Lessons from telecom's travails

MICROVIEW

It is always dicey to predict peace in the fractious telecom industry, where recent history has been all about litigation, hackneyed policy-making and aggressive corporate rivalry.

But the latest growth numbers in mobile telephony "" which show GSM subscribers growing faster than CDMA "" suggest that the war may, at long last, be shifting to the marketplace.

These numbers, as well as the general perkiness of telecom shares in a yo-yoing stockmarket, indicate that most people are regaining their confidence in the fairness of the system.

If anybody needs to be thanked for this, it is communications minister Arun Shourie and his former disinvestment ministry colleague Pradeep Baijal, now the Trai chairman.

Between them they have begun to successfully clean up the mess left behind by Messrs Ram Vilas Paswan, Pramod Mahajan and even the PMO "" which helped create the WLL controversy by allowing 'limited' mobility.

Though the murmur in telecom circles is that the new unified licensing dispensation has been more than kind to Reliance Infocomm, the fact is Shourie was presented with a fait d'accompli. He did the next best thing and worked for peace. The compensation provided to GSM players set right an obvious injustice and this is what helped put the WLL issue behind us.

The more important thing, though, is to check whether we have learnt our lessons from the telecom industry's lurch from crisis to crisis over the last 10 years.

In this decade, we have seen the peccadilloes of Sukh Ram, the dubious interventions of Paswan, Mahajan and others, and the more helpful roles of the group on telecom which allowed telecom licensees to shift to a revenue-sharing mode under the new telecom policy of 1999.

During these years, we have also seen a transition from a more or less partisan regulator, to a confused one, and, finally, to today's fairly free from bias Trai. The lessons are clear.

One, it is almost never a good idea to auction resources like licences or spectrum to the highest bidder because this may lead to reckless overbidding and chaos.

This is what happened with the first round of telecom licences when Sukh Ram was telecom minister, and it happened again with FM radio licences. It happened with 3G licences in Britain and Germany. Excited companies made excessive bids and ruined themselves with huge debts.

The simple lesson for governments is that they cannot afford to kill their golden geese. If they try to get all the revenues upfront, they will have to provide for messy interventions later. Governments ought to know that the best revenues will flow when an industry grows in a healthy manner.

The second lesson is that in any industry, transparent and impartial regulation must precede any major opening up or deregulation. It is tempting for policy-makers and incumbents to pretend that they can set the regulatory ball rolling and set up independent regulators later.

The department of telecom tried for long to pretend that it was an impartial judge even while going to bat on behalf of the public sector incumbents. The same mistake is again being made in petroleum, where Ram Naik would like to retain his say in pricing and subsidies.

The third lesson is that policies cannot be cast in stone since technologies and operating conditions change. And this means existing arrangements and laws will have to be altered for incumbents. It follows that licensing conditions may have to be changed, and compensation paid.

When dealing with industries where the nature of change can be unpredictable, we need to make the process of change, review and compensation transparent.

For example, in telecom the monopoly of VSNL was ended without regard to the rights of shareholders who invested in the company assuming it to be a monopoly.

Equally, when the government was toying with the idea of allowing limited mobility, there was practically no talk about how to compensate those with GSM licences "" till the matter went to court and threatened to create a legal mess.

The fourth lesson "" a corollary "" is to ensure that there is no reverse discrimination against incumbents. Public sector undertakings (PSUs) are often discriminated against just because they happen to be PSUs. Moreover, in our political culture, ministers tend to treat PSUs as private property.

Equally, private sector players with money power have greater freedom to influence policy-making than public sector executives. Whether it is Indian Airlines Vs Jet or cellular operators Vs MTNL and BSNL or private players Vs VSNL, the fact is none of these PSUs was given the autonomy to defend their interests when competition was building up in their respective areas of dominance or monopoly.

There is no alternative but to prise these companies away from their administrative ministries and put them under autonomous managements when one is either deregulating or privatising. This way, commercial decisions to keep them competitive will not be held up by ministers with dubious motives.

rjagann@business-standard.com