Telecom: Disunity on the line

It was an embarrassment that the government could have done without. On one day Finance Minister Jaswant Singh seemed to tell the world that a committee of the government's top ministers was divided about key changes in the country's telecom policy.

The next day came a clarification saying that there weren't any differences.

The two statements gave no indication of the furious behind-the-scenes row that was played out between senior government ministers after the first meeting of the high-powered committee on telecommunications.

Singh's statement led to furious confabulations. One minister pointed out that Singh had signed the minutes of the meeting.

In the minutes the government said it would even out the kinks in policy by introducing what is called unified licensing.

Caught on the backfoot, since he had indeed signed the minutes, Jaswant Singh issued the second statement. But it was too late to conceal the differences at the top.

Nevertheless, the meeting had outlined several key decisions. It was agreed that the defence services would release more frequency spectrum that is needed for cellular services.

The defence services will be paid about Rs 900 crore (Rs 9 billion) as compensation for this. Also, in a key move, the ministers approved a proposal to allow foreign holdings of upto 74 per cent in the telecom sector and referred the issue to the Department of Company Affairs.

Equally importantly, it paved the way to allow larger operators in a telecom circle to take over weaker players. Singh has already met Defence Minister George Fernandes to discuss the frequency spectrum issues.

Meanwhile, the government's moves are being watched intently from all sides. One cellular operator recently wrote to Telecom regulatory Authority chairman Pradeep Baijal saying that changes to the telecom policy would have to be put before Parliament.

He argued that this had become imperative after the recent Supreme Court judgement in the HPCL case.

The key mover in the telecom imbroglio is still Telecom Minister Arun Shourie who wants to push through the new system of unified licensing as quickly as possible.

He has figured out that it is the only way out of the telecom mess, which the government has landed itself with. But the cellular operators are determined to oppose unified licensing unless they are compensated in some way.

Under unified licensing fixed line operators would be able to offer cellular services by paying a one-time fee. The main beneficiaries for now would be Reliance Infocomm and Tata Teleservices.

Shourie wants to move rapidly before election time gets too close. But that's where he's said to be facing opposition.

Some ministers would like to move at a slightly more sedate pace and argue that the Group of Ministers should put together a roadmap towards unified licensing.

Two other senior ministers, Yashwant Sinha and George Fernandes, weren't at the meeting that took place last week. Shourie fears that moving slowly would scuttle the plan because it would be overtaken by next year's general elections.

Why do some ministers have reservations about unified licensing? For a start, they've pointed out that the telecom disputes tribunal has ruled that there should be separate licences for different services.

Unified licensing would contradict the judgement. But Shourie is keen to sort out the telecom mess. And the feeling amongst GoM members is that he will get his way because he heads the ministry.

But the GoM meeting also gave the cellular operators ground for good cheer.

The big operators like the Bharti Group's Sunil Mittal has already gone on record to say that if 74 per cent is allowed he would hold a GDR or ADR issue to raise more cash for the company.

That cash, he said, would then be used to acquire smaller rivals in circles where he is already operating.

Such moves are important for Mittal who has ambitious growth targets: he wants to grow from 3 million to 6 million customers in the next one year. Also, he's aiming to control about 25 per cent of the mobile market (that includes both GSM and CDMA).

Other cellular players too are in favour of allowing acquisitions within circles. A larger player like Hutch, for instance, could look at some selective purchases. And even smaller players like Spice Telecom, for instance, could sell out more easily.

Publicly, however, the cellular operators are howling their protests at Shourie's proposals. They are the only ones really affected by unified licensing. Even now, they point out, there are no restrictions -- except in the cellular segment -- and operators can plunk their cash on the table for a licence and start services.

"This is clearly a move designed to cater to the interest of one operator which wants to enter the cellular domain through the back door, says T V Ramachandran, director general, Cellular Operators Association of India.

Adds another cellular operator: "There is no evidence that a single licence will help the industry. "

Despite Singh's and Law Minister Arun Jaitley's reservations, the GoM did take another important move towards unified licensing. The committee has requested Trai chief Pradeep Baijal to prepare a report on unified licensing. Baijal openly says that unified licensing as the only way out of the current imbroglio.

What are the issues Baijal will have to sift through? One key issue is whether the cellular operators should get compensation if unified licensing is pushed through.

Some bureaucrats in Trai argue this is ridiculous and that the cellular operators agreed to unfettered competition when they moved to the new revenue share regime in 1999.

The cellular operators counter that they only agreed to a fourth operator and not to fifth and sixth ones.

That in turn is countered by S C Khanna, secretary general, ABTO. Says Khanna: "The cellular operators have always wanted to protect their domain as if it is exclusive to them. The migration package given to cell operators in 1999 clearly says that the government is free to allow more operators."

The government also points out that it wants the Indian telecom sector to grow at Chinese speeds and is determined to hit a target of 100 million cellular subscribers by 2005, compared to 22 million today.

This, say bureaucrats, would need investment of Rs 50,000 crore (Rs 500 billion). Can the GSM operators put up so much money?

The other question is how much should new operators pay for the new licences. This is where the issue becomes tricky. The bidders for the fourth round of licences paid around Rs 1,773 crore (Rs 17.73 billion) for an all-India licence.

However, the first operators paid only Rs 2 crore (Rs 20 million) for a metro licence. The second round of bidders promised to pay more but were finally unable to pay.

Finally, they were bailed out and allowed to migrate to the new regime when the policy was changed.

One more issue that remains to be sorted out is the status of international long distance and national long distance. Should these be included in the unified licence? What will happen next in this intricate of telecom poker?

For one thing, the cellular operators have held together and are almost certain to approach the Supreme Court in the very near future.

Most telecom analysts believe that unified licensing in one form or another will go through.

The reason is that the government knows it must extricate itself from the telecom mess. Unified licensing, whether it helps one company or not, is the only way out.

Whatever their misgivings, ministers like Singh and Jaitley cannot put the government in an embarrassing position as it heads to an election year.

But this is a story that is bound to have many more twists and turns before the lines are cleared.

Additional reporting: Thomas K Thomas