The Hindu Business Line : Up hill and down dale

The sheer numbers and spread of the public-sector telecom heavyweights don't sound the right note for competition, say private telecom companies, especially if these giants get into business in earnest. The question is: How far does one go on uneven turf?

THE biggest emerging threat to valuations of private Indian telecommunication services companies is the increasing aggression with which the public sector giants appear to be moving, led by the very vocal Union Minister for Telecommunications, Pramod Mahajan.

By itself this would not have mattered much to the private companies but for the head-start that these two public sector enterprises enjoy, not to mention the indulgent father in the shape of the Government of India whose pockets the two giants can access, says a member of the Cellular Operators Association of India.

While the private operators can congratulate themselves on bringing down telecom tariffs to undreamed-of levels, they do not know how low the public operators can afford to bring down tariffs.

They do not know how frighteningly low, `low' can be in PSU parlance, says an industry analyst. "Now, it is becoming apparent, what with the launch of BSNL's cellular operations.''

When Bharti's Airtel announced free airtime for roaming within its cellular subscriber network, many of the other private operators not only announced the free roaming facility within their own networks, but some of them also said they would eventually allow free roaming among their networks (excluding Bharti and some others). This was clearly a move to counter Bharti which enjoys a presence in 16 circles and which was presumably perceived as a common threat.

"But this is nothing as compared to what BSNL, with 90 per cent of the entire telephony market in the country, has announced, which is like a blow below the belt,'' says the operating head of a cellular service. "BSNL has announced special airtime rates for its newly launched cellular service Cell One, for not only calls received from within its own cellular network but from within its landline network as well.''

Against a common enemy

For once, the telecom industry, both basic and cellular, seems united in the face of the "common enemy''.

"This is like cross-subsidising its cellular network based on the power of numbers that BSNL enjoys on the fixed line front,'' says a senior executive with a basic services operator.

For the private telecom industry, it is going to be such a long haul to profitability that if BSNL and MTNL move with speed and efficiency, they can stunt the others in their very infancy, says a senior official with MTNL.

The belief that the slow-moving giant sloths with employee strengths of over 3.5 lakh (Dot and BSNL) and 60,000 (MTNL) would never move with speed and efficiency had kept them beyond the pale of consideration for the private sector. The private telecom players have employee strengths in the range of 2,000 to 3,500 persons.

Big and moving

"But the two public sector companies have suddenly become enlightened about their possibilities, and the immense strength that they enjoy. Whether they will actually do anything remains to be seen, but their very enlightenment is frightening to the others,'' says an industry analyst.

Where the private operators have launched cellular operations in one circle after another, painfully seeking to achieve financial closure for each and painstakingly rolling out in one city and town after another, BSNL has announced plans for introducing Cell One in 850 cities by the end of the year with a straight investment plan of Rs 2,000 crore, and in 1021 cities in all, thereafter, across the country.

It was earlier thought that legacy systems left little scope for modernisation for BSNL and MTNL. "But laying out networks itself is becoming an exercise fraught with such physical and procedural hurdles that anybody with an existing network appears to be king.''

This realisation has happened abroad as well, and DSL and ADSL technologies help to maximise older copper networks to advantage, such as with Internet access and the like.

This is exactly what BSNL and MTNL are setting out to do. Already, MTNL is offering broadband Internet service using DSL technology on its copper networks on an experimental basis in Delhi and Mumbai.

The Telecommunications Minister, Pramod Mahajan, has also announced that both the entities under his ministry will now offer half rate tariffs for telephone service for Internet access. Where it used to cost around Rs 24 to Rs 30 in telephone tariff to surf for an hour, it will now only cost around Rs 12 per hour.

"It is this potential for cross-subsidisation that is most alarming for the other telecom companies. It is true that groups such as Bharti are present in almost every facet of telecom; but they do not have the numbers and widespread infrastructure that these two entities can toss about to their advantage should they be smart enough and arm-twist the others. BSNL as a single entity has over 37 million fixed line customers, all the cellular operators together have over eight million customers; BSNL's plan for two years alone is to have four million cellular customers.

Notwithstanding TRAI and regulations, there are huge advantages to be had from having numbers under one's wing, even when one plays within rules that highly circumscribe your movement, say analysts.

The good and the bad

On the PSU side, there are some quarters that hold that in some infrastructure businesses, at least, it is good that the Government is in the business of business. "Very often we have noticed that whenever we put out a tender for equipment or services, the rates fall to very reasonable levels,'' says a recently retired senior official with MTNL. "And this is good for the rest of the industry as well.''

While public sector companies are derided for their tendering process, that palms have to be greased and the like, he says there are several other features of the public tendering process that are left unappreciated. "The very fact that PSUs must publish their tender for all to see and are accountable to others reveals the true worth of the tender as well. We have seen vendors quote very reasonable rates once we come into the picture. To that extent, the process is very transparent for the industry as a whole, never mind what other pressures a PSU might be subject to.''

However, the analysts do feel that an aggressive public sector with so many weapons in its armoury need not be good for the industry, however attractive it might be to the customer in the short or medium term. "One must not forget that both BSNL and MTNL have the pressure of employees, of obligations that the state would impose and are also subject to the pulls and pushes that any state-owned enterprise will be,'' says an industry analyst.

In fact, they can provide the most marvellous service even while sinking as a business all the time, and while they suck in customers and continue to sink, they could also drag down the others with them, say analysts. In short, an unequal playing field is good for none.

kripram@thehindu.co.in

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