More Mess in Indian Telecom

The recent cabinet decision for the hike in the FDI needs to be put in perspective. Foreign Direct Investment (FDI) is usually unwelcome in the interests of the nation. It is true that one needs money to grow the physical infrastructure, yet FDI is a contentious issue. Part of the reason that I am wary about the increased role of foreign players in the crucial sectors is national security. More on that later. FDI is World Bank prescription for the supposed ills of the developing economies. I am reminded of the medical term Cretinism. In this due to deficiency of a particular hormone, children fail to develop in height and intellect. They were named as cretins in the old classical medicine because they were so stunted in mental development that they were thought to be incapable of sinning. It is the same bunch of cretins that World Bank is staffed with.

As part of the US based hegemony, FDI is deemed important. It gives enough markets for the Multi Nationals to invest and the government of the host country to be a stooge for the super powers. If that sounds very harsh, that is my current opinion about the FDI or any kind of a role of a foreign national in India.

In the same vein, recent announcement of FDI hike to 74% is ill timed and uncalled for. I believe that it is a part of the concerted effort of the government to give a positive spin to the sensex before the budget is presented. Of course, the timing is a big suspect. Even if the top positions in the company are meant for Indians, with the increased money inflow I am at loss to believe as to how it would be possible for them to exert their independence. It is like giving the crucial telecom sector by proxy to the foreign powers.

Part of the condition for the security reasons that are included in the clauses is mostly eye candy for the Leftists to keep their mouths shut. It is the undeniable association of the leftists with hypocrisy wherein they support the same government at the centre whom they oppose at the state level! Enough said.

Let us face the present scenario with simple reasoning. Reliance and Tata have much wider network than all the GSM majors put together do. In the present scenario, increased FDI does not mean much to them. I believe that much of the money for the expansion has been raised from their internal resources or loans. Reliance is planning an IPO this year to raise funds from the capital markets in India. It has better bandwidth than Bharti and BSNL at present. Why are the GSM operators hungry for the increased FDI exposure? This answer is beyond me. Extending this logic, with BSNL being the credible opponent to the private players in the GSM segment, raised it resources from the public and spread out its network. True the ADC regime is killing but that is out of scope here.

The usual arguments do apply that it is a capital-intensive industry and needs funds because of long gestation period. However, if money is to be raised in the market, it calls for a clear regulatory regime and a massive overhaul of the financial system in India. This means that part of the insurance money and the pension funds so collected could ideally be used. There are increasing arguments for using our bulging foreign reserves to be used for the infrastructure development.

Despite the so-called massive growth of the telecom sector, the new guidelines stipulate that Department of Telecom would enforce the regulations. Whither TRAI? This is again asinine provision because the service provider cannot be regulator itself. Does it sound as if it is a sane proposal?

Further, I see something more sinister. I had repeatedly mentioned earlier also that the number of subscribers is a suspect. The statistics just do not add up. We have four mobile phones per 1000 population. The landlines are around 32 per 1000 population according to the figures from the Asian Development Bank. It would clearly be unreasonable to compare with the developed economies like Singapore and Malaysia. In fact, we are marginally better than Pakistan in the tele-density. Add to this, the GSM operators usually count their subscribers from the first activation of the SIM card. Hutch follows a slightly different pattern. It counts its subscribers from the first recharge.

Preceding the announcement of the hike in FDI, Airtel had been advertising as one crore smiles. That is claiming more than 10 million customers across its circles. I have a reason to believe that there are not as many customers since there is no standardized way to calculate the customers. In addition, the more number of customers shown on paper clearly makes the company attractive for valuation. Now clearly this is conjecture and my assessment is based on the media reports that have been appearing in the past few months. With the increased hike in FDI, it benefits the maximum to Idea, Bharti, and Hutch. Incidentally, the multinationals are a part of the companies per se.

I fail to understand that why media is not questioning this line of logic. It has happily gone ahead with the version dished out. There are enough naysayer who would dispute the foregoing account. However, in the interest of the national security this decision needs to be rolled back. The government should clearly retain the option to nationalize these services in case need so arises. If the foreigners exert diplomatic pressures or raise the same issues in the international fora, our national interests are paramount. In any way, the foreign money has in no way clearly made the quality of services as earth shattering. We still lack in much of the quality of service indicators and after sales services. It is interesting to see that Average Revenue per User (ARPU) for Bharti is the lowest in the GSM segment. It is the highest for Hutch.

I am sure that the decision would not be rolled back. There would be customary noises and everything else would be forgotten as time passes by. For the man on the street and as ordinary customers, there is not much in offer. For the rural customers, they would still be deprived since there is a wide difference in the paying capacity of the rural and the urban customers. Clearly, the interests of these operators lie in tapping the untapped customers in the urban areas and ignore the rural obligations under the pretext of unavailability. This is clearly against what they had pledged while being awarded licenses that rural telecom would get a boost. The telecom muddle is growing murkier and murkier by the day. In addition, so are the claims of the great Indian telecom revolution.

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This post was submitted by Dr. Abhishek Puri on the Broadband Blog on Techwhack.