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Government or The private rule?

The era of disinvestment of government’s stake has spread to the telecom industry also. Though the primary stone of privatization was laid in 1994, the full fledged private participation in telecom would be seen by the end 2000. In telecom industry, where there was a monopolistic presence of the government through its subsidiaries MTNL (Provides services to Mumbai and Delhi) and DOT (through out India other than the above two places), we find a sudden improvement in the quality of telecom services like evolving a new computer- aided method of fault repair. The privatization fever is showing its effect even before taking off. But is DOT really geared to face the challenge is the question.

The teledensity, which was considered to reflect the economic growth of the country, was just 2 telephones per 1000 people in 1947. It got multiplied rapidly and by March 31, 1998, it was more than 200 times the 1947 level, which was however much behind the world average.

The government had been trying to pool up the gap by various actions. The cellular services were privatized and are having good margins over DOT. Added to that, Telecom policy 1999, allowed an additional player in each of the cellular circles and multiple providers in basic services.

Apart from the cellular services, the government had welcomed the private players for telecom services in 1995 for 21 basic telecom circles through out the country. However, only few circles were taken up by the bidders like Bharati Telenet, Tata Teleservices, Hughes Ispat, Reliance Telecom, Telelink Network (India) and Essar Commvision. These companies had made a total pay of around of Rs.28,000 crore towards the license fees. These entry barriers led to poor response from the companies and hence this policy was changed to a revenue sharing model and to a small license amount in the beginning.

Today, the operators are expected to pay 20 per cent (about Rs 740 crore) of their entire outstanding license fee and an additional 15 per cent (about Rs 560 crore) by August 15 this year. Consequently, against the budget estimate of Rs 1,700 crore revenue from the telecom sector, the government is likely to get Rs 2,000 crore this year.

Coming back to gearing up of DOT. The government has a plan of corporatising the DOT, which was valued at around $56 billion. This would give DOT the option of raising money from public and from other financial institutions. While this move is favorable, the opening up of the long distance calls to private sector without any ceiling on the number of private players, will end the state monopoly of the sector. With the long distance call rates lowering, the cross-subsidization of the local calls will no longer be possible. This is expected to have adverse impact on the revenues to DOT, which is likely to incur a loss of Rs.7,000 crore.

Another point to be noted is the Internet service providers (ISPs) would be allowed to set up their own landing stations by opening up submarine cable connectivity in India in collaboration with international undersea bandwidth carriers. This is expected to give a major blow to VSNL, a part of DOT, which has started optical fibre project with a huge capacity and huge investment.

The attraction to the private sector is the huge growth potential the domestic telecom industry has. The Indian telecom industry’s average of less than 20 is much lower compared to the world average of 115 per 1000 and 401 per 1000 in developed nations. Today the industry has an immense investment potential of nearly Rs.25,000 crore.

As of today, DOT is dominating. With the awaited entrance of the private sector, DOT also has plans of enhancing its services like provision of a telephone within seven days and that 85 percent repair to be complete by the next working day. Moreover, the pace of growth of the private telecom operators is not as planned. At the time of receiving licenses, they had committed installation of 20 lakh telephone connections and 98,000 village public telephones (VPTs) within three years of operation. Today, they are far from achieving the targets. 

Irrespective of how the private sector is moving, the privatization of long distance calls will be a major blow to DOT. If the private sector takes a larger portion of the cake of the investment potential of the Rs.25,000 crore, then DOT will surely lose its dominance. DOT definitely needs to gear up to face the challenge.

K Venu Babu