Ntp For Dummies

Who does the telecom policy benefit?
First, the government. Under the original agreement, private operators have to pay a flat licence fee every year to the government. In most cases, the fee has turned out to be far higher than the operator's earnings. Cellular operators ran up a Rs 1,187-crore loss last year, roughly equal to the industry's turnover of Rs 1,301 crore. Of this, only Rs 596 crore came from state circles (as opposed to metro circles) which owe the government nearly the entire Rs 2,583 crore in licence fees. If the losses had kept mounting, there was no way the industry could have paid future dues. By improving the commercial environment, the government has ensured that at least the overdue fee comes in during the year. Future inflows for the government are assured because under the NTP, operators pay a percentage of their revenues instead of the flat licence fee. Plus, the government earns revenue from six other streams: spectrum charges, import duties on equipment and hand sets, interconnect charges, service tax and corporate tax. Last year, it earned Rs 1,200 crore from this, a 15 per cent increase over the previous year. Since the NTP will increase telecom penetration, revenue flows from this stream are expected to increase by 25-30 per cent every year.

Private operators obviously benefit since their business is now commercially viable. An operator's costs come down as he no longer needs to pay a fee. Also, the NTP allows DoT and MTNL to enter the fray. This enhanced competition will lead to lower tariffs.

But didn't the private operators themselves bid their licence fee? Why did they bid so high? They goofed up completely. Based on their experience in other markets, they calculated the number of customers they hoped to get and multiplied that by the revenue they expected each subscriber to generate. While they were right about the number of customers, most cellphone users in India hardly use their phones. For instance, in 1997-98, Birla at&t, the licencee in Maharashtra and Gujarat, expected each customer to use his cellphone for 270 minutes a month. All it got was 114 minutes. So, revenues were less than half of what was expected. But this malaise isn't restricted to telecom. Multinationals have overestimated the Indian market in virtually every industry. And have suffered.

So, why's the government helping them out of the hole they dug themselves into? And when it apparently hurts revenue collection?
The government's revenue loss is notional. As the financial state of the industry shows, no operator can pay the high fees every year. No amount of legal battle with operators would have enabled the government to recover the dues. Under the NTP, the government gets less than it expected, but gets it regularly. And the NTP mandates that all licence fees due till March 31 have to be paid up. It's highly doubtful if the government would have recovered even these overdue fees otherwise, let alone the fees for coming years.

Couldn't the dues be recovered from the private operators by taking over the equity/equipment and securitising future cash-flows?
Sounds fine on paper, but won't work in practice. Say, Birla at&t set up its infrastructure at a cost of Rs 1,000 crore in 1996-97. Now, each year it pays a Rs 314-crore fee, and over 10 years the company has to pay Rs 3,452 crore. Suppose the government decides to take over the network after at&t defaults. It can sell the assets, but since cellular equipment prices have declined to about 40 per cent of their initial value over the last two years, the assets are now worth Rs 400 crore. If, instead of selling the assets, the government gets another company-say DoT-to operate the network; in 1997-98, Birla at&t's turnover was Rs 28 crore, with an operating loss of Rs 228 crore. In this situation, can the government hope to recover Rs 314 crore every year from any company, however efficient?

Is a caretaker government empowered to take such a policy decision?
The NTP was announced last March, when the bjp government enjoyed the confidence of Parliament. No objections were raised by the Opposition then. What was announced on July 6 was merely the mechanics of the policy, the first step in implementing the NTP.

What would have happened if the government let things be till after the elections?
The operators would have bled further for another year since the new government would have studied the problem afresh and announced its policy. This might have led to more foreign companies walking out, as Swisscom, Essar Cellphone's partner in Delhi, has. Bell Canada is on the verge of quitting. And at&t has downgraded India in its business plans.

Why did the PMO oppose the finance ministry's advice that licencees should pay their dues in instalments, otherwise the cag would object?
The finance ministry was quite right. It's the finance ministry's duty to balance the government's books and the ministry was rightly looking at telecom from its own perspective. And under the NTP, all operators have to clear their entire licence fees due up to March 31 this year, by the end of this year, in instalments.

But the PMO appears to have felt that telecom, more than just revenue collection, was an essential infrastructure, which has a multiplier effect on the economy. It decided that it needed to go against the finance ministry's suggestion to improve the state of the country's telecom infrastructure.

Does the NTP benefit any specific companies?
Some companies-those with the largest licence fee-revenue mismatch-would reap a huge benefit by shifting to the NTP; some others would gain marginally; while some would actually prefer the old regime. That's why operators have the option not to shift to the NTP. Since they have this option and since the same conditions apply to everyone, it is virtually impossible to say that the new telecom policy has been designed to benefit any specific companies.

Is the 15 per cent interim revenue-share figure violative of the TRAI Act?
This is merely an interim figure. The final revenue-sharing arrangement will be decided upon by the TRAI over the next four months, in consultation with DoT, the government, private operators and customers.

Why has the TRAI dragged the government to court? Is it because the NTP undermines the role of the TRAI?
In no way does the new policy undermine the authority of the TRAI. In fact, the NTP stresses the need to further strengthen the hands of the TRAI.
The TRAI has taken the government to court over an entirely different issue. Sometime last year, private companies had sued the government-read former Union communications minister Jagmohan-for undermining the TRAI's authority. The NTP states that private operators must withdraw all legal cases pending against the government before they are allowed to migrate to the new policy regime. Therefore, they are withdrawing their case, but it is now being fought by the TRAI.

Does the NTP scuttle the entry of DoT and MTNL into cellular operations?
It's actually the other way round. Under the NTP, DoT and MTNL can begin cellular operations. This will lead to greater competition, put a strain on private operators and bring down cellular phone rates to benefit customers.

Why wasn't the NTP placed before Parliament?
The NTP is an executive order and does not specifically require Parliament's approval. It does not need to be put to vote. For instance, the New Infotech Policy too hasn't been placed before Parliament and no one has objected. But it would have been appropriate if the NTP had been placed before Parliament when it was announced last March, as Parliament had not yet been dissolved. By the same token, if the Opposition had any objection to the NTP when it was announced in March, they could have raised the issue in Parliament.