Corporatisation of DTS: Death Blow for Telecom Expansion

Prabir Purkayastha 13/01/2009

THE current telecom reforms – such as corporatisation of DoT/DTS and Long Distance Competition — have little to do with increasing telecom penetration, the crying need in the country today. Instead, it proposes to let the telecom surplus be re-distributed amongst the new private sector entrants and the Finance Ministry. While the more well off consumers, which in the Indian telecom network amounts to about 10-20 per cent, may benefit through lowered costs, the rest will face a bleak future. The private players in telecom are unlikely to pay much attention to rural telephony and increased telecom penetration. The private sector entrants in basic services have consistently refused to honour the rural commitments in their license agreements. In the few states where they are operating today, they are targeting only the top 10 per cent of the consumers who generate large surpluses. The rest will have to contend with higher local call rates, an increasingly impoverished corporatised DTS, and poorer quality of services.

TELECOM POLICIES

The low pace of rural telecom penetration under DoT has been quite often given as the reason for the so-called telecom reforms. Regarding the failure of DoT to enhance teledensity, which stands at 2.1 per cent as opposed to the world average of 12.7, one must consider per capita incomes in various countries. High and low teledensity is a reflection of high and low per capita income than merely poor performance of DoT. If teledensity is plotted against income, India comes out relatively better compared to its per capita income. Unlike education, drinking water, and health services, which should be free, telephone services are always priced services and can be received only by those who have a disposable income. However, even the poor record of DoT shines in contrast to the performance of the six private operators, who have been providing competition to DTS/DoT. Not one village telephone has been provided by any of these private operators. The problem with the competition model talked off today is that it lowers costs and provides better services to the well-off subscribers, while increasing rates and reducing quality for the low-end subscribers: both rural and urban.

Telecom policies in the country have a vital bearing on the development of the country. With Information Technology (IT) playing an ever-increasing role, it is clear that a good Telecom network is a sine qua non for developing India, not only as a global IT power but also as a developed country. Thus, the development of Telecom is not an issue restricted to telecom sector — companies, the government and the subscribers — but has a much wider significance.

The entry of private operators into the telecom sector and the privatisation of the Department of Telecom (DoT), MTNL and VSNL are at the core of the current telecom ‘reforms’. The high levy fees in the basic and cellular services have been shown to be illusory. It is now clear that the private operators never had any intention of paying these fees, and were sure that once the licenses were obtained, the government would oblige them by waiving the license fees. However, as a result of the induction of private operators, tariffs have already gone up for the low-end consumer by almost two times. Such high tariffs will obviously stunt the growth of the network, defeating the stated objective of the National Telecom Policy of 1994 and the New Telecom Policy of 1999.

Meanwhile, there are two other measures being taken by the government that will finish expansion of the network, particularly in rural and economically backward areas. One is the opening of the long distance telephony to competition, which we have covered in these columns earlier. The other is the corporatisation of DoT as a prelude to its privatisation.

The surplus in the Indian network has almost entirely come out of the long distance operations of DoT. This surplus has been used to fund the expansion of the network and low cost access through low installation charges and rentals. Once competition is allowed, the long distance tariffs will certainly have to come down and will not be available for the expansion of the network or to subsidise low cost access. The result will be that teledensisty, which stands at the low figure of 2.5 per 100, will cease to increase. The second step, corporatisation, is not a good measure to improve the functioning of DoT and now called the Department of Telecom Services (DTS). It is entirely geared to converting DTS, which has been evaluated to have a market value of Rs 2,50,000 crore to a corporation so that its shares can be sold to global multi-nationals. Once DTS is converted to a corporation, its objective will be to maximise profits and not telecom expansion.

COPRORATISATION OF DoT

As of October 1, the Department of Telecom Services has been converted to Bharat Sanchar Nigam Ltd. (BSNL). The need for such a conversion has been given in terms of efficiency and making it more competitive. However, the need to fill up the Budget deficit, itself the result of giving the rich various tax breaks and reducing customs duty at the behest of the WTO/IMF/Bank trinity is the key driver. BSNL has assets that are of the order of Rs 80,000 crore and has a market value of Rs 2,50,000 crore. While the privatisation of BSNL will lead to large inflows to the government coffers, what are its implications for telecom penetration, particularly for the rural areas?

We give below the additional charges on the new entity BSNL in the table below to highlight the further loss of surplus.

COSTS OF CORPORATISATION

Item

 Amount

 Recipient

Employees’ terminal payments – one time cost

 Rs 1,332 crore

 Employees

Sales Tax

 Rs 840 crore

 Central and State

governments

License Fee

 Rs 2,700 crore

 Finance

Ministry

Corporate Tax

 Rs 1,155 crore

 Finance Ministry

Dividend on Profit at 20 per cent

 Rs 369 crore

 Finance Ministry

After the partial loss of the long distance revenue, the surplus this year with DTS would be of the order of Rs 8,000 crore. With the reduction of Rs 6,396 crore as the cost of corporatisation of which Rs 4,224 crore will go to the Finance Ministry’s coffers the retained surplus with the coporatised DTS – BSNL — will be only of the order of Rs 1,604 crore. The number of new lines that can be provided using internal resources only will be of the order of 6 lakh or a miniscule growth rate of 2.2 per cent. This can be contrasted with the 20-25 per cent growth rate that DoT has achieved in the past that would have translated to about 60 lakh lines. It is possible to increase the installed cost through market borrowings.

The limitation is of course the ability to pay back the loan. Thus, this will mean that the telecom tariffs particularly for the local calls or for providing a connection – the installation charges – will have to go up in order to meet the additional interst burden and paying back the loans taken. The logic of a corporate DTS means then inevitably a rise of tariffs for the common man. Further, the amount that can be borrowed in this way is also limited.

DOUBTFUL EXPANSION

It has been argued that the Universal Access Levy, raised through a share of the operator’s revenue, will take care of rural telephones. The issue in USO is not restricted to rural areas alone. Fifty per cent of the urban consumers do not generate enough revenue to meet their costs. Therefore, UAL has to cover rural and fifty per cent of the urban subscribers in order to make telephones services accessible to the people. Currently, the well-off subscribers cross-subsidised the rural and low-end urban subscribers through high long-distance tariffs. Rough calculations will show that a revenue share of the operators income, after bringing down the long distance rates, will not provide the level of subsidy that the low-end subscribers receive today. BSNL, as the largest operator will pay lions share of the USO levy. The end result will be that the USO levy will come largely from BSNL and also go to BSNL leaving a net of very little additional resources for the rural sector or the low end urban consumer.

There is a resonance between the BJP version of reforms and the IMF-World Bank globalisation. Both want a roll back of the state’s role in the economy, developing those sectors of the economy that the private sector is interested in and privatisation of the states’ existing assets. The understanding that both share is that it is possible to develop the Indian economy solely for the benefit of the rich while dispensing with all measures that lead to general economic development. An Indian economy, where only the elite improves its income and quality of life, is unlikely to succeed; secession from the rest is an elite illusion and doomed to failure. Unfortunately for the country, we will have to pay a heavy price for this illusion.