CIAO DATE: 03/01

Telecommunications Reform and the State in India: The contradiction of Private Control and Government Competition

Pradipta Bagchi

CASI Working Paper
December 2000

Center for the Advanced Study of India

Chapter I: Introduction

Indian policy makers and their critics alike often cite the telecom sector, as an example of an industry where reforms have been carried out at a fast and efficient pace. A cursory glance may even confirm that statement.

Compared to the mid-eighties, when the government’s department of telecommunications ran out the entire telecom operations in India, in the year 2000, there is a plethora of cellular operators covering most Indian states, Internet access is readily available in urban clusters and the government has promised rural internet access to all district headquarters by 2002. ₁ Competition in basic or wire line services are underway and the government department has been turned into a government owned corporation, creating a new Fortune 500 company overnight in terms of assets. ₂ There is an independent regulator in place, foreign companies are welcomed and a new bill focusing on convergence in the telecommunications and broadcasting sectors has been drafted.

Indian politicians also agree, regardless of ideology that to deliver on the promise of high, sustained rates of growth driven by the new information or knowledge economy, India’s telecommunications network has to be world class in reach, quality and affordability. ₃

The question is how to achieve that goal in an economy riddled with a shortage of capital in the shortest possible time frame. This paper examines the development of the Indian telecommunications industry since the process of economic reforms began in 1991. In particular, it examines the role of the biggest and most influential player: the central government or state.

As the policy maker and licensor, the biggest and only national telecom service provider, the largest employer in the sector, the owner of most of the country’s telecom assets and until recently the regulator, the role of the state and its actions in its various guises continue to have considerable influence on the sector. This is all the more important in the context of telecom sector because, as Roger Noll points out: “History teaches that the stronger political influence affecting nationalized entities is more likely to be used to provide a cash flow to the government and to support excessive employment at the expense of both universal service and efficient operation.” ₄

The process of liberalization implies a major change in the role of the state. Till the early nineties, the state controlled all aspects of the Indian economy since independence through a strict industrial licensing regime. It played the role of the biggest economic agent variously as the investor, producer, supplier and consumer, as well as being the regulator or controller.

The role of the Indian state should have shrunk in the liberalized economy as independent regulators take over as the inter-face between government, which formulates policy for a particular sector and the service providers, both public and private sector that operate and compete as commercial concerns within the ambit of the formed policy, which provides a level playing field.

 

The problem and the prescription

In Y2K, India has a population of over a billion, but only 27 million telephones. This translates into a tele-density of 2.7 phones per 100 people. By 2005, the government according to its National Telecom Policy 1999 (NTP99) wants to increase this tele-density to 7 and double it to 15 by 2010. ₅

Currently just over 50 per cent or 374,695 villages out of a total 600,000 villages are connected to the world by the telephone. The government wants to connect the rest by 2002 and increase rural tele-density eight-fold by 2010, from the current 0.5 to 4 phones per 100 people. To this end, the Indian government has given up its state monopoly and introduced competition to spur the growth rate of telecom in all areas. Foreign companies have also been encouraged to invest in the telecom sector and ownership guidelines have been liberalized. While the ownership has been restricted to 49 per cent in the telecom serviceslike basic telephony, cellular, paging and Internet service providers (though companies like Orange, the cellular operator in Mumbai have been able to get around this restriction with ease: See Annexure I), foreign companies are allowed to own up to 74 per cent in communication satellite companies and wholly own manufacturing operations.

The initiatives form part of the economic liberalization policies followed by the government since 1991 when a chronic shortage of capital, a ballooning fiscal deficit and a precarious position of external reserves led to the start of India’s economic reforms.

The expectation was that new influx of private capital along with gains of efficiency from competition would help accelerate economic growth beyond the traditional “Hindu” rate of 3 per cent. But results so far, at best have been mixed.

After the initial euphoria of liberalization, the Indian economy slipped into recession by 1995. GDP growth rates fell as the government, by and large, withdrew as an investor in the economy while the private sector failed to step into fill the investment gap. It has only managed to recover since 1998 on the back of strong agricultural growth and a pick up in industrial demand subsequently.

In the telecom sector, the total foreign direct investment has been 43.13 billion rupees in the period 1993 to June 2000 or less than a billion US dollars. The reticence of the private sector, especially foreign companies, to invest large amounts of capital into infrastructure sectors like telecom can largely be traced to failings of government and regulatory policy.

But moving from a control mindset to a regulatory one has not been easy for the Indian government. The fruits of liberalization reflecting in higher per capita incomes and higher sustained high rates of economic growth are yet to be seen across the country.

 

Doctors make bad patients

A large part of problems in liberalizing India’s economy have arisen from the state’s inability ­ even unwillingness - to give up control of the sectors it has liberalized. Thus while more independent regulators have been set up in the last four years than the number of general elections India has had, most regulators are independent only in name. The role of a regulator is to advise the ministry on policy, solve disputes among service providers and ensure that the rules and regulations governing business are followed. It is also the agency to intervene in case market failures take place and protect consumer interests.

The crux of the problem has been that the state and its associated agencies like the bureaucracy, long used to exercising control, have been unable to build a regulatory structure that provides credible commitment against the exercise of arbitrary discretion by the state and changes in regulatory environment. The Indian government has devised various methods to keep control over a particular sector, even after an independent regulator has been appointed. Legislation governing these new institutions has been often poorly worded, ambiguously framed and open to legal challenge by the state entities. The telecom sector has been in a mess till February 2000 because of inherent conflicts between the Telecom Regulatory Authority Act, which was passed to create the independent regulator for the sector, and the Indian Telegraph Act of 1885, which provides the legal framework for the telecommunications sector.

In some sectors like capital market, decisions of independent regulators are appealed to a government ministry. In the telecom sector, the state (through the Department of Telecommunications) refused to submit to the jurisdiction of the regulator till the judicial authority was removed from the regulator (and the civil court system) with the appointment of a separate disputes and appellate tribunal. It did so by litigating against every decision made by the regulator in the civil courts. The “independent regulators” are routinely staffed with bureaucrats. None of the existing regulators are headed by anyone other than former bureaucrats and judges, who help perpetuate the mind-set of control over regulation. 

Besides, in areas like telecom and the Internet, keeping up with technology changes is imperative, but there are few signs of technical experts or private sector executives among the regulators.

Many of the problems of the telecom sector have arisen because of the multitude of roles played by the state. These conflicts have been highlighted in the context of the sector switching from a regime of government control to competitive and regulated one.

The telecom sector, in particular, has suffered from confused government policy and ineffective regulation, not least because state-owned companies and departments are the largest incumbent players in this sector. These companies have not responded well to the threat of competition and therefore policies have been seemingly framed or changed to further the interests of the state.

Though an independent regulator has been created, the institution has already had a complete makeover because its role was in conflict with that of the state and many of the regulator’s decisions went against the wishes of the incumbent state players.

Indeed, at the end of a decade of reforms, the state remains the largest player in the telecom industry and its role, is only increasing as state-owned companies enter new businesses like cellular telephony, Internet access and broadband data networks.

While lots of the problems associated with the telecom policy have been resolved with the NTP99, there remain lots of questions about the role of the state-owned service provider cum policy maker. These doubts and lack of a strong regulatory infrastructure means that the spread of private telecom services has been limited only to the more populous urban clusters in the country.

Moreover, government policy has segmented the telecom sector into a series of different services like basic, cellular, ISP, paging, Internet and radio-trunking. This goes against the grain of the sector where convergence of voice data images and video technologies if forcing regulators in other parts of the world to take a holistic look at the sector. While the government pays lip service to convergence in its national telecom policy, it has taken no policy measures to ensure convergence in India. It is alas, another symptom of the control the government wants to wield over the sector.

This paper will analyze the Indian telecommunications sector in the context of state control and regulation. It will examine the conflicting policy goals ­ both explicit and implied - adopted by the state and whether these conflicting goals can be achieved. It will also examine the enlarged role of the state and its arms in the new competitive environment.

These goals are:

• Encourage private sector investment and competition to increase national coverage at an affordable price.
• Raise money for the government to fund its deficit by auctioning off.
• Protect the interests of the state-owned firms, the dominant players in the industry.

Apart from analyzing the events that have shaped the Indian telecom sector since 1991, the paper will examine the necessity of shrinking the state’s role from its current avatars as operator, policy maker, judge, and employer. While the independent regulator’s role has been strengthened in the past decade, the paper will also draw upon experiences in other countries like the US to show that India still has a long way to go in promoting a truly competitive, growth-oriented telecom sector with a level playing field for all operators and a strong referee to boot.

 

 

Chapter II: Brief History of Telecommunications in India up to 1990

Telecommunications in India were introduced in 1851 near Calcutta by the British government, when the first telegraph lines were laid. Only 5 years after Alexander Graham Bell invented telephones in 1881, British firms introduced POTS (plain old telephone services) into the colony. By the time India was independent in 1947, the country had 321 switching centers (telephone exchanges) in urban areas and a tele-density of 0.25 phones per thousand people. ₆

During the state-led planned economic policies till the mid 1980’s, the government controlled all aspects of the telecommunications sector through the ministry of Posts and Telegraph as a natural monopoly. Telephones continued to center around the urban and metropolitan centers and rural coverage did not receive much attention because of “the perception that phones were a luxury and rather than essential infrastructure for efficient administration of government and industry”, writes Bella Mody in Journal of Communications in 1995. ₇

Stephen McDowell in his treatise of political economy of the communications sector also takes the same view stating: “Telecommunications technology and services did not assume a high national priority until the Seventh Economic Development Plan (1985-90). It is widely claimed the telecommunications were seen by policy makers up until the early 1980’s as luxury services not essential to essential to economic growth”. ₈

But that may not have been the only reason. An Indian commentator argued in 1981 that the urban bias was dictated by the fact that, “the direct and tangible benefits of telecommunications expansion in rural areas being small, there has been a tendency so far to leave those areas alone and concentrate on urban areas, which give handsome returns to capital.” ₉

Till the 1980’s essential components of telecommunication service policies, where a telephone network was not in place, were policies for producing and purchasing network equipment, for funding network expansion, and for organizing public organizations to provide telecommunication services. ₁₀

In 1981, the government appointed a high-powered committee (Sarin Committee) to look into organizational issues at the Ministry of Posts and Telegraph. This was in response to increasing public outcry and Parliamentary questions about the inadequacy of the level of service, the high prices and the unavailability of telephones. ₁₁

Although the committee submitted over 400 recommendations to the government including ones to split the MPT into two divisions, urged the government to immediately import 100,000 telephone instruments and suggested collaboration with foreign telecom companies. ₁₂ However, despite the strong calls for change, the telecommunications bureaucracy was not convinced of the importance of these concerns and was more concerned with defending its turf against the newly formed Department of Electronics. ₁₃ Despite the ministry’s attempts to damp down the criticism, telecommunications were a focal point of public debates between 1980-1983. As McDowell argues:

“The importance of telecommunications had risen in the administration of Prime Minister Indira Gandhi in the early 1980’s and was accentuated in the new government of Rajiv Gandhi who became prime minister in 1984. The telecommunication policy model that emerged at this time in India, combined some liberalization of imports of computer and information technology with the allocation of more state resources to develop national telecommunications equipment research and development capabilities.” ₁₄

Rajiv Gandhi initiated the liberalization of the telecom sector by demonopolising the telecom equipment-manufacturing sector in 1985, allowing private firms to manufacture telephones, while DoT licensed switching technology from various foreign firms. ₁₅ Simultaneously, he also gave a thrust to national development of telecommunications equipment by hiring a non resident Indian engineer called Satyen (Sam) Pitroda in 1984 to start the Center for the Development of Telematics with the goal of designing an indigenous digital telecommunications switch, whose manufacture would be licensed to private firms. ₁₆

After the Public Accounts Committee of the Lok Sabha recommended a complete overhaul of telecommunications, “which was working in a most unsatisfactory manner in 1985,” ₁₇ a long sought re-organization was undertaken in 1986 to split the public postal and telecom operations into separate departments. ₁₈

Analysts, at the time, argued that the different technological needs of the postal and telecommunications activities necessitated the break and that it would allow greater attention to be paid to telecommunications role in development. ₁₉

By now, the bureaucrats had also jumped on this bandwagon and were using it to defend themselves in the face of mounting criticism. The chief telecom bureaucrat in 1983 quoted by McDowell makes the point: “Telecom investments deserved the priority given the economic fall-outs in other sectors, but surpluses were being siphoned off to cover the postal deficit.” ₂₀

 

Birth of DoT

The creation of the Department of Telecom (DoT) was followed by a proposal to change the organization structure further by carving out the metropolitan areas into separate operating companies also generated debate. One argument against the move was this went against the planning goals in the 1977-83 plan to decongest urban areas and decentralize economic activity by issuing guidelines to place an embargo on new connections in urban areas. It was also felt that this would only exacerbate the pattern of lop-sided development by continuing to invest more in cities. ₂₁

However, another interpretation of the DoT’s motives to create MTNL and VSNL could be the access these companies could provide to private capital, which it did not have and needed to supplement plan allocations. In 1986, according to the DoT annual report, two new public corporations, MTNL and VSNL were set up to provide decision making autonomy and flexibility and allow public borrowings to supplement internal resources. ₂₂

MTNL was carved out of DoT and took over operations, maintenance and development of telecommunication services in New Delhi and Mumbai, VSNL was set up to plan, operate and develop international telecommunication services in India. Pitroda added another bureaucratic body in 1989 and the Telecom Commission was created with a wide range of executive, administrative and financial powers to formulate and regulate policy and prepare the budget for DoT.

However, the large revenue surpluses generated by MTNL and VSNL caused friction between DoT and the new companies. While the new companies preferred to use their surplus funds for their own expansion, DoT wanted resources transferred in order to pay for network development in other parts of the country. By February 1990, the Telecom Commission was forced to develop a revenue-sharing arrangement between the parent and the siblings. ₂₃

This friction in the eighties may help explain why the DoT has refused to decentralize operations by carving out other parts of the country into separate organizations. This  despite another government appointed high powered committee on reorganization of the telecom department recommending in 1991 that the zonal telecom corporations be formed to manage telecom services across the country and a corporation be set up to handle long distance services within India. ₂₄

This committee also laid down the first blue-print for reforms that were to be witnessed from 1991 onwards by suggesting that value added services should be provided by the private sector and production of equipment would be undertaken by both the private and public sectors. ₂₅

By the late 1980’s a multitude of factors were impacting the way telecom policy was being formed. The government was attaching greater importance to the goal of expanding telecommunication services than it did in the first part of the decade. Efforts were also being made through the C-DoT to design an indigenous telecommunications switch, which was suited to the unique Indian environmental conditions and could work through extreme variations of temperature, humidity and dust. ₂₆

While C-DoT had already produced smaller rural exchange switches, it was building a new bigger capacity switch, which would form the core technology for the geographical expansion of telecommunications services. However, this possibility of indigenous success also led to a slowdown in purchases of other technologies and slowed down construction of new manufacturing facilities based on foreign technologies. ₂₇

However, the plans of Pitroda and C-DoT were affected by the election of the minority government of VP Singh in 1989, which immediately ordered a review of C-DoT’s technology and operations. While the government panel gave a clean chit to C-DoT as there was a broad agreement in the government that given the country’s perilous balance of payments position, it was better to try and develop indigenous technology than buy it from foreign firms. ₂₈

Other influences on policy included the inclusion of telecommunication services into the agenda of the General Agreement of Trade and Tariffs since 1986. “The principles, approaches and commitments discussed in the GATT services negotiations and the institutional changes they implied had important implications for the general nature of national policies involving the provision of communication services and for the growth and shaping of the Indian telecommunications sector, notes McDowell. ₂₉

India, however, resisted pressures from the developed countries to keep telecommunications from being included, along with banking and finance, outside the main agreement in 1996. ₃₀

However, though reforms had been underway for 5 years by 1990, and terms like privatization and liberalization were used in public debates during the 1980’s, notes McDowell, but not in the same ways as by Northern market oriented telecommunications analysts. In India, privatization did not refer to selling government enterprises then, but rather denoted the licensing of private manufacturers to produce telecommunications equipment. Liberalization, similarly, was used to describe the policies since the mid-80’s which both expanded the number of manufacturing licenses available and eased rules for importing electronic equipment. ₃₁ Rarely were either term mentioned with reference to telecom service provision in the 1980’s.

Chapter III: Theoretical Accounts of Telecom Liberalization

There are two competing accounts about policies changes and why liberalization took place in the telecommunications sector in the early 1990’s ­ the dominant or neo-liberal account and the alternative account. Stephen McDowell explores both accounts as well as the communication theories they draw upon, at length in his book Globalization, Liberalization and Policy Change (1997). For the purposes of this paper, I will limit myself to the highlights of both theories as elements of both accounts help understand the telecommunications policies in the 1990-2000 period.

The conventional (neo-liberal) Account

The conventional account presents liberalization as a set of policies which reduce the social or political control over market forces, and the building of production, exchange and property relations more closely approximating those found in ideal competitive markets. In other words, liberalization is a process of changing state, social and economic institutions to allow and promote increased use of market mechanisms to guide social, economic and political life. ₃₂

The standard argument about the need for liberalization under the neo-liberal or conventional account is that goals of development were not being achieved under the old policy regime and economic growth rates had suffered because of the failure of state planning. The need for policy liberalization was further buttressed by the fact that the global economy had changed was increasingly becoming integrated ₃₃ and India was becoming an increasingly taking part in this integration through its participation in GATT and international institutions like the International Telecommunications Union. Also, from a technological perspective, policy liberalization was required because of the convergence in communication technologies.

As to why liberalization did not occur before 1991, the conventional account blames this on the reluctance of the Indian state to pursue these changes because of resistance from entrenched and powerful interest groups tied to the state that benefited from a closed economy and from planned development.

Initially, telecommunications were a low priority for government. When it did become a higher priority, investment was slowed by the efforts to develop an indigenous switch. Moreover, the stronger public sector institutions of equipment makers and service providers also slowed policy liberalization as bureaucrats and labor unions and other beneficiaries of subsidies resisted reforms. ₃₄

It is easy to understand government reluctance to act because the DoT was the second largest employer by the early 1990’s with a workforce of over 470,000 people ₃₅ and there were millions of other public sector workers sympathetic towards the cause of their fellow workers.

The neo liberal account points to the software sector as a contrast, where policy allowed Indian companies to gain access to the best available technologies because there were no local or state groups which resisted this form of export-led growth and many social groups who benefited from it. ₃₆

The conventional account also points directly to reasons that were internal to India in explaining why liberalization occurred.  The bankruptcy of the old model of state planned development was demonstrated during the foreign exchange crisis of 1991, when the drop in foreign exchange reserves and the increase in oil prices as a result of the Gulf War acted as the final triggers. Policy liberalization was finally facilitated by a change in government in 1991 and the return of the Congress Party to power. ₃₇

The inability of the state to produce an indigenous telecom switch at the end of the 1980’s and 1990’s also helped break the deadlock, maintain some analysts. ₃₈

The international dimension of this account argued that India’s policy of limited engagement with international trade and investment flows, over time had proved to be ineffective and the pursuit of a more liberal policy followed. ₃₉

The neo-liberal account also argues that the benefits of liberalization have been limited thus far because of the piecemeal introduction of new policies, but more benefits such as access to communications and greater social integration will be realized as more and more sectors are opened up to competition.” ₄₀

The Alternative Account

The alternative account, which draws on various historical and critical perspectives, is perhaps a more nuanced view of the way in which liberalization took place. It argues, “The shifts in telecommunication policies in India involve more than just policy makers’ recognition of the inadequacy of the national monopoly models of service provision and their realization of the significant economic benefits that would arise from policy changes.” It also calls into questions the elements of a dependency account that portrays liberalization of telecommunications as a case of the First World interests winning over interests of Third World states.

Th

e alternative account instead argues that the historical process of liberalization process for telecommunication services linked a number of distinct national and international issues and processes. ₄₁

It argues that there was a need for policy liberalizations because the struggles among the state agency reduced the effectiveness of national technology efforts and international companies wished to sell equipment and participate in India’s expansion of telecommunications infrastructure.

Liberalization did not occur earlier because telecommunications were not seen as a priority until the early 1980’s and national efforts through C-DoT to design switches gave legitimate aspirations to control and shape the development of the telecom network and services to fit in with India’s goals. ₄₂

As for why liberalization occurred, this account points to the international agreements on trade and services which constrained nationalist efforts to plan telecommunications development like GATT and the encouragement of liberal policies from international financial institutions when India needed structural adjustment loans. ₄₃

Bella Mody puts the point across more clearly; “The opening up of the telecommunications sector to private capital appears to have been part of the India’s response to general World Bank structural adjustment requirements to allow private capital to penetrate sectors that had been previously reserved for the state in addition to advice on the general economic mobilizing power of telecommunications as national information infrastructure.” ₄₄

The alternative account offers a more realistic vision of the way liberalization took place because of the manner in which reforms were sequenced and constant compromises, pro-reform government lobbies had to make with the anti-reform interests like bureaucrats and labor unions.

As McDowell points out: “Policy formation in India was combined with highly developed and amorphous consensus-building mechanisms among different state agencies... which prevented any shift in the short term towards an effective nationalist technology strategy or toward a distinct break and movement toward a liberal policy order.” ₄₅

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Chapter IV: The State and Telecommunication Reform in the 1990’s

In many respects, many of the analytical, social and policy and institutional shifts that accompany liberalization of communication services are yet to happen in India. As this chapter will indicate, the interests of the state have taken precedence over those of other interest groups like users, manufacturers and international telecom firms.

Reforms were initiated through the new economic and industrial policy in 1991. The process of accommodation and negotiation with local and foreign forces gave national economic policy a distinctive pace, sequence and form, which the Prime Minister Narasimha Rao called the “middle path”. ₄₆ While the broad guidelines for foreign equity investment and foreign ventures were laid out in Prime Minister Rao’s New Economic Policy in June of 1991, the telecommunication policy was only announced by DoT at the end of 1991.

What delayed the process was the strong opposition of the DoT bureaucrats and labor unions who, threatened by job loss became united in their opposition to any changes in the state monopoly. This led to the minister of communications negotiating with labor unions on the type of private sector they could live with to try and avoid strikes and loss of votes from over 400,000 telecom sector employees. ₄₇

DoT, in its compromise with state-tied interests announced that all services other than basic telephony, termed value added, would be provided by private sector companies only and that DoT would concentrate on telephony and their extension to rural areas. Value added services included cellular telephony, radio paging, e-mail, audio and video conferencing, VSAT-based corporate data networks, videotext and voice mail. ₄₈

In this process of restructuring the telecommunications sector, the government carefully preserved the interests of the state-tied groups; the workers of DoT and indirectly, the public sector workforce; the bureaucrats of DoT and the politicians who did not want to antagonize a lose an entire voting block by threatening them with job losses because of competition.

Mody’s interpretation is that the Indian state responded to national and international pressures and constraints by introducing limited reforms that did not challenge the fundamental political value the government needed to protect, that is the interests of the workers. ₄₉

But it would be wrong to infer that protecting political capital through preserving the public sector ideals was the only thing the government tried to do. It worked on achieving various ends whilst consolidating, maybe even furthering their interests. It managed to accommodate some of the advice it received in 1991 from international financial institutions like the World Bank by allowing up to 49 per cent foreign capital in telecom joint ventures. ₅₀

It negotiated with domestic business by allowing them 51 per cent ownership and control of telecom service ventures and appeased foreign capital by allowing them full management control through extra board nominations ₅₁ and allowing them into some valuable sectors while promising that other more lucrative ones like long distance and international telephony would be opened up at a later date. ₅₂

It also vigorously followed developmental goals and its own communication policy priorities by opening up the basic services sector in 1994 where the country needed investment in order to expand the network before opening up the sectors where the potential for profits for private companies were the highest, that is, long distance (opened up in 2000 October) and international telephony (originally slated for 2004 but will now be opened by 2002). ₅₃

Moreover, by starting to design auctions to license cellular operators in 1992, the state was trying to generate revenue surpluses to, albeit for financing a burgeoning fiscal deficit rather than expanding the network or retraining its massive labor force. The very same factor also helped the state increase its role by appointing new bureaucrats to license and oversee the operations of the private sector. ₅₄

Thus, at each stage of liberalization of the telecommunications sector starting from 1991, the state has furthered the interests of those tied to it through its policy changes. This process continues in Indian policy making today.

However in year 2000, within the apparatus of the state, there are beginning to appear distinct divisions on speed and manner of opening up the telecommunications sector. While the DoT works effortlessly to preserve its pre-eminence in the sector, other sections of government including the powerful prime minister’s office (PMO) have risen as a counterpoint against the DoT hegemony.

Part of this change is because of the new breed of domestic telecom companies (most have foreign telecom companies as significant shareholders), which is slowly beginning to become a powerful lobbying force against the restrictive practices of the DoT.

According to news weekly Outlook: “These powerful telecom lobbies have the PMO by the ear, making it easy to influence policy and get concessions.” ₅₅ With the state monopoly’s operations now corporatised, the hectic lobbying between the two interest groups is only going to rise.

 

Chapter V: 1991-1995: Auctions and Confusions

DoT began the process of liberalization tentatively by opening up the cellular services in the four metropolitan cities in July 1992. However, the entire process raised various questions including the manner in which DoT short-listed bidders and the very subjective criteria it used to do so. As one commentator pointed out at the time: “When the terms and conditions came out, it was almost like a supply of goods tender.” ₅₆

The conditions imposed were onerous and the selection criteria were not announced before the bids were made. This led to a lengthy delay because of litigation from private operators because of subjective changes in the manner in which licenses were awarded. ₅₇

The Indian Metro cellular auction lacked transparency because the selection criteria were not announced publicly, unlike in the later case of the basic (wire line) services, before the bids were made. ₅₈

Almost three years after the tentative steps to liberalization were taken and legal disputes among the participants of the auction and the Department of Telecommunications, the eight licenses were finally awarded in November 1994. As per the terms of the license, the winners had to pay a fixed sum as license fees in the first three years before they switched to paying on a per-line basis. ₅₉

National Telecom Policy 1994

The national telecom policy, which was in the works since 1990 was finally announced in May 1994. Differences between the state-tied interests and the government led to the delays but the government of Prime Minister Rao could not delay making its decision beyond May 1994 because he was scheduled to go to the United States to persuade firms to invest in India. Another middle path was carved out. ₆₀

In keeping with promoting the interests of the incumbent operator DoT, the National Telecom Policy of 1994, only envisaged a supplementary role for the private sector to the DoT’s national efforts. However, the NTP 1994 did take liberalization forward by introducing competition in basic services and throwing the sector open to private sector firms.

“With a view to supplement the effort of the Department of Telecommunication sin providing telecommunication services, companies registered in India will be allowed to participate in the expansion of telecommunications network in the area of basic telephone services also. These companies will be required to maintain balance in their coverage between urban and rural areas. Their conditions of operation will include tariff and revenue sharing arrangements.” ₆₁

Private capital was thus seen as subservient to the DoT, which was to remain the predominant agency of the sector. ₆₂ The country was divided into 20 “circles” (or regional divisions largely contiguous with the Indian states), which were put up for bidding to allow one private operator to enter each circle and compete with DoT. The applications for licenses to operate in each circle were all supposed to be sealed bids, and the government was explicit how they were to be evaluated.

The DoT imposed strict conditions ₆₃ , ostensibly to ensure a balanced nationwide growth in telecommunication services especially in the rural areas. The conditions, which were subsequently highlighted in National Telecom Policy 1994 included:

• The private entity had to be a joint company formed with the participation of an Indian company
• Licensees must give at least 10 per cent of all lines to rural areas
• The licensee’s network must cover all the districts in the area within 24 months
• Prices charged by the DoT (where it was the competitor) would be ceiling for the prices that private sector firms could charge; of course, they had the freedom to charge a lower rate. ₆₄

However, in hindsight, these conditions were merely used to limit the impact of competition, DoT was about too face for the first time.

However, when it came to evaluating the bids at the auctions, the government’s motives reflected the need to use the bidding process to generate revenues. Only 15% weight was given to the speed at which the network would be rolled out, 10% was given for rural coverage, and 3% for indigenous equipment used in the network. A whopping 72% weight was for the level of the license fee bid. ₆₅

Subsequent to the announcement of the policies, auctions were held for cellular licenses in 20 states in December 1994 and for basic services in January 1995. ₆₆

The first round of the basic service (wire line) auction attracted 80 bids for 40 licenses from 16 companies. In 7 of the circles (Delhi, Haryana, Karnataka, Maharashtra, Orissa, Rajasthan, and Uttar Pradesh West), the bids followed some level of rationality. In circles where an unknown Indian company Himachal Futuristic Communications Ltd (HFCL) was the highest bidder, they realized that they were subject to the well known “winner’s curse”. The total license fee for which HFCL bid was much higher than any of the bids of the second placed bidders, and virtually more than all the other bids put together. ₆₇

Thus, the government was forced to call for a second round of bidding because HFCL backed out of following through on the bids; also, many circles received either one bid or no bids.

In January 1996, the DOT initiated a fresh rounding of bidding for thirteen circles in the basic sector. Caution among the players and the lack of credibility about the outcome of auction led to only six bids. Further, because the more lucrative (grade A) circles had been awarded in the first round, the only circles left for bidding were the less lucrative circles, and those in which HFCL reneged where the government specified a minimum bid which was considered too high by the bidders. ₆₈

In seven circles the earlier bids were too low or there were no takers. For six circles certain successful bidders were eliminated by a subsequent change in DOT’s policy of limiting licenses to three circles for each bidder. Finally, bidders for 13 circles were selected with eight circles drawing no takers. ₆₉

Of the 21 circles (largely similar to the state boundaries) that were put up for auctions, only 6 licenses were issued for Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Punjab and Rajasthan.

The role of the private sector

Many foreign telecommunications companies participated in the bidding for the right to offer basic (wire line) telephony in India. The main attraction was the then widely used number of 250 million “middle class” potential customers, and the waiting list of more than 3 million. Companies that bid included multinational like AT&T, US West, Bell Atlantic, Nynex (at that time a separate company), NTT, and Bell Canada, and small ones like Bezeq of Israel, and Shinawatra of Thailand. Their Indian partners included the Tatas, the Birlas, RPG, Reliance, BPL, Essar, Shyam Telecom and Himachal Futurisatic Communications Limited (HFCL).

However, disillusioned by the government’s terrible handling of the telecom services deregulation, several international telecom giants had by 1999, pulled out of the company. While Bell Canada and Swisscom have withdrawn from India for good, US companies like AT&T and US West have frozen fresh investments blaming “unfriendly telecom policies”, particularly high license fee outflows and the lack of a powerful regulator. ₇₀

Moreover, many south East Asian telecom operators also pulled out after 1996 in the aftermath of the South East Asian currency crisis, which reduced their ability to invest in other countries nearly impossible.

It is difficult to say who is to blame for the auctions fiasco, where firms bid huge amounts and then realized that these fees did not match with their predictions of demand and usage.

While the DoT itself gave indications as to the size of the market, especially in regard to basic telephones, because it alone had knowledge of how demand grew and how much it would be in the light of its experience of over 100 years. ₇₁

However, the Indian firms participating in the auction had no prior telecom experience, while the foreign partners knew the business, but little about Indian market conditions or the usage patterns of consumers.

For the government of India, despite the problems of the auctions and the unrealistic high bids, the cellular licenses raised over $7 billion. However, this method of licensing though a single sealed bid auction without any information of the selection criteria has led to many problems in the cellular sector.

There is little doubt that the bidders overestimated revenues and demand patterns. However, the high license fees, which formed 50 per cent of the total rollout cost for a cellular operator, led to high tariffs for the consumers.

This in turn impacted demand for these services. Moreover, the license fees had to be paid up front every year. That is, it did not matter whether the new operators had a network, subscribers, traffic or revenues, but they had to pay an up front fixed fee to the government every year.

Given the high sunken cost of initial investment, the lower than expected subscriber base and the high license fees, cellular operators in India, with the exception of those in Mumbai and New Delhi markets have been posting losses from the outset.

In 1999, the cellular telephone industry was posting losses worth $92 million every month. ₇₂ Industry experts say that overestimation of market size and usage was the main culprit with companies, which had projected 300 minutes of usage, could get subscribers to barely talk for 100 minutes in a month. Besides, average revenue per user was only $23 compared to projections, which had ranged between $41 and $58 per month. ₇₃

As a result by July 1999 cellular companies and the 6 basic services license holders owed almost $900 million in license fees ₇₄ to the government and many had decided to exit the business completely.

One main problem of the telecom sector’s licensing policy that was pointed out was that the licensor was the incumbent operator. Look at the electricity generating business as a contrast, which was also thrown, open to the private sector, who were not required to pay a license fee, and some had guaranteed prices and quantities which the incumbent state electricity company would have to buy at. Moreover, the state electricity boards did not license the new producers of power unlike the telecom sector, where “it was the incumbent operator DoT which was deprived of its lines of business in the value-added services that was entrusted to license rivals to itself, even for basic telephone services. ₇₅

 

Chapter VI: 1996-1999: Reforms, Regulators and Reversals

The need for an independent regulator

Recent institutional economic analysts like B Levy and P Spiller have demonstrated the importance of regulatory regimes that offer credible commitment to safeguard investment as the essential pre-requisite for private investment and investor confidence. ₇₆

These economists have shown that regulatory arrangements work best, if in, alignment with institutional endowments, they are able to curb the exercise of discretionary power. There are four components of a regulatory regime needed to provide a credible commitment to investors.

• Rules of the game: These rules relate competition and entry or the right to offer certain services without the incumbent monopoly imposing too high entry barriers; regulations related to interconnection or the right to access to the incumbents monopoly network for originating, terminating and carrying calls at fair access rates and the right to charge a fair price that will permit a certain degree of profitability.

• Restraints on the exercise of discretionary power: In a market where competition is still nascent, new entrants require the security that rules of the game will not be changed suddenly and a regulatory regime to safeguard them against arbitrary government action and collusive behavior between the government and the incumbent monopoly.

• Restraint on changing the regulatory system: Since investments in telecom are sunk and returns are realized over a long term, ensuring continuity in policies is key. Levy and Spiller also point out that Parliamentary systems (like India’s) typically provide fewer safeguards against a change in policies because executive dominance of the legislature enables the government to dictate the legislative agenda.

• Organizations for enforcing the regulations: It is important to distance the incumbent monopoly from the government and encourage the creation of an independent regulator to interpret and enforce terms of the contract. If the monopoly is embedded within the executive administrative structure and the executive dominates the legislative agenda ­ both conditions hold true for India, even in the year 2000 ­ the executive has both the incentive and the means of disadvantaging competitors. Separating the government from the incumbent monopoly is therefore essential. ₇₇

In most other countries, like the European Union or the US, regulation was separated from operations and licensing before the process of demonopolisation and introducing competition started. India, it was only in 1997, that an independent regulator, the Telecom Regulatory Authority of India (TRAI) was established.

TRAI ­ Flawed at birth

Both Parliamentary politics and bureaucratic reluctance stalled the setting up of TRAI with the result that the DoT retained both policy making and regulatory authority in the process of induction of its competitors. ₇₈

First, the government’s attempt to set up an Administrative Regulatory Authority was frustrated with the Rajya Sabha blocking the bill after the Lok Sabha passed it. In the fall of 1995, a new statutory TRAI was proposed in consultation with the opposition parties but the bill was held up for two sessions because Parliament was rocked by debates over the propriety of the tendering and licensing process in telecom and the opposition dominated Rajya Sabha blocked the bill.

While in January 1996, a Presidential ordinance was passed to create TRAI. But the fact that it was allowed to lapse after 6 months gave credence to the view that this was more to do with the government’s “attempt to manipulate the Supreme Court judgement on cases filed against DoT, than because of its commitment to institutional reform.” ₇₉

Trai was finally created by the passing of the TRAI Act in February 1997, but from the outset there were various discrepancies between the TRAI Act 1997 and the Indian Telegraph Act of 1885, creating jurisdictional conflicts between DoT and TRAI.

The Trai Act also excluded issues covered by the Monopolies and Restrictive Trade Practices Commission (MRTPC) from its jurisdiction. What this means is that the anti-competitive behavior by the DoT cannot be referred to TRAI as such, because monopolistic, restrictive and unfair trade practices fall under the jurisdiction of the MRTPC.

The problems with TRAI Act 1997 were manifold. While the TRAI Act gives the regulator powers to resolve disputes between service providers, TRAI was not given jurisdiction over DoT, the largest telecom service operator in the country. While the cabinet of ministers later extended TRAI’s powers over DoT, the jurisdiction granted was ambiguous because the regulator only had powers over DoT as an operator and not as a policy maker.

The courts ruled in DoT’s favour when TRAI tried to block MTNL’s decision to enter cellular services with the blessing of its owner DoT in 1998, claiming that the DoT had not sought the regulator’s recommendation before deciding to issue a license to MTNL. ₈₀

The High Court ruled that under the 1885 Indian Telegraph Act, the sole power to issue licenses was vested with the Central Government. Subsequently, the private operators appealed against the decision and the move was stalled till the announcement of the New Telecom Policy of 1999.

Another blow to TRAI’s credibility was the regulator’s attempts to regulate inter-connect charges. The courts threw out TRAI’s attempts to make incoming calls on mobile phones free by instituting a regime of calling party paying for the entire call.  The courts ruled that TRAI can regulate inter-connect agreements but does not have the power to set these charges or alter license agreements.

However, TRAI also contributed to its poor image. It was often seen to be captive to the interests of private sector operators. For instance, it was the courts that compelled cellular operators to reduce rental charges after the companies moved to a revenue sharing regime rather than TRAI.

Government appointments of members who were by and large retiring civil servants with no particular distinction also trivialized the regulator. One minister of communications simply deputed, for instance, one of the serving members of the Telecom Commission (part of DoT), as a member of TRAI to regulate over the companies and activities of its competitors. ₈₁

With a litany of cases in court, between TRAI, the private operators and the DoT, the government in 1999, based on the recommendations of another high-level committee decided to wipe the slate clean and introduce a new telecom policy.

 

Chapter VII: Speeding up reforms

National Telecommunication Policy 1999

Faced with a situation where investments in the sector were at a standstill and private companies were no longer interested unless the rules of the game were changed and the role of the referee made clearer, the government embarked on a series of policy changes aimed at solving the problems of the sector.

However, a tussle for supremacy delayed finalization of the policy report with the incumbent operator ­ DoT ­ opposed to total liberalization and the prime minister Atal Behari Vajpayee’s functionaries keen for open competition. ₈₂

The government decided to implement a new National Telecom Policy in 1999, which apart from setting the ambitious targets for universal coverage and tele-densities, also allowed the private sector operators in the telecommunication service providers to shift from a license fee regime to a revenue sharing one. ₈₃

Though the Congress-led opposition created a stir because they deemed that the government was losing money owed to it by moving to a system of revenue sharing, the newly formed BJP government in September 1999 voted to shift to the new revenue sharing regime and try and kick start the moribund sector.

The following are the primary objectives of the NTP’99:

• Provision of universal service to all uncovered areas, including rural areas
• Create a modern telecom infrastructure taking into account the convergence of IT, media, telecom
• Transform telecom sector to a competitive environment providing equal opportunities and level playing field for all players

In the best traditions of Indian planning, NTP’99 also set several landmarks and targets to be achieved in the next ten years.

• Telephone on demand by the year 2002
• Teledensity of 7 by 2005 and 15 by 2010
• Telecom coverage of all villages by 2002
• Increase rural tele-density from 0.5 to 4 by 2010
• Internet access to all district head quarters by October 2000
• Internet access to all villages by 2002

The government also decided to split the Department of Telecommunications into two divisions. The newly formed Department of Telecom Services (DTS) would take over the operations of the service provider while the Department of Telecom would handle all the policy aspects of the ministry.

As per the revenue sharing regime, companies would have to pay 15 per cent of their total revenues to the government. However, this is not the long-term share, as TRAI has recommended that the percentage of revenue share to be paid by operators should be 17 per cent of the adjusted gross revenue ₈₄ .

The only caveat, which companies accepted gladly, was that in order to qualify for the new revenue sharing arrangement, all the entrants would have to withdraw their cases against the government in the court. All the twenty-nine firms, including 22 cellular operators decided to move to the new arrangement.

However, even in the course of the new telecom policy, the state-owned incumbents managed to further consolidate their position and even extend it into other sectors. The government has managed to place two government players ­ erstwhile DTS and now converted into a corporate entity called Bharat Sanchar Nigam Limited (BSNL) and MTNL -  as the third cellular entrant in all the 24 markets. The decision of the incumbents to venture into a new area may be because of the strong growth the market enjoyed during 1999, when the cellular subscriber base grew by about 58 to 1.8 million subscribers. ₈₅ By June 2000 it had crossed the two million mark. ₈₆

Moreover, while DTS will have to pay the revenue share of 15 per cent like other cellular operators, it is likely that DTS will get the money back to fund its “developmental activities” of increasing rural penetration of telecom services.

It has also formed one of the most progressive and liberal Internet Service Provider Policies, where licenses for a token fee of Rs 1 have been granted to 340 ISPs already. Of these 70 ISPs have already become operational.

Moreover, the government has allowed 100 ISPs to set up international gateways to the Internet, by-passing the international gateway of VSNL, the monopoly international long distance provider.

Death of DoT

There have been a slew of policy decisions in the telecom sector during the second half of the year 2000. Following on from the National Telecom Policy in 1999, the government has kept up the speed of reform in this sector. Part of this realization to speed up reforms follows the noticeable slowing of foreign investment in this sector during the past one year. ₈₇

The most significant change in the Indian telecom sector took place on October 1, when the Department of Telecom Operations, the operations arm of the DoT was turned into a corporation called Bharat Sanchar Nigam Limited (BSNL). With this, the operational and policymaking arms of the DoT have been moved an arm’s length distance away.

The new corporation will be a Fortune 500 company from inception with assets of Rs 64,000 crore ($14.25 billion). ₈₈ The corporatisation was preceeded by a long spell of strikes from the 400,000 strong-employees of the telecom department, who wanted to retain the salary, pension and perks structure of a government employee even after being transferred to the new corporate entity. The strikers were not only from the various low-skilled employees’ unions but also from the civil service cadres; the Indian Telecom Service Officers and the Indian Accounts Service officers working in the telecommunications department also went on strike to ensure that the ITS cadre survived the corporatisation and were not replaced with IAS officiers ₈₉

The strike, which crippled local, national, international voice services as well as internet access services nationwide ₉₀ was only called off after the communications minister Ram Vilas Paswan agreed to meet all the demands of the employees like government-scale pensions out of a consolidated government fund and the turning 30,000 ad-hoc employees into permanent ones. ₉₁

However, as many commentators have pointed out the rapid capitulation of the government in the face of striking telecom workers’ demands has effectively called into question the very basis of the move to corporatise telecom services. According to The Statesman newspaper, the political message is all too clear: vital services will be saddled with extortionate baggage before they can be reformed, because the government doesn’t have the courage to take strong disciplinary action. ₉₂

Other commentators have pointed out while the demand for pensions to be protected was going to be accepted by the government, promises that corporatised entity will guarantee jobs and never retrench workers and that the corporation will never turn sick are absurd. ₉₃

It remains to be seen how much difference the arms length relationship between the government policy makers and the government-owned telecom behemoth BSNL will make in terms of a level playing field for all telecom service operators. However, the initial signs are that corporatisation may be leading to a level playing field for all telecom service providers.

For instance, within a fortnight of the creation of BSNL, the DoT asked it to pay Rs 500 crore ($125 million) as spectrum charges for operating various wireless services like microwave and satellite links. ₉₄ While as a government department, it had no need to pay for scarce resources like the spectrum, as an independent corporate entity (albeit 100 per cent owned by government) it has to follow the rules applicable to other players.

Long distance competition

Another significant step taken by the government of India was to introduce unfettered competition in domestic long distance services from August 15, 2000. The opening up of the domestic long distance services to the private sector had been a long time in coming. Ultimately, at the initiative of the Prime Minister’s Office, the government announced plans to induct an unlimited number of private sector players into this sector at an entrance fee of Rs 100 crore ($25 million).

Besides, one-time entry fee of Rs. 100 crore an operator will have to give a bank guarantee of Rs. 400 crore, which is refundable as long as the prescribed roll-out requirements are met by the new players. In  the first phase of roll out, the operator would have to cover 15 per cent of the prescribed area in two years, failing which the bank guarantee worth Rs. 100 crore would be forfeited.

The revenue sharing has been fixed at 15 per cent, which includes 10 per cent on gross revenue and 5 per cent of universal service obligation (USO). While BSNL, the incumbent monopolistic national long distance carrier has been spared from paying the entry fee but would have to share 15 per cent to meet USO obligations. ₉₅

Moreover, to ensure that no frivolous players enter the sector, the government has mandated a minimum networth of Rs 250 crore for each partner in the consortium and the companies have been given a free right of way to lay cables for their operations from the various state governments. Previously, companies wanting to lay cables along public highways have had to pay anywhere between Rs 10-Rs 75 per metre to local authorities for a right of way. ₉₆

The implications of the policy for promoting competition and the role of the state are discussed later in the chapter.

Quick calls

In addition to opening up the domestic long distance sector, the government has also decided to open up the market for international telephony in 2002 ­ two years before the World Trade Organisation deadline of 2004. This removes the government-owned monopoly in this sector through VSNL, the majority-owned government company. In return for taking away its monopoly two years earlier, VSNL is likely to be given a national long distance license without having to pay the requisite Rs 100 crore entrance fee or the Rs 400 crore bank guarantee and a national Internet Service Provider license. ₉₇

While the government players BSNL and MTNL have been granted the third cellular license in each telecom circle, the government is planning to do away with licensing in the cellular business as a matter of principle. ₉₈ During his trip to the United States in September, Prime Minister Atal Bihari Vajpayee indicated that the government was best considering how to deregulate the cellular sector completely with no restrictions on the number of providers in each circle. ₉₉

In addition to these, the TRAI has also issued guidelines for the selection of basic services players in the 15 circles, where there are no private players currently. In line with the manner of competition in domestic long distance sector, the regulator has decided not to limit the number of competitors. ₁₀₀

bank guarantee which the new entrants will have to provide will be paid back by the government.

Keeping the potential demand and profitability in mind, TRAI has recommended license fees of 12 per cent, 10 per cent and 8 per cent for the three categories of circles. While a category circles like Delhi and Tamil nadu will have to pay the maximum 12 per cent, less developed regions like the North east states or Andaman and Nicobar islands will pay only 8 per cent as revenue share. Similarly, the entrance fees for the various categories have also been graded according to the demand potential. ₁₀₁ To ensure a level playing field, vis-a-vis the government incumbents (MTNL and BSNL), TRAI has decided to charge the same rates to the government operators.

In the six circles ₁₀₂ where private firms have already been licensed and accepted the 1999 migration to a revenue share system, the license fees due under the earlier arrangement has been deemed to be the entry fee.

“It is recommended that while in the interest of effective competition, these six circles may also be opened to unlimited competition, in the interest of maintaining an economic level playing field, the licence fee payable by the existing operators may be waived for a limited period. This will not bring them entirely at par with the new service providers in terms of initial investment but considering the advantage of their early entry in to the market will enable them to nurture and maintain competitiveness of their business. The waiver may be allowed for a period of four years from the date of migration (1.8.99) and is conditional on fulfillment of roll-out obligations.” ₁₀₃

TRAI - 2000

Many contested rulings and orders later, India's government finally admitted that the TRAI created just three years ago, was a work in progress. Now, the cabinet has approved a plan to reinvent the regulator. The government has issued an ordinance to replace TRAI with an appellate tribunal with judicial powers and a reconstituted regulator with clearly defined powers.

The government has redefined the regulator's powers. It is proposing to empower it to fix tariffs and interconnection charges and to set norms on quality of service. Its recommendations on these matters will be final and binding on the government. But that is as far as the government is prepared to go.

It still does not intend to give TRAI licensing powers, stating that under the archaic Indian Telegraph Act this power belongs to the state and cannot be assigned to another body. Just why this should remain so when the Indian Telegraph Act is to be rewritten has not been explained.

The regulator can issue recommendations on the terms and conditions of licenses, the need for additional licenses and the termination of licenses. But such recommendations will not be binding on the government. TRAI's orders on tariffs and terms and conditions of interconnectivity will, however, be binding, irrespective of anything contained in license agreements issued prior to the ordinance. 

An appellate court, headed by a Supreme Court judge has been set up to rid TRAI of its powers as judge and jury. The appellate tribunal will hear all disputes between service providers, the government and service providers, the regulator and service providers. The civil courts have been kept out of the ambit of this sector and decisions made by the appellate tribunal can only be appealed in the Supreme Court.

However, there continue to be conflicts between TRAI and DoT. While the DoT preferred licensing 3 more private domestic long-distance carriers (apart from the incumbent BSNL) for carrying only inter-state voice traffic, the erstwhile TRAI (pre-2000) preferred a model of unlimited competition and a service area includes intra-circle traffic as well as inter-circle traffic. ₁₀₄

Under the DoT model, intra-circle traffic would remain the preserve of the fixed-line service providers in the respective circles. The DoT had justified its proposal on the grounds that the financial viability of existing operators of fixed line services and cellular services in the circles would be affected and the fact that this formed part of the licensing agreement.

However, the re-constituted TRAI in 2000 with a new chairman in technocrat and former State Bank of India chairman MS Verma decided to abandon the recommendations of its predecessor and go with the DoT’s views on limited competition, albeit instead of  three new entrants, TRAI recommended 4 new entrants in addition to the incumbent monopoly. ₁₀₅

The only dissenting voice in the TRAI pack was Rakesh Mohan, the executive vice-chairman of Infrastructure Finance and development Corporation and member of the Economic Advisory Council to the Prime Minister, whose dissent note went against most of the majority opinions. He recommended allowing unlimited number of players into the business, allow long distance players to carry both inter-circle and intra-circle traffic and lower share of revenues in lieu of license fees. ₁₀₆

However, when the Indian prime minister announced the domestic long distance policy would be in place by August 15, it was Rakesh Mohan’s dissent note that the broad policy was based on and therefore the policy was more competitive than either envisioned by TRAI or the DoT. There is to be no limit on the numbers of players allowed into long distance telephony. While there was an entry fee of Rs 400 crore ($1 billion approximately), three quarters of it would be refunded to the entrants if they are able to meet their connections quota as laid out by the government. ₁₀₇

The reconstituted regulator, which had been taking its cue from the DoT till now, is now looking increasingly to the Prime Minister’s Office for direction. One evidence is its recommendations on the basic services, where (as explained above) it has plugged for unlimited players and a graded revenue share system depending on the potential of the state.

The plan to re-balance domestic phone tariffs by reducing long-distance (domestic and international) and increasing rentals delayed because DoT has asked TRAI to re-examine the plan after it worked out that the new tariff structure will cost it Rs 200 billion in lost revenues. ₁₀₈ However, the Department of Telecommunications announced that domestic long distance rates would be reduced by 16 per cent and international rates by 17 per cent in September, as per the recommendations announced by TRAI. ₁₀₉

There still remain some concerns about the choice of personnel in TRAI and their links to the government. For instance, in October the secretary of TRAI Narinder Sharma was appointed as the chairman and managing director of MTNL, the government firm which runs telecom services in Mumbai and Delhi. ₁₁₀ Moreover, the current TRAI chairman MS Verma, a life long banker and popular technocrat in the NDA government, also has long links with the ruling party, which leads critics to further question the independence of the regulator. ₁₁₁ In such a situation, it is difficult to imagine that TRAI can be an independent regulator, able to balance competing interests in the interests of the end users.

However, with the regulator signing a work plan agreement with the US-based Federal Communications Commission, there is potential for improvement in its ability to make decisions. The plan signed during FCC chairman’s William Kennard’s trip to India would share experiences relating to regulation, competition and inter-connection ussyes, universal access besides exchange of information in the field of technology and new services. ₁₁₂

Emergence of the PMO

The entire episode of introducing meaningful competition in the domestic long distance sector saw the emergence of a new player in the policy making process. The Prime Minister’s Office (PMO) has, in the last one year, emerged as a powerful policy maker in the telecommunications sector.

Telecommunication analysts agree that the process of reform has quickened with Prime Minister Vajpayee’s office directly spearheading the effort. ₁₁₃ Analysts attribute the spate of decisions in the telecom sector as a direct result of the interest the PMO has taken in the telecom sector.

However, a close look at the domestic long distance policy shows that there is an on going struggle between the Prime Minister’s Office and the DoT to determine the fate of telecom competition in India.

Before communications minister Ram Vilas Paswan announced the national long distance policy guidelines, the thorniest issue was whether the new long distance operators could pick up telephone traffic within a circle or intra-circle along with inter-circle calls. ₁₁₄

The DoT had always been against the idea of allowing long distance operators to transmit intra-circle calls, ostensibly because this would impact the profitability of the basic service operators in each circle. However, since only in 3 circles of have private basic players rolled out services, the real reason may lie elsewhere.

The real reason may be the impact of intra-circle competition on DoT’s profitability itself since intra-circle calls constitute 70 per cent ₁₁₅ of its total revenue of Rs 103.2 billion (1998-99 figures) from long distance calls. ₁₁₆

According to media reports, Paswan was reluctant to allow intra-circle fearing “it would ruin BSNL’s intra-circle business.” ₁₁₇ He buckled under pressure from a committee led by Brajesh Mishra, principal secretary to the Prime Minister. ₁₁₈

However, the compromise solution that was worked out with the PMO still shows the power the DoT wields in the telecom policymaking arena. Accordingly the new long distance players can only carry intra-circle traffic with the consent of the basic service provider in a particular state.

As analyst Dr. TH Chowdary of the Hyderabad-based Center for Telecom Management and Studies points out that since only in the states of Mahatrashtra, Andhra Pradesh and Madhya Pradesh there is competition in basic telephone services, it would have made more sense to allow long distance players to pick up traffic by mutual consent in these three states while in the other states where only BSNL is present as the basic service provider, long distance companies could pick up inter-state traffic from willing customers. ₁₁₉ However, the PMO was not able to convince DoT to include intra-circle traffic within the ambit of the domestic long distance policy.

The only sector that is still a government monopoly is international long distance, through the government majority-owned company VSNL. Under commitments made to the WTO, international long-distance services were to be opened up to competition by 2004.

However, the core group of secretaries of the government of India recommended international long distance should be opened by 2002. ₁₂₀ The primary problem of opening the sector up before 2004 is the commitment made to international investors by VSNL before its international stock issue in 1998 that it would have monopoly till 2004. ₁₂₁

Again it was the PMO, which pushed for ending VSNL’s monopoly over international long distance calls earlier than scheduled. The Union cabinet, despite opposition from DoT went ahead with the decision to end the international long distance monopoly in 2002, two years ahead of schedule, despite the fact that VSNL had been granted an exclusive license for the same by DoT in 1994. ₁₂₂

Boosting foreign capital inflows

Much of policymaking frenzy in the telecom sector can be traced to the lack of significant foreign investment in the Indian telecommunications sector. The government has admitted in Parliament that the actual inflow of foreign direct investment in the telecom sector in the last one year had declined, though approvals for investments have shown an upturn. ₁₂₃

According to government replies in Parliament, in 1999-2000 the only foreign investment came in the cellular sector with AT&T Cellular leading the pack with an investment of Rs 136 crore.

On important bottleneck to foreign direct investment in the sector is the 49 per cent cap on foreign holdings. Vexed by the long delays in implementing policies as well as the ownership cap, several telecom companies including US West, Nynex, Swiss Telecom, Bell Canada, Bezeq of Israel, Telecom Italia, Shinawatra of Thailand, Phillipine Telecom and  Australia’s Telstra Corporation have already wound up their investments in India.

Indeed the only major players remaining in India include AT&T (and Media One, which has been bought over by AT&T globally), Hutshison Whampoa, British Telecom and now Singapore Telecom, which has just formed a series of joint ventures with local player Bharti Telecom. ₁₂₄

Now the government has started having a re-think on the policy of limiting foreign investment at 49 per cent. A high powered committee under the chairmanship of Yashwant Sinha, the finance minister has been constituted to look into the scope for lifting the 49 per cent investment cap. The move follows requests by leading domestic telecom companies, who seem unable to raise the capital necessary for expanding services. ₁₂₅

In the interim, the government has made some relaxations in the restructuring of equity of telecom companies, forced to do so perhaps by the pull-out of many telecom players from the country.

 

The Government has decided to allow restructuring of equity of the licensee company. The lock - in stipulation on share holding for five years provided in the Migration Package of NTP 1999 stands modified and an existing foreign partner may substitute another foreign partner of similar standing and experience subject to the licensor DoT's approval.

The existing Indian partner have been allowed to acquire the foreign partner's shareholding and transfer of equity inter - se between existing Indian promoters has been permitted, provided the majority Indian partner continues to hold at least the present shareholding for a period of five years from the effective date of license agreement as per the migration package. Merger of Indian companies has also been permitted as long as competition is not compromised. ₁₂₆

This has led to spate of mergers and acquisitions in the Indian cellular industry. (see Annexure I).

Moreover, the move to open up international long distance sector well ahead of the WTO commitment of year 2004, is also being viewed as a sop for international firms investing in Indian telecom. ₁₂₇

 

Chapter VIII: The Communications Bill: Towards Convergence

In 1999, the government-appointed Group of Telecom and IT Convergence under the chairmanship of finance minister Yashwant Sinha had set up an expert sub-committee under the leadership of eminent jurist Fali Nariman to draft a replacement of the existing Indian Telegraph Act of 1885 and the Indian Wireless Act of 1933 with a comprehensive Act covering the sectors of communications, information and broadcasting. ₁₂₈

In its final report submitted to the government in August 2000, the committee has drafted a new “Communication (Carriage and Content) Bill 2000” with the aim to “facilitate the rapid growth and development of broadcasting, telecommunications and information technologies in an environment of convergence and for that purpose to establish an independent Commission to be known as the Communications Commission of India, and to provide for matters connected therewith or incidental thereto.” ₁₂₉

The objectives of this new legislation is to facilitate development of national infrastructure for an information based society; to provide choice of services to the people with a view to promoting plurality of news, views and information. It will also establish a licensing framework for carriage and content of information in the scenario of convergence of telecommunication, broadcasting, data communication, multimedia and other related technologies as well as a regulatory framework for information content and carriage; and establish the powers and functions of a single regulatory and licensing authority. ₁₃₀

The draft bill proposes to vest the Communications Commission of India with the authority to license and regulate the communications and broadcasting sectors. In order to ensure the independence of the entity, the Nariman panel has recommended that the chairperson of the Commission be chosen in a bi-partisan way by a panel consisting of the leaders of the government and opposition in both houses of Parliament as well as the ministers for communication and broadcasting. ₁₃₁

To ensure the independence and to distinguish it from other statutory bodies, the committee included a provision in the new bill that the Chairperson or any other members of the Commission could be removed from office before expiry of his/her term of office of 5 years only by order of the President on grounds of misconduct or non-performance, and only after a retired Judge of the Supreme Court or any judge of the High Court on a reference having been made to him by the President has reported that the Chairperson or such other member as the case may be should, on such grounds, be removed. ₁₃₂

For this reason the panel has expressly disapproved of a clause forwarded by the Ministry of Information & Broadcasting as this clause empowers the Central Government to propose to the President of India to supersede the Commission by Notification:  Says the report: “In our opinion this wholly detracts from the high independent status that we have recommended for the Communications Commission of India.” ₁₃₃

The Bill empowers the commissioner’s office to create an office of spectrum manager to manage frequency allocations, set tariffs for basic services in broadcasting sector, ensure technical compatibility, ensure compliance of licensing terms and conditions, recommend revocation of licenses for non-compliance and make recommendations for the grant of licenses of broadcast services. The Bill will incorporate the TRAI Act 1997 and the TRAI Amendment Bill 2000. ₁₃₄ As a regulatory body, TRAI will cease to exist once this new bill is passed.

The new bill comes at a crucial juncture in the reforms process. Till now, the government has been happy to grant licenses for individual activities in the telecom sector. However, with the technological imperatives of convergence upon us and the low level of interest in isolated services like basic telephony or paging, the government will have little options but to issue composite licenses, regardless of data or voice being transmitted through wireline or wireless means. The bill takes that process ahead by creating a super regulator for the broadcasting and telecommunications industries.

 

Chapter IX: Lessons from deregulation in other countries:

India can learn valuable lessons from the efforts of other countries to deregulate their telecom sectors.

Consider the case of New Zealand. It was one of the first countries to introduce competition into the telecom sector in 1986. It deregulated the market, without setting new ground rules or appointing a regulator. ₁₃₅ It decided to forego any manner of regulation and left the market and the courts to sort out any problems. ₁₃₆

The lack of a pro-competition policy and the lack of a regulator has resulted in negative growth for the incumbent’s ­ Telecom New Zealand ­ largest competitor, Clear Communications. This is now beginning to influence Clear’s policy as it is concentrating on the business segment.

Lacking a strong regulator and pro-active inter-connect agreements, the competitors continue to struggle against the incumbent. Even after 14 years of introducing competition, Telecom New Zealand continues to be the local access company with a 99 per cent market share with the other 1 per cent shared among the other two service providers. ₁₃₇

The regulatory questions continues to be a running sore on the NZ telecom scene, with all the players apart from the incumbent seeking a more assertive control on anti-competitive behavior. ₁₃₈

In the lessons from the process of telecom reforms from the United States also hold important lessons for India. In 1996, the US Congress passed the Telecommunications Act, which sought to revolutionize the market by introducing competition across the sectors.

The Telecommunications Act truly opened local telephone markets in the first time in eighty years, increased competition in long distance markets and also impacted the cable television industry by letting companies into that industry. ₁₃₉

What is impressive about the US Act is the manner in which it has sought to introduce competition and limit the power of the incumbent players in a competitive arena. The act is still being disputed by various regional Bell operating companies in the courts and the FCC is still trying to increase competition in terms of access to the consumers. A detailed analysis of managing telecom competition in the US can be gleaned from Robert Crandall’s Managed Competition in US Telecommunications ₁₄₀ , for the purpose of this paper, it is suffice to point out what the act intended to do.

The first major directive in the act to promote competition is unbundling. Unbundling refers to breaking the telecom network into distinct pieces and forcing local operators (the regional Bells) to re-sell this to the new competitors on the basis of cost.

The 1996 Act was supposed to facilitate entry by allowing competitors to use some of their own equipment like switches and to lease the rest like the copper wires leading to homes and residences from the incumbent’s networks. The Act also envisioned prices for these unbundled network elements and interconnection that reasonably reflected their cost, rather than inflict a financial penalty on competitors. ₁₄₁

Another related major premise of the 1996 Act is that regional Bells should not be allowed to offer long distance services in any state within their service territories until local markets are opened to meaningful competition. ₁₄₂

This ability to restrain the powers of the incumbent by not letting it into new market niches before it has introduced competition is one of the cornerstones of competition policy in the US. While this has by no means been successful yet, and some economists like Crandall argue for other methods of achieving competition, the litany of long distance and local access options for US consumers shows that unbundling the network and restraining the local incumbents are the way to introducing meaningful competition in the telecom industry.

General Principles for Regulators

A large body of work has been done on the best principles to apply while constructing an effective regulator. This paper draws upon the work of Roger Noll’s Telecommunications reform in developing countries ₁₄₃ to suggest some ways of making the regulator stronger in India.

According to Noll, all regulatory processes are inherently conflictual and participants in the regulatory process will seek to influence the process to their own advantage in any way that is available to them. Submitting information that supports a favorable decision is one way of exercising influence. Another is to seek intervention by political allies.

There are two primarily problems for regulators in developing countries. ₁₄₄ One is the problem of regulatory capture where the regulator allows the regulated firms to charge high prices, earn high profits and provide low quality service. The other is expropriation. This can arise from two reasons: user groups may either be well organized in the regulatory process and cause service to be provided below cost or an election may cause political pressure to be placed on regulators to favour users against suppliers.

Noll suggest that the solution to both capture and expropriation is the same: to construct a regulatory agency that it unlikely to be influenced by any particular interests. ₁₄₅ First, the personnel of regulatory agencies should be heterogeneous and stable and short-term changes in the political control of government should not cause dramatic swings in the composition of the agency. Moreover, the careers of regulators should be secure and remunerative enough so that regulators are nor constantly seeking other employment.

The US model represents the extreme form of insulation from political pressures where political appointments to a regulator are for several years and are subject to partisan diversity rules. The British and Japanese systems have professionals who are the regulatory authorities but policy authority rests with cabinet of ministers, seeks to achieve independence by giving more authority to civil servants. ₁₄₆

Second, the regulator can be given independent authority to generate information and even resources to represent interests that otherwise are not organized to participate in its processes. Third, the regulator should be subject to openness requirements so that the agency conducts all business in public, refrains from secret contacts with interested parties and not only give indications of decisions it is likely to make but the reasoning behind that decision. “Openness forces regulators to reveal informational basis for their decision and is therefore useful for revealing whether the agency’s decision is biased and unsupported by facts.” ₁₄₇

Fourth, the decisions of the regulator can be subject to review by another body that is freer of representation biases, especially biases affecting participation in the agency’s processes, at the instigation of anyone who is dissatisfied with a decision. Levy and Spiller suggested that the most common reviewing body is a general-purpose court that itself is politically independent and diverse in composition. ₁₄₈

Noll also notes in his analysis that “for some large developing countries with a substantial middle class, such as Brazil, India or Mexico, these safeguards plausibly are present and affordable so that a recommendation to implement western-style regulatory agencies is not out of the question.” ₁₄₉

 

Chapter X: Conclusions

As discussed at the end of chapter I, this paper set out to examine whether the conflicting goals of the government policy, both implicit and explicit could be achieved. These goals were:

• Encourage private sector investment and competition to increase national coverage at an affordable price.
• Raise money for the government to fund its deficit by auctioning off licenses.
• Protect the interests of the state-owned firms, the dominant players in the industry.

The government continues to pursue these goals but the results on all three counts have been far from satisfactory. The bid to raise money for the fiscal deficit through licenses turned out to be a problem, forcing the government to shift to a revenue sharing-based model for all telecom companies. However, in this new revenue-sharing model, the government has more incentive to promote telecom services, since its share depends on the gross revenues of the service operators. This model is now being adopted for all new licensing agreements for all telecom services.

Foreign investment has also faltered, dropping from a peak of 17.8 billion rupees in 1998 to just 918 million rupees in 2000 (see Annexure II). However, the recent spate of competition friendly policies is already having an impact with Singapore Telecom (Singtel) picking up a 35 per cent stake in the various telecom ventures of the Bharti group for a consideration of $400 million. ₁₅₀

But despite the push to introduce competition, the state continues to be the dominant player in basic services. It accounts for 27.5 million lines through BSNL and MTNL while the private sector players have only laid 164,000 lines. However according to the government, there have been 1.5 times as many new lines in the last 5 years as that in the last 5 decades and the sector as a whole has been growing at over 20 per cent annually. ₁₅₁

The cellular services segment, which has accounted for 43.7 per cent of the total foreign direct investment, continues to grow at a fair clip and has registered over 2.3 million subscribers by June 2000. ₁₅₂

However, the stated aims of increasing network coverage and providing telephones in previously uncovered rural areas of India is still, largely, a dream. The six licensed private basic service operators were, for instance supposed to add 102,000 lines to uncovered rural areas in their respective circles. However, till date only 30 villages in Rajasthan and 13 villages in Madhya Pradesh have been covered. ₁₅₃ Minister of communications Ram Vilas Paswan has already levied fines of Rs 53 crore on these private operators for not meeting their targets and is threatening to cancel licenses. ₁₅₄ However, bringing them to task may not be that easy. Especially since BSNL has itself reneged on its commitments of connecting villages by over 75,000 lines in the past three years. ₁₅₅

Other than cellular services, the only other telecom sector where significant progress has been made is in the area of internet service providers. A competitive policy without entry fees and license fees as well as 100 per cent foreign equity has seen 400 Internet Service Providers blossom in all parts of India. Moreover, in less than two years, the number of Internet users has increased 5 times to over 1.5 million while prices have also come to one-fifth of those prevalent during monopoly over Internet access. ₁₅₆

Now with a new communications law on the horizon, it remains to be seen if the government does create a new super regulator for the sector. If the recommendations of the Nariman panel are followed in terms of the independence of the regulator, it may be the first time that the sector has a truly independent regulator no subject to the whims and fancies of the government.

While the Department of Telecom Services has been corporatised, merely making it a corporation is not enough. While privatization is difficult considering the political problems associated with selling a state-owned firm with almost 400,000 workers, the NDA government (especially the Bhartiya Janata Party) has taken tentative steps in the last budget to introduce voluntary retirement schemes for public sector workers.  Moreover, the BJP, who traditional support base comes from traders and the business community, may be in the best position to carry out these changes. However, it is difficult to gauge whether they would be able to carry the National Democratic Alliance coalition partners with them.

As for the furthering the interests of the state-owned bodies, this battle like the US Presidential race remains too close to call. The process of creating a level playing field between the private and public sectors is going on. This would entail BSNL, VSNL and MTNL paying the same revenue shares to the government as the private operators in fields like cellular telephony, domestic long distance services. Not charging the state entities this revenue means that the government is cross- subsidizing the public sector at the expense of the private sector. While the DoT is still fighting to get this subsidy, it is not clear what the government will decide on this front.

Nowhere in the world has an incumbent telecom service provider willingly submitted itself to competition and deregulation. The problem becomes even more intense when the incumbent is a state monopoly and employer of 400,000 workers. In almost every country, the incumbent has been dragged into the realm of competition, kicking and screaming by the regulator and government.

India needs to do the same urgently if the government’s plan to add 75 million new connection by 2005 ­ boosting teledensity to 7 phones per 100 people ­ and 175 million by 2010 ­ boosting teledensity to 15 phones per 100 people ­ is to fructify. And for that India needs over $100 billion dollars to be invested in the telecom sector. Considering that in the last 10 years, foreign firms have invested less than a billion dollars, the task, if not hopeless is a Herculean one, at the least.

 

Bibliography

Stephen D McDowell, Gloablization, Liberalization and Policy Change: A Political Economy of India’s Communications Sector, St Martin’s Press Ince, New York, 1997

T H Chowdary, Journal of the Center for Telecom management and Studies, Vol IX, No. 10, Hyderabad, October 2000

Roger Noll, Telecommunication reform in Developing Countries; AEI-Brookings Joint Center for Regulatory Studies; Working Paper 99-10, November 1999

Bella Mody, State Consolidation through liberalization of Telecom; Journal of communication 45(4) 1995

Rekha Jain, Review of the Policy Changes in the Indian Telecom Sector: Implications for decision makers, Journal of Global Information Management 1(3), 1993

T H Chowdary, India: Reforming Telecoms the Indian Way; Telecommunications (International Edition) 29(10): 111-115, 1995 October

Hamish, McDonald, Telephone Tag: Indian Contract procedures frustrate bidders; Far Eastern Economic Review, 155(36): 62-64, 1992 September 10

Anupama Dokeniya, Reforming the state: Telecom Liberalisation in India, Telecommunications Policy 23 ­1999

Srinivas Kaushik; Liberalization of Telecom Services in India and norms relating to Interconnection; Unpublished Master’s Thesis, McGill University, 1999

Aparna, Achar: Untangling a telecoms revolution; Telecommunications 33(10), 181-183, 1999 October

Economic and Political Weekly; Telecom Demonopolisation or Farce; 2000 February

Paul Budde: Decline and Fall; Communications International January 2000

Roger Litan and Roger Noll; Unleashing Telecommunications: The case for True Competition; Policy Brief 39; November 1998 (http://www.brook.edu/comm/policybriefs/pb039/pb39.htm)

 

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Endnotes

Note 1: National Telecom Policy 1999;  http://www.nic.in/ntp-pol.htm Back

Note 2: Enter Babu-Tel; Sumit Mitra; pages 35-36; India Today, September 29, 2000 Back

Note 3: Interview with Ram Vilas Paswan, Back

Note 4: Telecommunication reform in Developing Countries; AEI-Brookings Joint Center for Regulatory Studies; Working Paper 99-10, November 1999 Back

Note 5: National Telecom Policy 1999; http://www.nic.in/ntp-pol.htm Back

Note 6: Bella Mody, State Consolidation through liberalization of Telecom; Journal of communication 45(4) 1995, page 109-110 Back

Note 7: ibid, page 111 Back

Note 8: Stephen D McDowell, Globalization, Liberalization and Policy Change: A Political Economy of India’s Communications Sector, 1997, Macmillan’s Press, page 128 Back

Note 9: ibid, page 129 Back

Note 10: ibid, page 127 Back

Note 11: ibid, page 132 Back

Note 12: ibid, 128-130 Back

Note 13: ibid, 133 Back

Note 14: ibid 136. Back

Note 15: Mody, page 115 Back

Note 16: Ibid, 136 Back

Note 17: ibid, 138 Back

Note 18: ibid, 140 Back

Note 19: ibid, 140 Back

Note 20: Secretary of Communications S K Ghosh, quoted in McDowell, page 133 Back

Note 21: ibid, 141 Back

Note 22: Rekha Jain, Review of the Policy Changes in the Indian Telecom Sector: Implications for decision makers, Journal of Global Information Management 1(3), 1993, pages 33-43 Back

Note 23: McDowell, page 146 Back

Note 24: Jain, pg 15 Back

Note 25: ibid, page 15 Back

Note 26: Mcdowell, page 138 Back

Note 27: ibid, page 142 Back

Note 28: ibid, page 148 Back

Note 29: McDowell, 142 Back

Note 30: ibid, page 119 Back

Note 31: ibid, 149 Back

Note 32: ibid, page 16, 66 Back

Note 33: McDowell, pg 16 Back

Note 34: ibid, pg 20 Back

Note 35: Mody, page 111 Back

Note 36: McDowell, page 20 Back

Note 37: ibid, page 21 Back

Note 38: ibid 162 Back

Note 39: ibid, page 21 Back

Note 40: ibid, page 124 Back

Note 41: ibid, page 125 Back

Note 42: ibid, 126 Back

Note 43: ibid, 126 Back

Note 44: Mody page 118 Back

Note 45: McDowell, page 156 Back

Note 46: Mody, page 113 Back

Note 47: ibid, page 119 Back

Note 48: TH Chowdary, India: Reforming Telecoms the Indian Way; Telecommunications (International Edition) 29(10): 111-115, 1995 October. Back

Note 49: McDowell, pg 161 Back

Note 50: Mody, page 121 Back

Note 51: McDowell page 161 Back

Note 52: Mody, 121 Back

Note 53: McDowell 163 Back

Note 54: Mody, 122 Back

Note 55: A phoney Ring; Bhavdeep Kang, page 18; Outlook Ocotber 2, 2000 Back

Note 56: Hamish, McDonald, Telephone Tag: Indian Contract procedures frustrate bidders; Far Eastern Economic Review, 155(36): 62-64, 1992 September 10 Back

Note 57: Chowdary, 1995; See also Govind and O’Neill: Indian Telecoms lures foreign investment; Telecommunications International 28(9) 11-12, 1994 September Back

Note 58: ibid. Back

Note 59: For a critique of Indian auctions, see Spectrum allocation models for India; G. Anandlingam, Pradipta Bagchi and Roy Kwon, (unpublished) Back

Note 60: Mody, page 115 Back

Note 61: National Telecom Policy 1994, quoted in Mcdowell, page 160 Back

Note 62: Anupama Dokeniya, Reforming the state: Telecom Liberalisation in India, Telecommunications Policy 23 -1999 (105-128) Back

Note 63: ibid, page 116-118 Back

Note 64: TH Chowdary, India: Reforming Telecoms the Indian Way, Telecommunications (International Edition October 1995 (111-114) Back

Note 65: Anupama Dokeniya, Reforming the state: Telecom Liberalisation in India, Telecommunications Policy 23 -1999 (105-128) Back

Note 66: India Infoline: http://www.indiainfoline.com/sect/tesp/ch10.html Back

Note 67: Dokeniya, 1999 Back

Note 68: ibid Back

Note 69: Srinivas Kaushik; Liberalization of Telecom Services in India and norms relating to Interconnection; Unpublished Master’s Thesis, McGill University, 1999 Back

Note 70: Aparna, Achar: Untangling a telecoms revolution; Telecommunications 33(10), 181-183, 1999 October Back

Note 71: Economic and Political Weekly; Telecom Demonopolisation or Farce; 2000 February Back

Note 72: Aparna Achar, Untangling a telecoms Revolution, Telecommunication Journal October 1999 Back

Note 73: ibid. Back

Note 74: ibid. (Some of the owed fees are from basic services and paging) Back

Note 75: EPW, 2000 February Back

Note 76: Dokeniya, page 107 Back

Note 77: ibid, page 109 Back

Note 78: ibid, page 123 Back

Note 79: ibid, page 123 Back

Note 80: Achar 1999 Back

Note 81: EPW Feb 2000 Back

Note 82: Achar, march 1999 Back

Note 83: National Telecom Policy 1999; http://www.nic.in/ntp-pol.htm Back

Note 84: TRAI letter to DoT; D.O.No.250-14/2000-Fin. (DF) (Vol.II) Dated June 23, 2000. Back

Note 85: Voice n Data; Cellular Services, Segment Analysis; July 2000 Back

Note 86: Interview with Shyamal Ghosh, Secretary DoT, San Francisco June 2000 Back

Note 87: Declining FDI flow in telecom sector; The Hindu; August 9, 2000;   http://www.indiaserver.com/thehindu/2000/08/09/stories/06090006.htm Back

Note 88: Monopoly So long; Sumit Mitra; India Today pg 38-41; August 20, 2000 Back

Note 89: Crippled STD freeze links on East, banks hit hard; Economic Times, September 21, 2000 Back

Note 90: City marooned, not end in sight; Economic Times, September 21, 2000 Back

Note 91: 3-day strike called off, Business Standard, 23 September 2000 Back

Note 92: Phony Truce ­ The cost of resolving the telecom strike; The Stateman, September 16, 2000 Back

Note 93: Stand Firm; The Economic Times, September, 9, 2000 Back

Note 94: DoT asks BSNL to pay Rs 500 crore as spectrum charges; The Financial Express, October 16, 2000 Back

Note 95: Monopoly So long; Sumit Mitra, India Today, August 28, 2000 Back

Note 96: A phoney ring; Outlook India, October 2, 2000 Back

Note 97: Gearing up for 2002; Snup Jayaram, Business World, page 20; 25 September 2000 Back

Note 98: Govt plans to delicense cellular telephony: PM; TN Ninan, Business Standard, September 14, 2000 Back

Note 99: ibid. Back

Note 100: http://www.trai.gov.in/FSP_EXECUTIVE_SUMMARY.doc; page 1 Back

Note 101: ibid, page 3. Back

Note 102: Maharashtra, Andhra pradesh, Rajasthan, Gujarat, Punjab and Madhya Pradesh Back

Note 103: http://www.trai.gov.in/FSP_EXECUTIVE_SUMMARY.doc; page 5 Back

Note 104: Recommendations on the Introduction on competition in long distance telephony: Telecom Regulatory Authority of India; December 13, 1999; http://www.trai.gov.in/dldrecomn.htm Back

Note 105: Recommendations on the Introduction on competition in long distance telephony: Telecom Regulatory Authority of India; May 15, 2000; http://www.trai.gov.in/dldkrb.doc Back

Note 106: Ibid; ; http://www.trai.gov.in/dldanx2.doc Back

Note 107: Guidelines for issue of licence for national long distance service; www.dotindia.com Back

Note 108: TRAI to review Tariff plan; Business Standard (http://www.business-standard.com/00mar31/economy8.htm) Back

Note 109: Ocotber Fest: STD ISD to cost 16-17 per cent less; Economic Times, September 9,2000 Back

Note 110: New MTNL Chief; The Times of India; 23 September 2000 Back

Note 111: Rein in BSNL, re-focus TRAI, Pradipta Bagchi, Business Standard, October 12, 2000 Back

Note 112: India’s Telecom regulatory body signs work plan with US-based FCC; http://in.news.yahoo.com/000922/8/7hk9.html Back

Note 113: India Resolving Telecom Saga; Reurters; http://wirednews.com/news/print/0,1294,38252,00.html Back

Note 114: Monopoly So long; Sumit Mitra; India Today pg 38-41; August 20, 2000 Back

Note 115: Enter Babu-Tel; Sumit Mitra; India Today, pages 35-36; September 25, 2000 Back

Note 116: Monopoly So long; Sumit Mitra; India Today pg 38-41; August 20, 2000 Back

Note 117: ibid Back

Note 118: ibid Back

Note 119: Competition in Domestic Long Distance Telecommunications, Dr T H Chowdary, page 3, Journal of the Center for Telecom and Management Studies, Vol IX, no.10, October 2000, Back

Note 120: Business Standard, June 1 2000 Back

Note 121: Ghosh interview Back

Note 122: VSNL monopoly to end early -- Cabinet approves STD, ISP sops as compensation; The Hindu Businessline; http://www.hindubusinessline.com/2000/09/07/stories/14076801.htm Back

Note 123: Declining FDI flow in telecom sector; The Hindu; August 9, 2000; http://www.indiaserver.com/thehindu/2000/08/09/stories/06090006.htm Back

Note 124: Move to corporatise DoT evokes mixed reactions, The Hindu, September 3, 2000 http://www.indiaserver.com/thehindu/2000/09/039/stories/02030000h.htm Back

Note 125: Panel set up to mull Lifting 49% FDI cap on telecom; Business Standard; November 10,2000 http://www.business-standard.com/archives/2000/nov/50091100.018.asp Back

Note 126: http://investindiatelecom.com/foreign_inv.htm Back

Note 127: VSNL monopoly to end early -- Cabinet approves STD, ISP sops as compensation; The Hindu Businessline; http://www.hindubusinessline.com/2000/09/07/stories/14076801.htm Back

Note 128: http://www.icici.com/subgrouponconvergence/ Back

Note 129: The final draft report on convergence; http://www.icici.com/subgrouponconvergence/convergence.doc Back

Note 130: ibid, page 32 Back

Note 131: ibid page 36 Back

Note 132: ibid page 31, footnote 1 Back

Note 133: ibid page 31, footnote 1 Back

Note 134: Economic Times, June 15, 2000 Back

Note 135: Paul Budde: Decline and Fall; Communications International January 2000 Back

Note 136: Robin Bromby, New Zealand: Blazing a trail in telecom; Telecommunications (International Edition) 29(10) 160-162, 1995 October Back

Note 137: Budde Back

Note 138: Bromby Back

Note 139: Roger Litan and Roger Noll; Unleashing Telecommunications: The case for True Competition; Policy Brief 39; November 1998 (http://www.brook.edu/comm/policybriefs/pb039/pb39.htm) Back

Note 140: Robert Crandall, Managed Competition in US Telecommunications; AEI-Brookings Joint Center for Regulatory Studies; Working paper 99-1 March 1999 Back

Note 141: Litan and Noll 1998 Back

Note 142: ibid Back

Note 143: Roger Noll, Telecommunications Reform in Developing Countries; AEI-Brookings Joint Center for Regulatory Studies; Working paper 99-10, November 1999 Back

Note 144: Noll, page 42 Back

Note 145: ibid, page 44 Back

Note 146: ibid page 44 Back

Note 147: ibid page 45 Back

Note 148: ibid page 45 Back

Note 149: ibid page 45 Back

Note 150: SingTel picks up 35 per cent in Bharti firms; http://www.financialexpress.com/fe/daily/20000808/fco08042.html Back

Note 151: http://www.investindiatelecom.com/basic_present_stat.htm Back

Note 152: http://www.investindiatelecom.com/cellular_pre_sta.htm Back

Note 153: A phoney ring; Bhavdeep Kang, Outlook Ocotber 2, 2000 Back

Note 154: ibid, page 20 Back

Note 155: DoT-Busting or Telecom Promotion; TH Chowdary, Journal of the Center for Telecom Management and Studies, Vol IX, No. 10, Ocotber 2000 Back

Note 156: Competition in domestic long distance telecommunications; TH Chowdary, Journal of the Center for Telecom Management and Studies, Vol IX, No. 10, Ocotber 2000 Back