Express Economic History Series: Spring of 1999 — recalling the success story of Indian telecom

The recommendation came when many telecom players were bleeding from having paid steep licence fees in the four metros and a few other circles.

Written by Shaji Vikraman | New Delhi | Updated: April 5, 2017 6:09:10 pm
Express Economic, Atal Bihari Vajpayee, National Task Force,Information Technology and Software Development, Planning Commission, Chandrababu Naidu, IT sector, Indian Telecom, india news, nation news, national news, Indian Express India today has 900 million subscribers in a sector where fierce competition has led to one of the lowest tariffs in the world.

In May 1998, Atal Bihari Vajpayee’s PMO notified the appointment of a National Task Force on Information Technology and Software Development headed by Jaswant Singh, then Deputy Chairman of the Planning Commission. On the committee were, among others, Chandrababu Naidu, Chief Minister of Andhra Pradesh and a strong supporter of the IT sector; N R Narayana Murthy of Infosys; Azim Premji of Wipro; Ashok Soota, also of Wipro, who went on to promote Mindtree; and physicist M G K Menon. The task force was asked to draw up a national policy on informatics aimed at helping India become an IT superpower within 10 years.

The group consulted K V Kamath, then head of ICICI, a financial institution that had had exposure to the telecom sector after it was opened to the private sector by the P V Narasimha Rao government in 1994.

The task force said that in order to build a world-class physical and institutional regulatory infrastructure, facilitate massive expansion of Internet use, and ensure a 20-fold growth in Indian software and IT services exports to $ 50 billion by 2008, India’s telecom policy would have to be totally overhauled.

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The recommendation came when many telecom players were bleeding from having paid steep licence fees in the four metros and a few other circles. With the PMO led by Brajesh Mishra, and N K Singh, Secretary in Vajpayee’s office, driving the move, detailed consultations were held with the Department of Telecom. Inputs were sought from financial institutions worried about bad loans to private telecom companies.

Finally, in the New Telecom Policy announced in March 1999, the government migrated from an upfront fixed licence regime to a revenue-sharing model, pegging the share of revenue from telecom firms at 15 per cent. The Finance Ministry, while recognising the need to promote the sector, opposed the move, saying it would lead to revenue losses — but the proposal went through after Vajpayee threw his weight behind it.

The policy change triggered a furore, and the so-called “scam” reached the Supreme Court — but the court ruled that it was the government’s job to lay down policy, and Parliament’s to approve it.

The new policy was the first trigger for the huge change in the fortunes of the industry, and for the later acceleration in numbers. This policy philosophy, and the telecom reforms of 2000-2003 and later, signalled that the state didn’t discriminate between operators, and promoted competition.

The changes had been preceded by baby steps that altered the monopoly status of both national and long-distance state owned operators, in line with the government’s commitment to the WTO; and the creation, during the UF government, of TRAI, the body that marked the distinction between policymaking and regulation by the government. The government also corporatised state monopolies including BSNL, and effected fiscal changes in the form of duty-free imports.

Even then, in 1997-98, incoming call tariffs were as high as Rs 16.80 per minute, teledensity in the 50 years up to 1998 was just 1.92 per cent, the fixed line subscriber base in 1997 was only 14.54 million, and the wireless subscriber base 0.34 million.

But the real policy driver — though mired in controversy and accusations of corruption back in 2002 — was the perceived backdoor entry of fixed line operators such as Reliance Infocomm and Tata, who were allowed to offer limited mobility within their circles, leading to protests by many existing players.

Reliance was told to pay Rs 1,665 crore as licence fee; Tata Rs 545 crore. An aggressive campaign by Reliance, called Monsoon Hungama, offered handsets at ultra low prices — and competitive pressures in the industry fuelled the growth of numbers and greater penetration. Policy measures such as the Calling Party Pays (CPP) regime, inter-connectivity, and bigger foreign investment in the sector, complemented the market push.

The economic boom of the UPA years had a knock-on impact on the sector. Dayanidhi Maran, who was Telecom Minister for the first three years of UPA 1, pushed Nokia to set up shop in India, and allowed more operators. With handset prices and tariffs sliding thanks to competition, subscriptions zoomed. Consolidation also started. By 2007, India had a mobile subscription base of 165 million, and teledensity had risen to 18.23 per cent. In 2009 — 10 years after the new telecom policy — the fixed line subscriber base had swollen to 40.75 million.

India today has 900 million subscribers in a sector where fierce competition has led to one of the lowest tariffs in the world. Telecom has perhaps been the only sector in which targets of penetration and subscriber base have been met far ahead of schedule, leading to a multiplier impact for the economy, repeated accusations of policy being influenced by powerful companies notwithstanding.

Things, however, changed with the change in economic philosophy and the controversial first come, first served policy in 2007-08, when A Raja was Minister, with allegations of spectrum being given away at throwaway prices. The CAG put the notional losses at 1,76,000 crore.

But the auction method, designed keeping in mind the need to maximise resources and to be seen as fair, ended up driving capital costs.

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