The unification myth

Rational Expectations

There are two types of licensed services today "" fixed line phones that also offer WiLL-based mobility, and cellular phones based on GSM technology.

Since, the world over (and examples of countries like Australia and the UK are provided in the Trai paper), countries are moving towards convergence, why don't we in India also issue just one licence?

In keeping with the same liberal spirit, when there was a furore about why other services "" like national and international long-distance "" were not included in the list of telecom services to be unified or converged, Trai chief Pradip Baijal said he was open to the idea. So what's all the fuss about?

The problem lies in the fact that the Trai consultation paper doesn't present the complete picture. It makes you believe, for instance, that it is not possible today, for a single player, to offer all services "" fixed lines, cellular, long-distance, Internet, and so on "" in the same service area.

That's why, presumably, you need one licence. Well, even under the present law, licences for most telecom services are freely available "" an all-India fixed line licence costs Rs 495 crore, a national long-distance licence has an entry fee of Rs 100 crore, that for international long-distance is a fourth of this, and so on.

In Madhya Pradesh, Sunil Mittal offers fixed line, mobile, and both national and global long-distance services, and uses common infrastructure to do all this "" one of the benefits the Trai claims will emerge after a unified licence is given. So, there's nothing really that a unified licence allows you to do that you can't already do.

Wait, we've left out one service "" cellular mobile telephony. This isn't open to competition, that is apart from the four people who are already in, and are doing their best to kill each other by lowering prices to rock-bottom levels (very few countries I can think of have more than four operators, especially in a market that is so small). Will the unified licence allow a fixed line company to offer mobile services?

Yes, and no. Under Baijal's proposal, you will get a unified licence that allows you to offer any kind of service. But there's a catch here.

In order to actually run a cellular service, you'll need to have radio spectrum "" that's the airwaves on which you transmit and receive telephone signals "" and since that is a scarce resource, most governments (including the ones cited by the Trai) auction this, usually through bidding.

That, also, is the reason why the number of players in the cellular industry is restricted to four right now. There just isn't enough spectrum available for them to offer good quality services. On an average, each Indian cellular player has been allotted 6 Mhz of spectrum, against 22.5 in countries like China, 26.3 in the UK, and 25-30 in the US.

So, if the government has to issue unified licences that allow other firms into the cellular market, it had better have enough spectrum to offer to everyone. Indeed, as late as February this year, the Trai wrote to the telecom ministry saying it had no objection to issuing new cellular licences, but there just wasn't any spectrum available.

In other words, the consultation paper is nothing but a roundabout means to resolve the ongoing dispute between the cellular operators and the fixed line WiLL-mobility firms. The cellular operators, in fact, are in the telecom appellate tribunal (TDSAT) arguing that the WiLL-mobile services are illegal.

But once you offer a unified licence, this takes care of the problem of the questionable legality of the WiLL-mobile services, something Baijal himself admits when he said (to this writer) that "There has been a lot of confusion and litigation on limited mobility .... We thought it was best to look at the licence format itself."

The problem that will then arise is that while the cellular industry has bid in open auctions, and paid Rs 3,000 crore on an average, for their all-India radio spectrum, the WiLL-mobile firms have paid just Rs 500 crore without any bid. The consultation paper has no concrete proposals/thoughts on just how this discrepancy is to be fixed.

In any case, how can the Trai unilaterally seek to, at the very least, nearly double the number of players in the mobile business (BSNL/MTNL, Reliance Infocomm and Tata Tele will be immediately added to the four existing cellular players in most circles)? There is little in the paper indicating just how it is proposed to migrate the existing players to the unified licence regime, since clearly several players will make huge losses.

It is precisely because the benefits were tenuous, and the problems both obvious as well as immense, that the parliamentary committee looking at the convergence bill wasn't enthused by the idea. Indeed, there is nothing in the Trai paper on how the consumer will benefit.

Three items are listed under this head in the paper. Two are laughable "" the consumer will "receive a common bill", and will have a "common customer care number". The third "" prices will come down "" is debatable since prices in India are already below-cost, and since even the Trai recognises, competition will reduce.

In a situation of convergence, there are also immense possibilities of firms using the profits of one business to subsidise another. In which case, the regulator's ability to detect and then check such malpractices will be critical.

So far, however, the regulator has shown no signs of such competence "" it's calculation of something as basic as how much access deficit should be paid to BSNL for providing low-cost rural phones is wrong by at least fifty per cent, and it has not even been able to get BSNL to separate its accounts for different telephone services. Yet, we're expected to trust in its ability. Fools rush in ...

suniljain@business-standard.com