Thursday, October 4, 2012

HOW POLICYMAKERS ARE DESTROYING THE GREAT INDIAN TELECOM DREAM

The Indian Telecom Industry has been a Benchmark in the way it has made Mobile Services available to the Common Man. But Corruption & Ineptitude at the Government level continue to take their toll on both Confidence and Bottomlines. Akhilesh Shukla analysis how long this can continue...

“A message needs to be put across that howsoever high and mighty a person may be, no one is mightier than law. And if a public servant indulges in corruption, the punishment would be severe enough to make him regret the moment he decided to eat the forbidden fruit’,’ said VK Jain, Special Judge for CBI cases in 2002; while sentencing former Union Telecom Minister Sukh Ram, who indulged in blatant corruption by favouring a private telecom company at a cost of Rs.16.8 million to the public exchequer.

However, eight years down the line, the high and mighty at the government level continue to misuse their powers and authority to mint money from the telecom sector by hook or by crook. Despite the seriousness and severity of the allegations, they haven’t felt the need to regret too much, barring ongoing public humiliation due to the media outcry. The Rs 16.8 million scam by Sukhram looks very miniscule in front of the Rs.1.4 trillion loss to the government under the shameful 2G scam, for which present Union Telecom Minister A. Raja is the main accused. The tainted minster is still continuing in his office thanks to coalition politics, at least as this magazine goes to print.

The irony here is that the difference in the size of the two scams mirrors the kind of growth the sector has witnessed over the last decade and a half. Since 2002, the industry has grown by more than 100 times as far as the subscriber base is concerned. The overall Indian telecom industry is estimated to be worth around Rs.1.6 trillion by the end of FY 2010-11. Telecom services have reached the common man successfully, with overall teledensity at more than 56%, while in urban areas it has comfortably crossed the mark of 100%. Private operators have been at the forefront of this transformation, with over 80% of market share between them. In parts of rural India, people still do not have basic amenities like electricity, consumer durables, literacy or even two square meals a day, but cell phones have successfully penetrated such villages. Indian telecom companies work on some of the lowest tariffs in the world and their scalable and cost effective practices, like Bharti Airtel’s outsourcing-based business model, are global benchmarks.

Unfortunately, the manner in which regulators and policy makers in India have handled this sector has severely hampered business confidence. Corrupt practices and ineptitude on the part of the government have been rampant throughout the evolution of this sector. While the sector has surged past expectations despite this fact, one wonders – for how long can the telecom goose continue to lay its golden eggs?

The entry of Reliance Infocomm (Reliance Communication today) is a case in point. The alleged nexus of former Telecom minister Late Pramod Mahajan resulted in the entry of Reliance Infocomm, then under Mukesh Ambani, in the lucrative industry. Reliance allegedly used the loopholes in the regulations and offered mobile services in the country using subsidised Wireless in Local Loop (WLL) technology. Industry sources claimed that Mahajan’s close relative was given 1 crore shares of Reliance Infocomm at the rate of just Re.1. The company, saving a huge amount on license fees (which were paid by the incumbents earlier), used it to offer handset at Rs.500 and calls as low as 40 paisa per minute, which resulted in other telcos bleeding money and being compelled to bring down tariffs in tandem. Later, Reliance Infocomm was dragged to court and fined. Reliance was also charged of masking incoming international calls as local. According to the charge sheet, the company transmitted over 75.2 million minutes of ISD calls as local calls, evading Access Deficit Charges to the tune of Rs.320 million.

The 2G spectrum scam has put the government in the eye of storm in the current winter session of Parliament, as opposition members continue to demand the resignation of Raja. Licenses were provided at nominal charges based on 2001 rates. When transcripts of taped conversations were leaked, names of several top politicians and high profile journalists came to the fore; including high profile corporate lobbyist Neera Radia, owner of a few PR firms including Vashnavi Corporate Communication, Vitcom consulting et al. The CAG report also blasts TRAI for being a mute spectator when these misappropriations were ongoing. The 2G spectrum was given for as low as Rs.16.50 billion for an all India license covering 22 circles. After getting the spectrum, most telecom operators sold minority stakes to foreign companies at three to four times the price at which they bought the license. Tata Teleservices sold 26% of its stock to Japan’s NTT DoCoMo fot $2.7 billion. Similarly, Unitech sold 60% of the stake in Unitech Wireless for Rs.61.325 billion, for a license they had acquired a few months back for a mere Rs.16.5 billion.

It seems that Raja took this sorely to heart in his second stint as telecom minister, as he set about designing the 3G and BWA spectrum bidding. In fact, looking at it from purely the government’s perspective, the 3G spectrum bidding has highlighted the telecom ministry’s previous short-sightedness with respect to this key sector to an extent that is unprecedented. The recently concluded auction left telecom operators bleeding, but has singlehandedly helped the government reduce the current financial year’s fiscal deficit (as a percentage of GDP) to 4.7% from 5.5%. In all, the government earned a whopping Rs.1.063 trillion, over three times the original estimate of Rs.350 billion. 


Source : IIPM Editorial, 2012.
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