The Hindu : Ringing in consolidation

Online edition of India's National Newspaper
Wednesday, Jun 11, 2003

Opinion

Opinion - Editorials

Ringing in consolidation

THE TELECOM INDUSTRY'S inexorable march towards consolidation has received a boost with the licensing authority, the Department of Telecommunications (DOT), notifying major changes in the licensing conditions applicable to both basic and cellular operators. The notification was overdue and is in conformity with a Cabinet decision of end-March. However, though belated, the DOT's action is significant in that it gives a stamp of approval to the several restructuring moves that have been under way in the newly opened up telecom sector. It is almost certain that the Indian telecom industry will soon overtly exhibit many of the significant characteristics of its global counterparts, where a period of breakneck expansion ended in a massive shakeout. In India too it has been crystal clear that only the stronger players — those with deep pockets or blessed with a foreign pedigree — will remain in the race. In fact, the tendencies towards consolidation have been evident in India right from the early days of the private sector entry into a hitherto Government-run monopoly service industry. No matter what licensing regime has been in force — there have been many costly experiments in India before the present revenue-sharing model for mobile operators came into vogue — the weaker and the not-so-serious service providers had to opt out. The mobile segment especially, always at the centre stage of the raging debates, whether over licensing terms or technology, will bear the brunt of the structural changes brought about by the forces of consolidation. At the moment, only 12 service providers remain in the more commonly used GSM mobile telephony segment. Experts are unanimous that there will be a considerable pruning down in the list after the latest round of consolidation works its way out.

Like in the global telecom industry, the spur to the restructuring moves in India has emanated from intense competition. In turn, competition has been driven not just through price-cutting but also by technology. Additionally in India, the role of the telecom regulator has been crucial even if it has been found wanting in certain well-publicised instances recently. As in many other previously closed sectors, the emergence of private sector competition has forced the existing Government monopolies in the telecom business to overhaul their functioning. In most parts that has been beneficial to the Indian consumers. Note for instance the recent success of the public sector BSNL in rolling out an affordable GSM cellular service across the country. In the process, it has created new benchmarks for value for money and the widest national reach. The other significant development, the introduction of the CDMA-based WLL services by the Reliance Group (and also by the Tatas) has had a profound impact on basic and cellular operators alike even as it has considerably stretched the regulatory resources. Recent policy changes, as for instance the introduction of the new telephone tariff proposals, have also accelerated the moves towards consolidation.

The new licensing norms facilitate the ongoing consolidation process through all the conventional ways: merger, acquisition and de-merger. Companies can now split their licences into separate business entities and sell them. Transfer of licences is now possible in a number of other cases, as for instance to a merged company consequent on the coming together of the licence-holders. The existing lock-in period of five years for the sale of equity has been withdrawn. The Government has however provided for certain safeguards, in the interests of competition no company can buy out its competitor in the same circle. Further, the transferee should fulfil all the eligibility criteria for the sanction of a new licence and in case of the licence being transferred has to fulfil all the terms and conditions (including rollout obligations). As the Indian telecom industry enters a defining phase, it is clear that the existing service providers will have to devise survival strategies. The route to success in a highly competitive environment probably lies in ramping up their capacities (network), establishing an all-India imprint and, by reaping the economies of scale, provide an affordable service to their core clientele.

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