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Indian Telecommunications Liberalisation:Halting but Inexorable

Written by  Dr. Mrityunjay Athreya
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Dr. Mrityunjay AthreyaIssue:India 1998
Article no.:1
Topic:Indian Telecommunications Liberalisation:Halting but Inexorable
Author:Dr. Mrityunjay Athreya
Title:Independent Consultant
Organisation:India
PDF size:40KB

 

 

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Article abstract

The initiation of the policy of domestic economic liberalisation in 1991 was a historic beginning for the Indian telecommunications sector. However, several challenges have diluted the momentum of reform. As the Chairman for the Telecom Restructuring Committee, Dr. Athreya and his committee made a number of landmark recommendations. Here, he traces India's rugged path towards telecommunications reform, highlights the considerable progress and concludes with a positive outlook.

 

Full Article

The initiation of the policy of domestic economic liberalisation, accompanied by simultaneous globalisation, by the Narasimha Rao led Government of India in 1991, was a historic event. It signalled a positive discontinuity from the earlier licence-permit raj. Reform of the moribund Indian telecommunications sector has been part of the total macro economic restructuring. The economic change was rapid in the first three years from 1991-94. Since then, several political changes have diluted the momentum of reform. The general election in 1996, mid-stream changes of the Prime Minister and another election in April 1998, threw up the present coalition government. These changes have affected the planned reforms in all government monopoly sectors, including telecommunications. However, relative to some other sectors, such as power, ports and roads, telecommunication reforms have continued to develop. The Rugged Path Due to a variety of reasons, including state control, licensing, protection and the consequent lack of competition, not much was expected of Indian telecommunications until the early 1980s. Telecommunications was separated from Post in 1985, which effectively led to the creation of the Telecommunications Board under the Ministry of Communication. This Board was upgraded to a Telecom Commission with more autonomy in 1989. The corporate concept was reluctantly introduced by the creation of the Mahanagar Telephone Nigam Ltd. (MTNL) 'to operate in the Delhi and Mumbai telephone circles while Videsh Sanchar Nigam Ltd. (VSNL) was set up to run the international services. The duality of the domestic operations of the Department of Telecommunications (DoT), a small part of it as a corporate entity, and the rest of it as a government departmental monolith, created tensions. The MTNL management attempted to reward its employees with a bonus for good performances. This led to a strike by the DoT employees in December 1990. At this juncture the government appointed an expert committee to examine the total issue of telecommunications restructuring. The Athreya Committee The Telecom Restructuring Committee (TRC) consisted of nine members in which I had the privilege of chairing. Over the years the TRC has come to be referred by industry associations, chambers and the press as the Athreya Committee. The Committee included, as members, the Chairman of the then Telecom Commission, the MTNL, and the leader of the largest telecommunication union. The Committee proposed a comprehensive agenda for telecommunications reform. Its core recommendations were: Ÿ The Government to retain the role as policy maker; Ÿ All telecommunications operations to be corporatised, gradually privatised and left open to competition, thereby attracting domestic and foreign private investment; and, Ÿ The resultant pluralistic industry to be regulated by an independent, quasi-judicial regulatory body. Problems The path of true reform, has not been smooth in any country. Reforms in telecommunications has been relatively recent even for the economically advanced countries like France and Germany. It is therefore not surprising that Indian telecommunications reform has also been beset with a number of problems: Ÿ Perhaps the single biggest resistance to the changes has come from the government officers who have so far been in total control of telecommunication policy, operation and regulation, without any checks and balances. The Indian Telecom Service Association (ITSA) has operated like a trade union, fiercely protecting their turf. Ÿ Elected governments have been criticised for carrying out the easier parts of economic reform and paying less attention to areas like telecommunication and airports, where the central government has been the only operator. Ÿ While action was initiated in 1992 within a year of the Athreya Committee report, allowing private sector entry into the provision of cellular telephone services in the four metro cities of Mumbai, Delhi, Chennai and Calcutta, the evaluation and award process of the DoT was challenged by the aggrieved bidders in the courts. This led to a two year delay. The terms and conditions for competitive bidding for basic and cellular operations countrywide in 1995 is seen by many as the source to uneconomic licence fees and charges of corruption. Ÿ One view is that the above mentioned problems can be traced to two main weaknesses in the reform sequence. Firstly it would perhaps have been prudent to set up a regulatory body to supervise the reform process. Secondly, some suggest that it would have been better to corporatise the DoT. Ÿ Even after the constitution of the Telecom Regulatory Authority of India (TRAI) in 1997, there have been jurisdictional disputes between the TRAI and DoT. Pessimism The difficulties described above and various delays in the reform process have given rise to understandable pessimism in the minds of many telecommunication players and observers. As a result of this, a number of Indian private sector entrants and foreign telecommunication companies have exited while other companies and consortia have not proceeded to implement their licences. Progress Despite the problems and pessimism, Indian telecommunications reform has made considerable progress. The following are some examples. Mobile Communications Cellular phones and pagers may not have come to India in the 1990s without the reform process. Under pressure for some reform, the DoT permitted cellular phones in the four metros cities with two operators each. Paging services were allowed in 27 towns, which meant that telecommunications services are now extended to the entire country. The government reduced and later removed the initially high import duty on cellular handsets. Taking into account the issue of financial sustainability of cellular operations, the government has considered a shift from fixed licence fees to a revenue sharing arrangement. Basic Services The progress in the provision of basic services was limited. Despite a great anticipation regarding the entry of the private sector to compete for the provision of basic services, the progress in this segment was somewhat poor. The work on the preparation of tenders for competitive bidding for one private basic service operator in each telecommunications circle, began soon after the announcement of the National Telecom Policy in May 1994. Although the process was entangled due to suspicions of corruption, some of the new basic service operators have now created their infrastructure. The first of these services have been launched. The availability of a competitive service provider as a benchmark for quality and cost has had the desired effect of raising performance concerns in the DoT. There are plans to invite fresh bids into basic services even though the first round, which took place in 1995 proved fruitless. The government is willing to consider the policy option of abolishing licence fees and replacing them with revenue sharing, or even removing the licence fee altogether. Regulation One of the biggest breakthroughs is the setting up of the TRAI. The multi-party consensus consisting of core elements of reform, enabled the passage into Parliament for the Telecom Regulatory Authority of India Act. Its three incumbents have been carefully chosen, made up of a retired judge of the Supreme Court; a non-technical civil servant, with a broader perspective of public interest, and a pro-reform former Chairman of MTNL. The TRAI has been gaining credibility through assertion, rulings, consultative documents, hearings and interactions. The TRAI is helping to take into account and harmonise the interests and expectations of the multiple stakeholders in the telecommunications sector, including customers, service operators, equipment vendors and technology providers. The TRAI is seen as a beacon of hope by the various emerging industry organs, including, the associations of: Ÿ cellular operators; Ÿ basic services providers; Ÿ paging operators; and, Ÿ telecommunications equipment operators. Value Added Services Other various contemporary telecommunications services have also entered India much sooner. For example, voice mail and electronic mail (email) is being used by more companies, individuals and institutions. Indian banks have offered a range of new services, to reduce liquidity float, such as electronic funds transfer. Electronic Data Interchange (EDI) is beginning to take off, especially in the area of exports. Outlook for the Future The outlook for Indian telecommunications has been a subject of domestic and international concern for several years, especially since the Athreya Committee report of 1991. In spite of a numerous obstacles and grim prospects at certain times, there is now a rising expectation that the future is looking much more promising, and it could be as soon as the end of 1998. Updated Policy While, understandably the May 1994 National Telecom Policy was hailed as a milestone, the experience, feedback and learning of the last four years, has produced a number of suggestions in addition to a positive response from the new coalition government on the need for a revised, updated new policy. This policy is likely to benefit from several inputs: Ÿ The Prime Minister's Task Force on Information Technology has made far-reaching recommendations, including the need for world class telecommunications connectivity. Ÿ The Indian software industry is showing a sustained growth of 60% p.a., which is high considering that . it still has less than 0.5% of the world software market. Its continued, exponential growth is a national hope and priority. Ÿ The TRAI has firmly established itself as a major player and continue to come up with useful blueprints for access, interconnection, portability, tariff and other related Issues. Ÿ The new basic and mobile operators are gaining credibility, even though the entry costs have been high; with financial closures and delays in the rollout of services. Corporatisation and Privatisation With the emergence of a pluralistic structure of the Indian telecommunications service industry, it is being recognised that telecommunications is no longer a natural or desirable state monopoly. Many workmen, officers and even some union leaders are increasingly concerned about the threat of private sector competition. One view is that corporate structure, with non-governmental outside shareholders and autonomous board management will help them to restructure and become more competitive. On a much broader policy front, the Finance Minister declared as part of his delayed budget speech in Parliament, in July 1998, that the government will gradually bring down its holding in all "non-strategic" state enterprises to 26%. A move to hand over the Chennai metro telecommunication circle to MTNL, has already been reported. India Information Infrastructure (III) The debate on continuing telecommunications liberalisation has been lifted out of the narrower DoT perspective, to a broader horizon of building an appropriately large information infrastructure. The India Information Infrastructure (III) has to commensurate with an economic vision for India aiming to become an emerging and significant economy, among the top five economies. This will require an average GNP growth rate of above 7% p.a. for about two decades, accompanied by an industrial growth of 10% and export growth of 12% p.a. The III has to be of a certain size and quality in order to connect to the rapidly growing Global Information Infrastructure (GII). Information Technology (IT) applications are now being sought in areas such as education, health, governance and civil society. There is talk not only of E-commerce, but also of E-Government. Conclusion In summary, telecommunications liberalisation in India has moved through a difficult initial path. The progress may have been halting, but it has been inexorable. It has moved well beyond the point of no return. Having lost out on the earlier industrial revolution, there now seems to be a national aspiration and the political will not to miss out on the information revolution. India may emerge as a case of at least partial leapfrogging from an agricultural to information economy.

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