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Keep the doors open

LIMITED COMPETITION MAY be better than no competition. But it is still a poor substitute for unrestricted competition. The Department of Telecommunications (DoT) did not quite agree with that, and advocated the admission of only four players into the lon g-distance telephony market through a bidding process. Clearly, the DoT was trying to make the long-distance service provider club exclusive and orderly by setting tough qualifying criteria. But the Prime Minister's dramatic policy push over the weekend promising free and unrestricted entry into the business has cleansed the landscape. The Prime Minister has also reflected a fairly broad-minded attitude to the benefits of free competition by drawing reference to the gains made through a liberal licensin g policy for Internet Service Providers (ISPs). The free competition in the ISP arena has contributed to a rapid proliferation of ISPs and sharply falling Internet tariffs for the consumer. Given the overwhelming advantages to be gained from free competi tion, the Prime Minister has placed faith in the market forces to regulate the players in the best possible manner.

As long as the entry criteria (such as the minimum net worth criteria of Rs. 2,500 crores, upfront entry fee of Rs. 500 crores and stringent network roll-out conditions) are properly spelt out, the ``non-serious players'' will automatically be shut out. Assuming that multiple players cross this hurdle and some of them find the going tough, the market-driven process of mergers and acquisitions will drive the assets from fundamentally weak companies to the strong ones. Thus, allowing market forces to dict ate the staying power of the new licensees may be the best way to develop the long-distance telephony market.

Using the bidding process to select licencees in the long-distance market would have meant repeating a mistake. The ``licence fee structure'' imposed on bidders for basic and cellular telephony only served to delay the creation of telecom infrastructure. If the objective of public policy is to ``minimise the prices paid by the consumers'', an administrative bidding procedure is unlikely to achieve this objective efficiently. If anything, it ends up elevating the costs for the consumer. The objective of providing increased choice and lower tariffs to the consumers will be best served by fixing the revenue sharing percentages upfront and making them uniformly applicable to all long-distance operators. The 5 per cent revenue share for long-distance operat ors, as recommended by the erstwhile TRAI, appears fair as it could represent the players' contribution towards universal service obligation.

Long-distance operators must be allowed to carry traffic within a telecom circle in addition to inter-State traffic. The erstwhile TRAI had advocated this to encourage competition in intra-circle traffic, which is still dominated by the DoT. The DoT, whi ch earned over 45 per cent of its total long-distance revenues of Rs. 12,441 crores in 1998-99 from intra-circle traffic, has every reason to protect its revenue streams. The reconstituted TRAI has surprisingly backed the DoT on this issue; so have the p rivate fixed service providers, who fear their chief source of revenue will be undermined. But the harsh reality is that only three fixed service providers are offering fixed line services in the country and three other fixed service licences have been i ssued. With tendering yet to begin for the rest of circles, there is hardly any competition for DoT in intra-circle traffic. As convergence becomes a reality, a vast array of services will become available to fixed service providers in the near future to justify the economics of their investments. For the information technology players who have been complaining of the dilapidated telecom and ISP infrastructure, the Prime Minister's announcement to allow private ISPs to set up landing stations will help enlarge India's Internet bandwidth, which is only 350 MB, compared to 40 GB in China, and 200 GB in the US. At one stroke, the Prime Minister has sought to break the monopoly in both domestic and international long-distance telecommunications. Rightly, a ll doors need to stay open.