THE telecom privatisation process is grounded again. And with it the hope of a telephone on demand by April 1997, envisaged by the National Telecom Policy, has receded to the realm of wishful thinking.
This time around, telecom companies and the Communications Ministry are squabbling over interconnection charges proposed by the Department of Telecommunications (DOT) to link private basic services operators' switches to DOT's network. The interconnection charges were contained in a draft licence agreement released in July, consequent to the letters of intent (LOI) issued by the department for 10 circles in March. Private operators say the annual burden of interconnection charges works out to between Rs 9 crore and Rs 14 crore.
"These charges are the last straw on the camel's back," says P. K. Sandell, president, Telecom Industry Services Association. "It will extend the breakeven period for tele-com companies from eight to nine years to as much as 10 to 13 years," he feels. Says Confederation of Indian Industry Telecom Committee chairman Vijai Kapur: "The DOT needs to clarify what interconnection charges are all about and the burden on prospective private operators has to be examined, as the new fee may make financing of telecom projects, already an uphill task, more difficult."
These charges were not spelt out either in the tender document or in subsequent business discussions between telecom companies and DOT, contends Sandell. In addition to the access charges to the DOT network, which is on usage basis, the interconnect fees would result in business projections of all telecom companies going haywire. But Telecom Commission Chairman M.P. Modi argues that, in a commercialised regime, services cannot come for free.
While agreeing that there should be fees for interconnection, Mahesh Uppal, telecom consultant, says DOT must make clear how these charges are configured. But in the absence of a telecom regulatory authority, who is going to ensure that interconnection charges are not so high that they impair the competitiveness of private operators? he asks. Warns Sandell: "Unless DOT withdraws provisions which have a negative impact on the viability of telecom projects, there is bound to be a fresh bout of confrontation between the Communications Ministry and the industry."
Given this contentious scenario, will private basic telephone services ever take off? If yes, then when will the first non-DOT network be activated? That's a question that none in the Communications Ministry or private telephone companies is willing to answer.
Admits Modi: "It is too risky to hazard a guess about a timeframe for start-up of private basic telecom services, though I am optimistic that the issue of interconnection charges will be sorted out soon."
The telecom privatisation process has been dogged by controversy from the very outset, thanks to DOT constantly changing the rules without warning. First, the basic tender got stuck in a bind because of lack of transparency. When this impediment was cleared, DOT announced a cap of three circles per bidder, then the highest bids were rejected on the ground that they were not reasonable and rebidding with new reserve prices was announced. When there were few takers for the new reserve prices, they were scaled down. Yet eight less lucrative circles—Kerala, Madhya Pradesh, Uttar Pradesh (East), West Bengal, Assam, Jammu and Kashmir, and the North-east as well as the Andaman and Nicobar Islands— have attracted no bidders. The DOT has been able to issue LOIs for only 10 of the 21 statewide circles. A decision on awarding LOIs to three other circles is still pending.
Telecom industry insiders and Communications Ministry officials say of the 10 circles, there is a glimmer of hope in barely three to four, with prospective private operators conducting surveys and identifying sites for interconnection with the DOT network. In the other circles, there are hardly any plans for the connections that millions of telephone-starved Indians have been waiting for. Currently there are 2.1 million in the queue for telephone connections across the country, and the actual demand will be far more. But even before the interconnection issue cropped up, bidders were already developing cold feet about going the whole hog. Himachal Futuristic Communications (HFCL), which was issued LOIs for Delhi, Haryana, Uttar Pradesh (West) and Orissa, appeared to be planning to opt out of the four circles before the interconnect agreement was even issued. In a letter to DOT on June 24, the company contended that its bids had lapsed: "The original bids were submitted by us on June 23, 1995, and were valid only for a period of 80 days, up to December 19, 1995. The bids were extended by our letter dated December 29, 1995, only up to March 31, 1996. There is no extension of the bids thereafter."
The company has also questioned the validity of DOT's LOIs given on March 4 for the four circles as they were not accompanied by a draft licence and interconnect agreement as stipulated in the clarifications to the basic tender. Informed industry sources say while prospective operators in the six other circles—Tamil Nadu, Andhra Pradesh, Bihar, Punjab, Gujarat and Maharashtra—have not made a fuss over these issues, HFCL seems to be making all sorts of excuses to back out of basic services.
The truth is, sources claims, that HFCL does not have the wherewithal to pay the first year levy of Rs 794 crore, leave alone the total licence fee of Rs 27,790 crore over a 15-year period for four circles. Repeated attempts by Outlook to contact HFCL top brass proved futile as they were always "not in office".
But the financial scenario for other players is not rosy either. Even big business houses which have tied up with major global telecom players are finding it difficult to raise the huge licence fees (they quoted high in the second round to match HFCL's bids). Indian financial institutions are groping in the dark for norms to lend to telecom companies. Foreign banks and institutions have realised that lending to the Indian telecom sector is not going to be fun, says Uppal.
But DOT is not concerned with the problems of financing of private telecom projects, though they are prepared for some more bidding for the eight left out circles. What happens if there are still no takers? Says Modi: "Sooner or later there will be takers, but if the vacuum persists, DOT will step in." But DOT has managed to add barely two million lines annually, with investment pegged annually at about Rs 8,000 crore. Hence, for the eight circles, six of them 'backward' C category circles, two being the better-off B circles, DOT may hardly prove to be a saviour.
Basic telecom privatisation has reached yet another dead end. However, confrontation between DOT and the telecom industry won't help solve matters. But who will take the initiative to end the stalemate?
