August 31, 1995: Bids for basic telecom services across India were opened today. Sixteen companies submitted the 80 bids for 20 regions (or "circles"); they were worth a total of $82 BILLION in licence fees alone. The total bids for likely winners - one private provider is to compete with the government Department of Telecommunications (DoT) in each circle - were worth $35.6 billion spread over the next decade.
The surprise star of the show was HFCL, a company with political connections and a joint venture with Israel's Bezeq, led in all nine circles for which it bid a total of over $27 billion, between two and five times the value of the nearest bids in the nine circles.
HFCL bid for the most lucrative areas; Reliance, a large group with diverse interests and nearly 3 million shareholders, bid very low for all circles, and got most of the weakest circles, classified "C" by the government. However, in the desert state of Rajasthan, where competing Shyam (with China's PTT Guangdong) bid $350 million, 80 times higher than Reliance, the latter may yet win as Shyam is rumoured to be disqualified on technical grounds.
That makes 15 circles out of 20 divided between two companies. Denro Ispat, a steel firm in cooperation with America's Hughes, bagged the wealthy western states of Karnataka and Maharashtra (which includes Bombay). BPL, a consumer electronics company, won the southern state of Tamil Nadu in cooperation with US West. This will end the controversy over US West's pilot project in semi-rural Tamil Nadu involving broadband and wireless services, which was negotiated directly, bypassing the bidding process.
Big losers included AT&T, who bid along with Birla Communications; Bell Atlantic who bid with Essar; Bell Canada who bid with the Tatas, another conglomerate; and Japan's NTT which bid with Itochu and India's RPG group.
The Indian Techonomist spoke to Dr N Ravi, General Manager of Reliance's Telecommunications Group. He was pessimistic about any speedy resolution of the bids. Licences have to be awarded after a weighted evaluation of the other portion of the bids, including a development plan and rural infrastructure. However, the skewed bidding and relative lack of competition will cause problems, as it did with bids for cellular services, opened three weeks ago. There may be "caps" - limits on the number of licences for a single company, two in the case of cellular services. There may be backdoor deals. There may well be a re-arrangement of Indian and foreign partners, perhaps forming new "friendships" between till-now competing companies.
Caps would be good for AT&T; they would also be good for HFCL. For if it did not seriously misjudge the value of the market, HFCL probably hoped that the government's caps would, in effect, give it a free post-bid choice.
At this point it seem that although contracts for cellular services may be awarded soon - though not by the government target of September 15th - those for basic services will be considerably delayed. Apart from the complications caused by the bidding itself, there's a court order against awarding contracts, which will probably be appealed. And there's the Parliament, which doesn't want to pass a stop-gap amendment allowing the government to set up a regulator until more permanent legislation is ready - Opposition parties claim they want to make the regulator a statutory body right away, although in fact they just enjoy troubling the government.
Besides, the government has the imminent general elections - due in the middle of next year - on its mind. And the assasination, a few hours after the bids were opened, of the Chief Minister of the wealthy state (and - it was expected - profitable telecom market) of Punjab.
Telecom services will be privatised, after a gap. A most interesting gap - the fun has just begun.
The complete list of bids for basic services is available here. See also: Telecom regulation and Cellular services.
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