-band broadcasts for Direct-To-Home (DTH) television until the government and parliament agree on comprehensive legislation ending the government monopoly on broadcasting, and is likely to affect the plans of ISkyB, News Corp.'s DTH service on the lines of BSkyB that was planned for launch around April 1997. The bill on broadcasting, calling for an independent regulatory authority, was not even presented in this session of parliament.

In the second week of this month, Indian Communications Minister Beni Prasad Verma had conditionally cleared a bill - previously a Presidential Ordinance - that was to set up the Telecom Regulatory Authority of India (TRAI) if passed in the current session of Parliament. Mr Verma reportedly accepted many suggestions of the parliamentary committee on telecom, including those to do with the composition of the authority, but drew a line at the crucial one: an excision of section 35 of the TRAI Bill, which states that the regulator may create rules "with the previous approval of the Central Government" seriously limiting its credibility as an institution independent of the government.

The Minister reportedly accepted the committee's suggestion to strengthen the wording of the TRAI bill clarifying that its jurisdiction would extend to the network operations of the Department of Telecommunications (DoT), which while losing its monopoly will remain the main wireline operator and only provider of nationwide and international long-distance services. However, the intent to retain section 35 makes the boundaries between various roles of the DoT - representative of state, policy-maker, licenser, regulator, operator - rather porous.

The telecoms regulator, as planned, is neither like the American FCC nor the British Oftel; it does not - and the government has made it clear that it will not - have the power to grant licences of any sort. The Telecom Regulatory Authority of India will act as a sort of special court. According to the TRAI bill, the main role of the authority is to ensure that the agreements between operators are followed, to act on complaints from telecom service consumers, and to resolve conflicts between the DoT and its private competitors. With the DoT operations likely to remain part of the government for some time, the independence of the TRAI is thought crucial by industry.

The TRAI will be headed by a High Court judge - or a retired Supreme Court judge. This is traditional in autonomous institutions set up by the Indian government that operate. Its members, according to the original bill, were to be drawn from diverse government departments; following the Parliament's objections, this may be extended to "respected" members of the public and business.

The TRAI bill has been trying to get past Parliament since fall 1995. It was then held up for two sessions of Parliament, and was issued as an Presidential ordinance (executive order). This was not ratified by Parliament, and lapsed. The Bill returned to Parliament last month, and was criticised. The changes approved by the cabinet yesterday have not be enough for the bill to pass this year - the bill was not even presented in Parliament. This leaves the primary concern of the private operators - and most of the telecom privatisation process - dangling.

Though cellular networks are now spreading across the country, as licensees nationwide begin to start operations, the licensing of basic services - wireline and fixed wireless telephony - has come to a standstill after a short-lived break-through in October. Then, five of six holders of Letters of Intent (LoIs) from the DoT accepted the government's offer. The private consortia - Reliance-Nynex, Ispat-Hughes, Tata-Bell Canada, Essar-Bell Atlantic, Usha Techno Teleservices and RPG-NTT - were worried about government policies on licence transferability and interconnect rates with the DoT's competing network. The Communications Minister - Beni Prasad Verma - offered to meet the private operators half-way - verbally, but not in writing.

So while five signed the LoI, RPG-NTT - which put in a high bid for the Tamil Nadu circle - did not, and sued the DoT when it tried to encash the bidder's earnest money. This puts five bids in court: the highest first-round bidder, HFCL, sued the DoT in June, and a verdict was postponed this month by the Delhi High Court, to the middle of next month. Early this month, four of the five bidders sent a letter to the DoT reiterating their complaints (Reliance chose to keep quiet), and asked for the Minister's promises to be reflected in the licence agreement. They are also upset by the delays in the creation of the TRAI, without which they feel reluctant to sign the agreement, leave alone pay the first installment of their hefty licence fees.

The DoT has also not gone ahead with issuing LoIs for three other circles, where the bidders are keen to sign up. One of them - Bharti-Stet for the Madhya Pradesh circle - is a simple case, while the other two face legal complications. Ispat-Hughes' bid for Karnataka was cleared by the courts this month; the method of evaluating the weighted criteria of the bid - which included points for rural coverage and the use of locally-manufactured equipment - had been contested by Tata-Bell Canada. Shyam-Harris' bid for Rajasthan, where the initial pay-out plan over the 15-year licence period differed from other bidders' resulting in the discounted present value dropping below the reserve price, was cleared under law with a new pay-out schedule. But the DoT has acted on none of these three, using as its perennial excuse possibly non-existent delays at the Law Ministry, the government's internal solicitors.

It is difficult to fathom why the government is delaying the legislative and executive actions needed for a completion of these reforms. Every delay opens possibilities of further setbacks. The reluctance of the government to accept changes to the TRAI bill suggested by the parliamentary committee on telecom has been followed by a committee report criticising the entire telecom privatisation process. The committee - chaired by a member of India's main Communist party - has complained about the notional loss of some $15 billion thanks to the caps on licences per bidder giving HFCL-Bezeq-Shinawatra an exit from five of its nine high bids; this issue stalled activity in the entire parliamentary session a year ago, after the August 1995 tenders. The committee has also questioned the planned roles of the DoT and private operators, as well as plans to corporatise the network operations of the DoT.

The only explanation at hand for government indecision seems to be the Minister's preoccupation with events in his home state of Uttar Pradesh, where inconclusive recent elections led to a hung assembly, its suspension and the imposition of President's rule. After a short spell of much publicised activity in telecom affairs immediately after the arrest of his predecessor in the $4 million telecom scandal this August, the Communications Minister has not pushed things forward.

At this rate, the Techonomist's prediction the day the tenders were opened - that there would be "considerable delays" in basic service licences - seems far from pessimistic. Indeed, October's forecast of a TRAI sometime after April 1997, with significant operational wireline networks not before the third quarter of next year, now seems almost certain.