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The Indian Budget 1996-97 The Indian Economy Overview

IN DEPTH : Telecom Focus (IEO NewsDesk)

[Indian Telecom Industry] [Related Pages: 1 2 3 4 5 6 ]

Fervor, Furor, Fiasco - India's Telecom Privatization on Hold

Two years ago, the announcement of the opening up of the Indian telecommunications sector seemed like a godsend for global Telecom companies, throwing them into a flurry of activity. Today, several scandals and rewriting of rules later, the privatization process seems to have bogged down to a dismal crawl, and major players are losing interest.

Two years ago, when India announced its plan to open up its telephone services to the private sector, global telecom companies sent in their best and brightest to pen telecom proposals. The potential in a country of 950 million people, with just 9 million telephone lines to go around, seemed vast.

If prospects were good such a short time ago, today they are dismal. In the last round of bidding for basic telephone services in regional zones around the country, only one company bothered to tender a bid for one of the nine zones up for grabs.

Bogged down by high licensing fees, procedural wrangles and a telecom scandal involving former Communication Minister Sukh Ram, the plan for basic telephone services is on hold. Expensive cellular telephones and paging services are partially filling a desperate need for more connections.

Fewer than one Indian in one hundred has a telephone, against a world average of 10 per 100. There are some ten million telephones in India and two million people are on the waiting list.
Short of investment funds to meet demands, the government decided in 1994 to throw open the doors to private telephone companies, breaking the Department of Telecommunications (DoT) monopoly of foreign and domestic services.

However the tendering process has been mired in controversy from the outset. In early January 1996, a furor broke out in Parliament over the privatization scheme, as opposition parties demanded an investigation into alleged irregularities in the first round of bidding in August 1995. At that time, a number of international investors, backing Indian companies, bid on the profitable "Category A" of service zones.

One joint venture, HFCL Bezeq Telecom, emerged as the highest bidder in nine of the twenty zones on the auction block by bidding $25 million: some $10 million higher than all the other competitors combined.

The government stoked the controversy when it announced winning firms could operate in no more than three zones and allowed Bezeq HFCL to choose three and leave the rest open for re-bidding.

The DoT blundered again when, in the second round of bidding, early in 1995, it set an exorbitant floor price and scrapped bids for eight zones it said were too low. Investors claim the DoT unfairly based its price on Bezeq HFCL's suspiciously high bid.

Today, the biggest telecom deals are license buy-outs as frustrated investors pull up the stakes. Those still in the running are reluctant to begin operations until the Department of Telecommunication clarifies its role.

Currently, the DoT is acting as a regulatory body, but it will continue to provide telephone services. Private operators will be expected to compete for subscribers against the former government monopoly.

Telephone privatization is one of the pillars of India's five-year-old plan to open up to foreign investment and trade, a policy the new government says it will pursue.
Today, a telephone applicant can expect a six month to two year wait. Therefore, it is no surprise that many businesses are equipping their executive staff with the wireless alternative. However, the cellular telephone has not attracted the number of consumers anticipated.

Aggressive marketing campaigns have failed to lure subscribers. In Calcutta, Usha Margin set a target of 85,000 subscribers in the first year, but is likely to get only 5,000.

Anticipating a demand for cellular telephones, the DoT set a high licensing fee. The Government body had estimated there would be 130,000 (1.3 lakh) cellular subscribers in the four main metros, Bombay, Delhi, Calcutta and Madras by March 1996. The actual number as of the end of February was about half that.

In Bombay, the projected telecom city of the future, the DoT set the highest license rate. In the first year, a licensee is expected to pay $900,000 (Rs.3 crore), and by the third year $3 million (Rs.12 crore) in fees to the government.

Operators feel their growth is constrained by costly licenses, high import duty on hand-sets, and rates for "talk time" eight times higher than regular calls.

The Department of Telecommunications is reluctant to admit it bungled the telephone privatization scheme. Despite the tepid response to the last round of bidding, the DoT has largely ignored the call for greater transparency in its dealings with private investors. Until private telecom companies are lured back to the auction block, the future of India's de-regulated telephone service is on hold.

[Indian Telecom Industry] [Related Pages: 1 2 3 4 5 6 ]

Jennifer Morrow is a Canadian radio journalist based in New Delhi. She edits a publication on social and current affairs in South Asia, and is a freelance correspondent for the Voice of America.
She is a member of the Indian Economy Overview editorial panel.

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