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TELECORPS Is The New Telecom Policy A False Ring? Probably. For, if the government does not spell out the details of revenue-sharing, the losses could mount. By Radhika Dhawan
Lots of pluses, but a few question-marks too. While the revenue-sharing formula has yet to be announced, players who got in by bidding for licences do not know what their fates will be. Those issues will have to wait until end-April, 1999, when the Attorney-General will offer his legal opinion. Right now, the industry is gushing--and hoping for the best. Says Rajeev Chandrasekhar, 35, Chairman & Managing Director, BPL Telecom Business Group: "It is a good policy that establishes a solid framework." Echoes S.C. Khanna, 59, Secretary-General, Association of Basic Telecom Operators: "It makes a concrete attempt to solve the problems of both the basic and the cellular players." For one, it rings in a fresh lease of life for a sector that had slipped into coma because of the lack of a policy. So much so that 3 telecom transnationals--the last being Swisscom--left in disgust. That apart, in basic services, just 2 private operators have got off the blocks, Bharti Telenet, in Madhya Pradesh, and Hughes-Ispat, in Maharashtra. In cellular services, 42 licensees kicked off operations, but, thanks to the fees they forked out, are saddled with losses of Rs 3,500 crore. Says Sanjeev Aga, 47, Managing Director, Birla-AT&T: "Our revenues are a fraction of our projections." Bleak? You bet. But salvation may be around the corner.
Revenue-sharing will solve many problems. Critically, it will ease cash-flows and allow companies some surplus to re-invest in expanding their networks. Back-of-the-envelope calculations show that the annual costs of operating a line can be pegged at one-third the revenues. Assuming that the average revenue per line is Rs 12,000--the current national DOT average--and after adjusting for 8 per cent depreciation and interest costs, the operator can still look at a positive cash-flow of Rs 5,000-Rs 6,000, which can be shared with the government. Explains Khanna: "Under the bidding system, 45 per cent of the investments went into paying licence-fees. Now, the break-even levels could come down from 7 to 5 years." However, the present players are a bit worried since the DOT and the Mahanagar Telephone Nigam Ltd (MTNL) can now enter the fray in all the circles. Although the DOT and the MTNL will have to pay licence-fees, they could pose serious competition given their depreciated infrastructure. Cautions S.D. Saxena, 50, Financial Advisor, MTNL: "It might not be such a good idea to have a free-for-all market that can create chaos." Perhaps the biggest opportunity for private players is the intent to privatise long-distance telephony by January, 2000. That's where the big money lies. The more pro-active of the consortiums--and the ones with the deeper pockets--will move in to take advantage of this. Consider a scenario where a company sets up the bandwidth infrastructure tapping the Delhi-Ahmedabad-Mumbai corridor, perhaps extending it to Bangalore. That sector alone contributes 40 per cent of India's long-distance telephony revenues of Rs 5,500 crore. And the player is free to lease out that bandwidth to other basic or cellular operators. Says Raju Patel, 50, President & CEO, Hughes-Ispat: "Anyone looking at telecom can't ignore the potential that long-distance services offer." One player to watch out for is Reliance. With its geographical contiguity--Reliance Telecom is the licensee for Assam, Bihar, Himachal Pradesh, Madhya Pradesh, the North-East, Orissa, and West Bengal (except Calcutta)--all it would require is a connection between 2 switches to start carrying long-distance traffic. Yet, the New Telecom Policy, 1999, does not change the basic prognosis about the industry. Don't expect a stampede of new entrants; no more than 3 or 4 groups will control the business. For instance, the South will have Tata Teleservices in Andhra Pradesh (for cellular and basic services); and in Kerala, Tamil Nadu, and Mumbai (for cellular services), it will be the BPL Group. With the rapid convergence of technologies, any attempt to keep services isolated will not make commercial sense. Eventually, cellular and basic services will share the same infrastructure because this can bring down capital costs by 50 per cent. Still, what will be the most important requirement is deep pockets. Rings a bell? Sure! Additional reporting by Jaideep Lahiri |
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There's still a lot of static on the line, but at least the connection
has been made. Late last month, the Vajpayee Administration--finally!--cleared the
National Telecom Policy, ushering in greater competition. More than 2 players, in both
basic and cellular telephony, can now operate in any of the 24 circles, and the new
entrants won't have to pay licence-fees, but will share revenues with the Department of
Telecommunications (DOT). 
For starters, there's a hint
in the new policy that the government will allow even the existing players to surrender
their licences and re-enter the fray as per the revenue-sharing norms. What will need to
be worked out is how the licence-fees paid--or the bank-guarantees encashed--will be
adjusted. Agrees T.V. Ramachandran, 53, Executive Vice-Chairman, Cellular Operators'
Association of India: "It is entirely possible that the paid-up licence-fees may be
used as entry-fees in some format." In the basic services business, 5 companies have
already shelled out the first tranche of their fees: Reliance Telecom (Gujarat),
Hughes-Ispat (Maharashtra), Tata Teleservices (Andhra Pradesh), Essar Commvision (Punjab),
and Shyam Telecom (Rajasthan). And in March, 1999, the DOT encashed the bank-guarantees of
3 other companies--JT Mobile, Essar Commvision, and Birla-AT&T--which had failed to
cough up their fees of Rs 220 crore. 