The Hindu : END TO TELECOM TUSSLE

Online edition of India's National Newspaper
Monday, Dec 29, 2003

Opinion

Opinion - Editorials

END TO TELECOM TUSSLE

THE GOVERNMENT'S NEW package of concessions for the telecom industry should end three years of lobbying, litigation and flip-flop exercises in regulation. The stage is now set for a further acceleration in the growth of the mobile phone network in at least urban India. However, the manner in which the Government and the Telecom Regulatory Authority of India have handled the conflict between the licensees of basic and mobile telecom services over the past three years could have a long-lasting negative impact on policy formulation in all industries where deregulation has begun. In October, TRAI had ruled out any compensation for the mobile service (cellular phone) operators in exchange for allowing the licensees of basic services to offer the so-called limited mobility, but it was inevitable that the Government would step in to redress the grievances of the first group. It has now taken a decision to reduce by two percentage points the revenue share to be paid by the two groups of phone companies. More crucially, it will lower by an additional two percentage points the fee payable by companies holding cell licences in the non-metro circles. It has also promised the cell phone companies that it will consider a rescheduling of debt and a relaxation of the present ceiling on foreign direct investment (FDI) in the telecom sector.

The new package for the cell companies "balances" the decision taken in October to regularise the limited mobile services that were offered by licensees of basic services. The price the cell companies have paid is to withdraw all legal suits related to limited mobility, a decision that was announced on the eve of the unfurling of the relief measures. The decks are now cleared for a possible fall in mobile phone tariffs, a rapid growth in new connections, and a consolidation in the sector. However, the focus in all this will be on towns and cities; the problem of low teledensity in the smaller towns and villages will not be addressed. The telecom imbroglio may now be settled but many questions remain unanswered. The regulator had said the cell phone companies did not deserve a third relaxation of terms in four years; the Government has decided otherwise. The Government has not offered any explanation for how it has arrived at the revenue share reduction. Nor has it explained why the cellular phone companies should be privileged with a rescheduling of debt.

More worryingly, the Government has used the occasion to announce that it will consider raising the FDI ceiling from 49 per cent to 74 per cent. Telecom remains a strategic sector, which is why many developing, middle-income and developed countries continue to have low ceilings on foreign investment. Canada decided just this year to raise the FDI cap to 46.7 per cent; South Korea has a ceiling of 49 per cent; and China has promised to move to 49 per cent over the next three years. Yet India wants to go much further and faster. If adhocism marked decision-making by the Government in the past three years as it struggled to convey without much conviction the message that it was ensuring a level playing field, the regulator fared no better. TRAI, which has been accused over the years of changing the rules to favour one or the other group, has emerged with its credibility badly damaged. It would appear that the telecom tussle of the past three years has demonstrated that groups with enough influence can "capture" the regulatory process and bend rules to suit their business interests. That is not a good advertisement for deregulation.

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