Computers Today, November 1-15, 2000; Telecom; New Garb of Monopoly

Will the national telecom behemoth be able to shed decades of lethargy, which it inherits in legacy, and metamorphose into a true New Economy company?

The slow but steady deregulation of the telecom service industry is continuing. Early this month, a major initiative in telecom reforms was taken and the country took decisive steps to turn its creaky telecom department into a company. It launched Bharat Sanchar Nigam Ltd (BSNL) to corporatise the Department of Telecom Services (DTS) with all investment and operational freedom given to a navratna public sector undertaking (PSU). By transferring assets worth Rs 63,000 crore (book value), the Government created the largest Indian telecom outfit of the size of a Fortune 500 company. The new avatar would be empowered to venture into any area of communication services, including basic, cellular and the Internet.

VSNL's Cry for Compensation

Videsh Sanchar Nigam Ltd (VSNL) has been demanding adequate compensation in response to the Government's move to end its monopoly over international telephony. A look at the list of 'adequate compensation' demand comprises of international traffic of the Department of Telecom (DOT) and MTNL to be routed through VSNL for a certain period; an all-India ISP licence; no entry fee for domestic long distance and no revenue share for five years.

Analysts point out that the government's recent decision to demonopolise VSNL by 2002 (against the earlier 2004 deadline) will certainly have a negative impact on revenues. On the other hand, the end of the bandwidth monopoly will not have a major impact as a result of the company's exclusive marketing rights with the world's major bandwidth providers through submarine optical fibre cables. The only solace being a compensation package including free entry into the national long distance (NLD) telephony and a waiver on revenue sharing for two years, besides getting a category A Internet service provider licence.

Until a year ago, a single Department of Telecom (DOT) was both the policy-maker and a service provider. With private telecom operators entering the telecom services sector, they often cried foul and blamed the latter for interpreting laws that more often than not put them at a disadvantage. Towards this end and to gain the confidence of foreign investors, the government split the department last year; DOT retained the policy and licensing functions, while the new Department of Telecom Services (DTS) focused on local and long-distance fixed line telephony.

With BSNL in place now, it has automatically become the country's largest company in terms of assets ($13.58 billion), and inherited a nationwide basic telephone services network. DTS' revenues grew at a compound annual rate of 22.8 per cent between 1994-95 and 1998-99. Its 1998-99 sales was Rs 17,638 crore. Total revenues of India's telecom services sector is estimated at about Rs 27,000 crore ($5.85 billion).

It may be recalled that the World Bank in its various reports had identified DOT's multiple roles as licensor, policy maker and service provider as a major constraint in telecom reforms. It had recommended the separation of DOT's policy making and service provision functions. As a result DOT's policy and licensing functions were separated from the service functions by setting up a separate DTS as a precursor to corporatisation.

However, analysts point out that the road from state-owned monopoly to a modern telecom firm looks long and winding. A major hurdle could be its nearly 400,000 employees who are opposed to the change and have gone on strike several times last month in protest. Also, the Government will have to contend with opposition from telecom unions that are particularly concerned that their service conditions are not altered, their salary is fully protected and their pension benefits are safeguarded. There is always a tendency of the Government to overestimate the powers of the unions because of the trouble the latter can create for the ordinary citizen and the ensuing bad publicity to the Government. In fact, even before serious negotiations got underway, the Communications Minister announced rent-free telephones to all the 424,000 employees of DTS to appease them.

Telecom analysts say that incorporation is mostly a precursor to privatisation, but the government so far has been coy about a possible share sale. According to Mahesh Uppal, an independent telecom consultant, this is a prelude to divestment, not privatisation.

The challenges faced by the new company are as big as the opportunities. The most difficult will be to usher in a cultural transformation in an organisation used to decades of government monopoly. The telecom department has come a long way since the mid-1980s when consumers waited up to six years for a phone connection and spent half a day in queues to pay their bills. Incorporation will be a first step on a new path that looks equally long. "The key for BSNL will be to turn itself into a good marketing organisation offering quality service to compete with private companies," a former MTNL CMD remarked.

Massive overstaffing is another challenge. With 363,000 workers, BSNL is among India's largest employers, after Indian Railways. Analysts say the organisation is at least three times overstaffed for its 24-million line phone network. But its unions are well entrenched, which could be the main stumbling block towards a leaner and more effective organisation. Most recently, telecom unions, worried about job security and pensions after incorporation, disrupted the domestic long distance network throwing trade and business out of gear.

Competition is another headache. Already in some Indian states like Madhya Pradesh and Maharashtra, private telecom companies like Hughes Tele.com and Bharti Telenet are taking away major chunks of market share for basic telephone services. Competition is also coming in from companies like Spectranet, Reliance, Tatas, Birlas and the BPL group among others, who are building high-capacity broadband networks to accommodate data and applications traffic aimed at corporate clients. BSNL will have to follow suit, but upgrading its network will be costly.

Department of Telecom secretary Shyamal Ghosh said, "BSNL will be looking at acquiring firms, entering into partnerships with other companies and also raising funds through strategic investments from financial institutions to face competition." One of BSNL's priorities must be to shake off the negative mindset towards the telecom regulator, the Telecom Regulatory Authority of India (TRAI). It must also try to find new sources of revenue. These include providing broadband access to corporates, cellular telephony and becoming an ISP. Its sluggishness in offering new services like cellular telephony was because of its public sector status. The Government providing the mandate, the priority for BSNL is to gear up for competition.

With BSNL in place, there are signs that the country's telecom deregulation is on the right track to become a commercially viable market.