End Of The Licence Raj

For, it appeared that the government had virtually granted most demands of private operators, despite the DoT's best efforts to sabotage the process. The stage had been set by the New Telecom Policy (ntp), '99, announced in late March this year that said the telecom industry would henceforth operate on a revenue-sharing basis, not on the basis of a fixed licence fee system followed since the previous telecom policy of '94. Currently, many private operators are staring at huge fee arrears and crippling losses. Over the 10-year licence period, at&t has to pay Rs 3,452 crore for Gujarat and Maharashtra, Tata Communications Rs 1,001 crore for Andhra Pradesh, JT Mobile Rs 3,660 crore for Andhra Pradesh, Karnataka and Punjab... If all the arrrears and infrastructure costs of the cellular industry are included, by now the industry should have invested Rs 20,000 crore in the business. Last year, it had a turnover of only Rs 1,400 crore and suffered an estimated operating loss of Rs 1,187 crore, without taking into account the Rs 3,700 crore licence fee it should have paid by now.

Clearly, these guys need help. Which the government appears to have provided. The Cabinet has taken these decisions:

Well, the champagne is in the ice. But no one is raising a toast yet.

That's because many issues still remain unresolved. Says Rajeev Chandrashekhar, cmd, bpl Telecom and president of the Cellular Operators' Association of India (coai): "The new policy is a step forward, but a lot still needs to be done to restore investor confidence." And that can only be done by strengthening the trai, over which the government has repeatedly ridden roughshod. Says Virat Bhatia, managing-director, at&t: "By going in for revenue-sharing, the government becomes a stakeholder in telecom growth. But a lot still needs to be done, like empowering the trai and separating the DoT's policy-making and operating roles legally and financially even before corporatising it."

But typically, the devil is in the details. "Mahajan says till the trai gives its recommendations (which sources say could take four-five months) on revenue sharing, we should pay the government 15 per cent of our revenues in the interim, which will be subsequently adjusted. It is on that basis that I am expected to tell my bankers to fund my licence fee arrears, and convince my board that we should make further investments in our operations. But what if the final revenue-sharing formula is not conducive and in hindsight I realise the business plan under the old regime was better? No bank will take such a risk," says an executive. Ergo, he might just be forced to play safe and stick to the regime he knows.

If this wasn't bad enough, two days after Mahajan's briefing, a senior DoT official contradicted him on the 15 per cent interim revenue-sharing figure. "It's hypothetical that we'll need an interim arrangement. If it becomes necessary, we'll decide on an interim rate later," he said. This compounded the uncertainty and added weight to the belief that the DoT-despite Jagmohan being shunted out-isn't committed to the telecom reform process. But the DoT feels private operators are crying wolf. Adds the DoT official: "I'm sure that private companies can make do with certain assumptions on revenue sharing. Private companies should have the confidence that trai's recommendations will be in the best interest of the telecom sector." Not just that, the new regime makes the government an interested party too. Says Umang Das, chief executive, Modicorp, whose Spice Telecom holds the cellular licence for Karnataka and Punjab: "The government will be interested in giving us quick clearances and removing roadblocks, since it would benefit from revenues flowing into the private sector as well. It wouldn't like an unfavourable revenue-sharing regime."

Perhaps he's right. "The private sector needs to have confidence in the system," says the chairman of a cellular company. "They must believe that trai will take the right decision. I am 90 per cent convinced I should join the revenue-sharing regime." But he fells it will still be tough for most companies to cough up arrears (a compulsion before moving to the new regime) without knowing what the final revenue-sharing formula will be. "I believe four to six cellular companies will pay. The six basic phone companies, most of whom are virtually crippled under huge licence fees, are sure to shift." But, says Kumar: "We hope that the majority of the players will move to the new regime. The objective of the ntp '99 was to make a uniform shift to the new regime."

Most believe that ntp '99 will separate the men from the boys. "Those who have a long-term commitment to telecom will stick on," says Manoj Kohli, ceo, Escotel, the cellular licencee in UP West, Haryana and Kerala. Says the Bharti group's finance director Akhil Gupta: "We welcome competition, and we don't want to come in the way of the reform process. We'll gladly shift to revenue-sharing." If anything, Bharti (basic licencee in MP and cellular licencee in Delhi and Himachal) is looking to get into more circles and is creating a $150-million war chest. Reliance Telecom's MD Ashwini Windlass is equally enthusiastic. "The undercurrent of this policy is that licences will lose their value, and you will have to build your value into the business."

But what happens if one cellular operator in a circle decides to stick with the old regime? That's a possibility in quite a few cases. Take Koshika Telecom, the licencee in UP East, UP West, Bihar and Orissa, which has paid only Rs 86 crore of the Rs 550 crore (excluding penal interest) licence fee due so far. That's because in three of Koshika's four circles (barring UP West), the entire licence fee has to be paid in the first four years that end on December 12, '99. "I'll virtually end up paying my entire licence fee, and then pay revenue share after that. It suits me to shift to revenue share only if the DoT adjusts my arrears according to its own formula of taking x amount of revenue in the first five years, and x multiplied by 1.2 over the remaining five," says V.C. Rai, MD. But if that doesn't happen, then its rivals in UP East, Bihar and Orissa won't be able to shift to the new regime even if they want to. Also, those with low licence fees for their circles may not be too inclined. But that would go against the spirit of the new policy.

While snags still need to be rectified, the biggest opposers of the policy are those who look at telecom as a mere revenue generator for the government. Assuming all private operators shift to the new regime, the government is expected to lose licence fees for the remaining tenure of the licences. But that's a notional loss. Given the level of the arrears and the size of the losses run up by operators, those who feel the government could have recovered the money are wearing blinkers.

For those cellular operators still hesitant to move to the new regime, it's time they read the writing on the wall, for they'll soon have competition from DoT and mtnl at the least. If they don't, it's time they exited, instead of holding back progress in the sector.