Still A Long Distance

2005: A peak-time Delhi-Mumbai std call costs Rs 10 a minute, one-third of today’s rates. Two more years down the line, it’s down to local call rates. Pipe dreams?

Maybe not. "STD calls at local call rates are very much possible," says former MTNL chairman S. Rajgopalan. "Today, when a customer pays Rs 100 for an STD call, the cost to DoT (Department of Telecommunications) is only Rs 25." No wonder, the DoT has a Rs 7,500-crore surplus on a turnover of Rs 17,700 crore, of which Rs 12,500 crore comes from long-distance services.

And with the country’s Internet boom increasing the need for transfer of data over long distances, the market is set to grow at a rapid pace. Says N. Arjun, who is spearheading the Bharti group’s long-distance telecom venture: "Today, data constitutes only five per cent of LD telecom traffic. But it is growing at 120 per cent a year. In five years, it will be 60 per cent of the market." Since price elasticity is high in the std market, if prices come down, the voice market could boom as well.

Cheaper std calls, greater bandwidth for the country’s Internet network and better connections is exactly what prime minister A.B. Vajpayee was trying to accomplish when he announced the opening up of the country’s long-distance telecom market to private companies from August 15. But it was an exasperated Vajpayee who made the announcement at the state IT ministers’ conference in New Delhi on July 15. For, he’s been trying to do exactly this for the last year-and-a-half, ever since his government announced the New Telecom Policy in March ‘99. The policy envisaged the opening up of this sector to private participants by January this year, but the move had been repeatedly stalled in some form or the other by DoT.

First, in July ‘99, the Telecommunications Regulatory Authority of India (TRAI) began public consultations and then sent in its recommendations to DoT, which turned it down. The regulator wanted a low licence fee and did not want to put a limit on the number of licences to be granted to private companies. But in a typical example of a monopoly trying to safeguard its pie, the DoT wanted to restrict the number of players who would be allowed to three and also advocated a higher licence fee. This went back to the TRAI, which had by then been reconstituted with what people in the industry term as "more malleable members". Not surprisingly, the new TRAI’s views changed and it more or less concurred with DoT’s recommendations, except that it advocated four private participants instead of three. But one of TRAI’s part-time members, ncaer’s Rakesh Mohan, put in a dissent note, favouring TRAI’s earlier recommendations. These were, after all, in concurrence with the spirit of the government’s telecom policy.

This ping-pong continued until two days before Vajpayee’s announcement when the Telecom Commission-which comprises DoT officials and four other secretaries-met to discuss the issue. No conclusion was reached as the DoT members on the commission wanted a restriction on private players, while the other secretaries didn’t. With the DoT trying to stall the process-and communications minister Ram Vilas Paswan looking unconcerned-Vajpayee had to step in. On July 14, PMO officials met Paswan and told him what to expect from the prime minister. The next day, Vajpayee opened up national long-distance telephony.

Reactions to this announcement were guarded at both ends of the spectrum. Private companies expressed cautious optimism, while miffed DoT officials talked of the negative repercussions on the department. "We use our surplus from long-distance revenue to fulfil our rural telephony targets. If we have to reduce rates because of competition from private companies, how will we instal phones in the villages?" queries a senior DoT official. No reference, of course, to the greater scope for efficiency that exists within DoT.

On the other hand, private companies are worried about the damage DoT can do as it works out the nitty-gritty of the policy. "The PM’s announcement is only step one. DoT can still slow down the process and load it heavily in its favour, making it uncompetitive for private companies," says a worried private sector official.

While that is a cause for worry, a huge demand-supply gap will entice the private sector to jump in all the same. "We are extremely short of capacity already," says Rajgopalan. "India’s long-distance network is badly congested."

How can DoT still put up roadblocks? The initial TRAI ruling had recommended a Rs 100-crore licence fee, and the rest as bank guarantees, which would be gradually refunded as private companies met their rollout targets. DoT could instead fix a high licence fee, without any possibility of a refund for targets met. Beyond a fixed licence fee, it could also force companies to share a substantial portion of their revenue with the government as part of licence fee payment. This would increase costs and make it difficult to cut std rates.

Long-distance telecom companies may not be allowed to carry traffic within a state. For instance, a private player may not be allowed to offer an std connection between Ahmedabad and Vadodara. That may remain DoT’s prerogative. "Almost 50 per cent of std calls are made within a state," says a senior private sector executive. "This will cut the size of the market by half and make our operations uncompetitive."

Then, there’s the issue of interconnect agreements. Interconnect needs to happen when a customer from Calcutta makes a phone call to, say, Chennai through a private company’s long-distance network. The traffic is initially carried on DoT’s local phone lines in Calcutta, then transferred to the private company’s std line and is then connected back to DoT’s network in Chennai. At all these points of connection, the std operator will have to pay a certain share of the bill raised to DoT via an interconnection agreement. "DoT is the monopoly and will always have the upper hand in these negotiations. We will have to agree to their terms," says a private sector executive.

There’s also the issue of Carrier Access Code. Every private operator will be given a number, say, 904 could be given to Bharti Telecom and 902 could be given to Reliance. A customer will dial the operator’s code, 904 in Bharti’s case, followed by the std number. But will the DoT also be given such a code? What if a customer dials the std number direct? Will he be automatically connected to DoT’s network? That would be an unfair advantage that DoT could give itself. Unfortunately, there’s no one to police that.

There are many other advantages that DoT, as the policy maker, could load in its favour. So, what does the private sector have going for it? "Technology," says Rajgopalan. "The battle in the long-distance market is going to be won by technology-savvy, risk-taking companies who pump in huge amounts of money to build economies of scale and are able to reduce their carrying costs."

At about Rs 6 lakh per km on fibre-optic cable, this is a high-investment business, but it’s also about technology. "Rather than building in megabits and gigabits (measures of the width of a cable which allows for faster transfer of data), companies should build in terabits," says Rajgopalan. This will bring down the cost of transfer per bit of data and spur demand. Lower costs would allow companies to create demand rather than just build on the basis of predicted demand.

Today, it’s cheaper to build huge capacities at lower cost than earlier, with the advent of Dense Wave-Length Division Multiplexing systems that allow for huge amounts of data and voice to be carried on optical-fibre cables. This would make companies cost-competitive and allow them to take on DoT, which would need to make fresh investments in any case, as it needs to increase its own capacities.

But to meet the demand shortage and for costs to come down, DoT would need to play ball. For a change, it will need to keep itself out, and keep the customer in mind instead. Given its track record, that might be expecting a little too much.

Dot makes Rs 75 on a Rs 100 phone call. that will change.

But only when...