Mr Shourie's largesse

Rational Expectations

As a proud Indian, it's difficult to stomach the World Economic Forum's (WEF) latest Global Competitiveness Report of ranking India as 75th out of 102 countries on 'compliance with international agreements' in its Business Competitiveness Index, when there are no major commitments India has not honoured.

The only other person who's leveled this charge before, on various occasions, has been the former US Ambassador to India, Robert Blackwill, and he's really been talking primarily of Enron's Dabhol plant where, he may be partially correct, but everyone knows just what kind of a completely one-sided agreement the government had got into.

Perhaps this is what the WEF is referring to when it ranks India 78th in 'irregular payments in government policymaking' and 83rd in 'flexibility of regulations'!

But just look at the government's actions in legalising Reliance Infocomm's WiLL-mobile services, by first ignoring the fact that Reliance was blatantly violating licence conditions, and then by clearing what it incorrectly calls a 'unified licence', and you begin to understand just what the WEF's talking about.

For, the fact of the matter is, the cellular operators had a clear contract with the government, a contract that obligated the government to behave in a certain manner, and this is a contract the government has simply thrown to the winds. That this contract was signed with Indian firms who happen to have very large foreign shareholders only makes matters worse.

Briefly, in July 2001, along with a host of others, Reliance entered into the bid for the fourth cellular licence, and they bid Rs 582 crore in the second round "" perhaps because the licence looked like it was going to cost too much, they didn't bid in the third round, and the all-India licence was finally auctioned for Rs 1,635 crore.

One month later, the government awarded a WiLL-mobile licence to Reliance for Rs 495 crore, a licence that allowed users to be mobile in a very limited area only (a Delhi user wouldn't be able to use it in adjoining suburbs like Gurgaon or Noida, for instance), but which Reliance blatantly violated with the use of 'multiple registration' and 'call forward' facilities.

In other words, it was a cellular licence for the price of a basic one. The other WiLL-mobile firm, Tata Teleservices, in contrast offered genuinely limited mobile services, but managed to get just around 14 per cent of the customers Reliance's unlimited-limited mobile services got, underscoring the advantages to be had by violating licence conditions.

The cellular operators, who saw their market being eaten into by a much cheaper service (naturally, since Reliance hadn't even paid the licence fee they had) went to court, alleging the government had played foul in allowing back-door entry to new players without due process.

While the head of the telecom appellate tribunal, the TDSAT, ruled the WiLL-service was illegal, the other two members ruled it was legal, precisely because it was not a full-blown mobile service, but was limited in its geographical coverage.

This was on August 8, but the government refused to act on limiting the mobility of Reliance's service, citing one lame excuse after another. Having got the Cabinet to pass the 'unified' licence that now makes Reliance's violations legal, the government has said it will issue a notice to Reliance asking it to stop all violations within 30 days! By which time, the company will have migrated to the unified licence "" it's a bit like hanging a man only after he's got a presidential pardon in his hand.

The government has fined Reliance Rs 485 crore for its violations, but this works out, based on very generous assumptions, to a cost of just Rs 1,940 for legalising each subscriber, while the cost of acquiring such subscribers is around Rs 12,000, taking Reliance's total gain to at least around Rs 3,000 crore "" see 'Telecom VDIS', Business Standard, 29 October.

The most amazing thing about the 'unified licence', of course, is that it is actually a 'limited' one, limited to just allowing the limited-mobility firms like Reliance into the full-blown cellular mobility market.

For, while telecom minister Arun Shourie may have written a four-part series in his former paper, The Indian Express, making fun of Indian licensing rules that separated local calls from domestic long-distance ones and international ones, a powerful intellectual attempt to show that licensing in this day and age was an anachronism, the fact is that his unified licence doesn't allow anyone to automatically start providing long- distance telephone services either!

The reason is simple: the state-owned Bharat Sanchar Nigam Limited (BSNL) earns around Rs 15,000 crore each year from long-distance calls, and allowing others automatic entry into this market would force it to either close down or hike prices for local calls very steeply.

Similarly, VSNL, the company Shourie sold to the Tatas, would be badly hit "" the Tatas, in any case, have been seeking some kind of compensation from the government for terminating VSNL's monopoly over ISD rights two years too early.

BSNL, in fact, has not even been allowed to get into the ISD business (it would have cost them well under Rs 100 crore to do so) because the Tatas argued that this would hurt VSNL's interests even further.

What messes up things even more, is the telecom regulator's (Trai's) decision to subsidise BSNL through what's called an Access Deficit Charge (ADC) "" Rs 4,800 crore is to be given to BSNL, supposedly to make up for supplying below-cost phones in rural areas.

Apart from the fact that no one outside the Trai really knows how this figure was arrived at, what is amazing is that this has to be paid by people who do not even use BSNL's lines "" you could be calling STD/ISD from one cellphone to another, from one WiLL-mobile to another, and you'll have to pay part of the money to BSNL!

Apart from being unfair, the move is illogical since charging a Rs 4.25 per minute ADC on international calls is higher than what operators charge to move calls from the US to India, and will encourage huge diversion of calls to the grey market.

Shourie's Express articles said grey market calls were taking place because of illogical licence rules which didn't recognise the march of technology "" this is a partial truth, it is really the high ADC that drives operators to take advantage of the arbitrage opportunity.

Postscript: At the height of the WiLL-controversy, when Pramod Mahajan was removed, it was believed it was due to his role in protecting Reliance. Now that the government's sanctified WiLL-mobiles, a logical question to ask is: why was Mahajan removed?

suniljain@business-standard.com