TELECOM BAIL OUT OR A TELECOM SELLOUT?

The BJP government has offered a bail out package to the basic services providers, the circle cellular operators and the metro cellular operators. The package offers conversion of the two years license fees to an entry fee and migration to the New Telecom Policy framework involving revenue sharing. The revenue share has been fixed provisionally at 15% with TRAI having the final say on this share. The license period also have been enhanced to 20 years. Before we go into the details of the “bail out” package certain points may be noted.

The eight basis service providers have made operational only 15,000 lines even after 2 years of receiving the license.

The metro cellular operators not only did not need a “bail out” but have made huge capital gains in the stock market. Essar is reported to have made Rs. 3,500 crore by selling 49% of its stake in Delhi while Max has made Rs. 600 crore by selling 39% of its stake in Mumbai to Hutchison. The licence fees that metro operators have committed are also negligible: about Rs. 130 crore in the first three years.

The metro operators had to shift in their fourth year to a revenue sharing scheme, which currently work out to Rs. 6,023 per subscriber. To cover this cost, TRAI had already agreed that they can hike up their rentals to Rs. 600 per month as against Rs. 156 earlier. The current so-called “bail out” therefore is going to provide windfall profits to the metro cellular operators.

The amount involved in this migration is staggering: for the remaining period of the original license the amounts are of about Rs. 25,000 crore for basic services, Rs. 15,000 crore for circle cellular operators and about Rs. 8,000 crore for the metro operators. The government is therefore foregoing huge amounts committed by the private operators for a dubious revenue sharing scheme. This is a scam of Rs. 50,000 crore.

It is important that the Government makes clear how it wants the market economy to function in this country. The business view of the market is that if they make profits, they should be free to make as much as they can. However, if there are losses, this should be borne by the people and the government: They should be “bailed out” and released from their contractual obligations whenever the market does not behave according to their expectations. It is this version of crony capitalism that Congress with Sukh Ram nurtured in telecom and which the BJP is continuing. Sukh Ram is not only their partner in Himachal but their mentor in telecom as well.

We believe that the simplest course of action would have been to cancel the licenses of the parties that have failed in their commitments and issue fresh licenses after compensating the existing license holders for their assets. This was what the Attorney General had advocated earlier to the private operators. However, we have now a scheme, which seeks to encourage the defaulters and send completely wrong signals to the market.

Why has the “bail-out” been done in such a hurry and in such an unseemly way? It is clear that it has it has consumed one of their ministers, Jagmohan who was against such changes in the license conditions. The Attorney General seems to have given different opinions depending on the question and the questioner.

When Jagmohan referred the case of the defaulters to him, he opined that changing a contract under pressure of default was a wrong signal. “It is essential that government’s actions should not transmit any signal or message that licensees can break license conditions and remain in arrears for huge amounts and then plead for favourable changes on the ground of financial hardship because of wrong projections etc.

Government action should not be perceived as putting a premium on default or favouring defaults”. It might be noted that in this opinion (given in January) he had clearly rejected both the proposals of the industry: revenue sharing and giving revenue sharing retrospective effect. The only change that took place between his opinion given earlier and now is that the New Telecom Policy was adopted. It is quite clear that the New Telecom Policy was adopted purely to bail out private telecom operators and provide the fig leaf of “migration from NTP94 to NTP99”. In essence, the government has bailed out defaulters and provided a policy that the defaulters were asking for violating their original contract. In any case, even if the Government argues that the industry had become sick and needed to be bailed out, the “bail out” package should have had nothing to do with the metro operators. The metro operators secured their licenses before the NTP94 came into existence through a tender floated in 1994. They command 60% of the Rs. 2000 crore revenue of the cellular operators and have made upto 100 times the face value of their stocks through various deals. These are cash rich operators who are certainly not sick. While the 22 circle cellular operators have already paid Rs. 4,000 crore in two years and have outstanding dues of about Rs. 2,5000 crore, the metro operators have paid only Rs. 130 crore in the last three years. It is these metro operators who have now been offered a financial killing by this so-called “bail out” package, which will only increase their bloated profits. The fact that DoT has now been prevented from competing against these metro cellular operators gives the entire game away. The “bail-out” package offers huge profits to the metro operators and is aimed at maintaining their monopoly status.

Every time, we have an election, we have telecom packages prepared in a tearing hurry. The country has paid a huge price for Sukh Ram’s Telecom Policy. An equally ill thought out package, prepared on election eve, will only make the present situation worse. If the country and the telecom operators could survive for the last three years with this policy, what was the hurry to offer the so-called “bail-out” two days before the announcement of elections? The country has still to hear of a credible reason why this package could not wait a few weeks.