After a flurry of policy announcements throwing open all telecom service segments in 2001, the government got down to the task of awarding licences. The article took stock of how the government played this hand while avoiding the fiasco of the previous round.
April 2001: After a flurry of policy announcements throwing open all the telecom service segments to unrestricted competition, the government is now getting down to the task of awarding licences. This time around, the government seems determined to avoid the fiasco that occurred when it awarded licences to the highest bidder for cellular and basic services in the circles. However, the no-holds-barred battle between the cellular service operators and basic service operators on the issue of limited mobility, the unresolved regulatory issues, and the rift between the existing operators and prospective licensees for basic services on the allocation of frequency threaten to derail the process.
Basic services
On January 25, the government announced guidelines for opening up 21 telecom circles for basic services. The new rules for revenue sharing, allowing basic service operators to offer limited mobility and cellular operators to provide basic services on their cellular backbone network, appear to have created a new-found enthusiasm for the hitherto neglected basic service licences. When the government first opened basic services to private operators, after three rounds of licensing based on the highest licence fee bid, only six licences were taken up. Since then, basic services have been launched by Bharti Telenet in Madhya Pradesh, Hughes Tele.com in Maharashtra, Tata Teleservices in Andhra Pradesh, Reliance in Gujarat, Himachal Futuristic Communication Limited (HFCL) Infotel in Punjab, and Shyam Telelink in Rajasthan.
In sharp contrast, under the new liberal guidelines, there has been a flood of applications. As many as 147 applications were received from major telecom players, including Reliance, the Tatas, Birla-AT&T, BPL, Aircel, VSNL and MTNL. All the cellular operators, who fought bitter but a losing battle against limited mobility, have put in applications for basic services. On March 31, DoT issued letters of intent (LoI) to Reliance, the Tatas and HFCL for basic telecom services in various circles. DoT expects to mop up Rs 11.8 million as licence fees for the 40 Lols.
The Reliance Group has been issued an Lol for 18 circles, including Delhi, Mumbai, Kolkata, Chennai, Maharashtra, Punjab and Haryana. The group, which is currently operating in Gujarat, had not applied for Assam and other Northeast circles. In the first round of bidding, Reliance had bid for almost all the circles but had not been awarded the licences on the grounds that its bids were very low and below the reserve price set by DoT.
The Tatas have netted 15 Lols for the circles of Delhi, Mumbai, Chennai, Kolkata, Maharashtra, Karnataka, Tamil Nadu, Punjab, Haryana and Uttar Pradesh, among others. Tata Teleservices had not applied for the Andaman & Nicobar, Himachal Pradesh, Jammu & Kashmir, and Assam and other Northeast circles. The group is already offering basic services in Andhra Pradesh.
DoT has also issued an Lol to the Delhi-based HFCL for seven circles, including Delhi, Haryana, Uttar Pradesh (West), Maharashtra and Karnataka. HFCL has the licence for the Punjab circle. There is considerable irony in this for, the first time around, it was the ridiculously high bids of the HFCL-Bezeq consortium for nine circles that led to the sub- version of the entire privatisation exercise as HFCL did not take up a single licence.
In the case of the remaining applications, DoT has sought some clarifications from the respective parties. The licences would be issued on completion of the required formalities. Predictably, there was a furor among those who did not get the Lols. The cellular lobby believes that the government has deliberately delayed licences to the cellular operators on the specious ground of seeking clarifications and has given undue advantage to the three companies. Of these, two are cellular operators who had chosen not to support the Cellular Operators Association of India (COAI) in its campaign against limited mobility and are not among the operators who have filed the petition in the Telecom Disputes Settlement Appellate Tribunal against limited mobility. As for Bharti, which had also not filed the petition, DoT had summoned Bharti Tele Ventures, which had applied for many circles. But the cellular operators seem to be getting overly sensitive on this issue, considering that even state-controlled companies – BSNL, MTNL and VSNL – did not get Lols.
National long distance services
If there is a mad scramble for basic service licences, things are relatively quiet on the long distance front. Seven months after issuing guidelines for national long distance (NLD) communication for the private sector, the government has received just two applications – from Reliance and Bharti Telesonic. The reasons are not far to seek, as the guidelines leave several issues unresolved.
Following the prime minister’s announcement, in July 2000, that NLD services would be opened up by August 15, 2000 without any artificial restriction on the number of players, DoT, on August 13, formally announced detailed guidelines for entry of private players in NLD services. The highlights are:
- The NLD market has been opened up for private operators without any restriction on the number of operators.
- The NLD licence shall be issued on a non-exclusive basis for a period of 20 years, extendable by 10 years at one time.
- The NLD licensee may carry both inter-circle and intra-circle traffic. The licensee will have the right to carry inter-circle traffic. The licensee can carry intra-circle traffic through a mutual arrangement with fixed service providers.
- The NLD licensees shall pay a one-time entry fee of Rs 1 billion before signing the licence. In addition, four bank guarantees of Rs 1 billion each shall be furnished. These guarantees shall be released in phases on completion of rollout obligations. The applicant is required to submit a rollout plan indicating the coverage of long distance charging areas (LDCAs) in four phases, including the coverage of remote and uneconomic areas.
- The applicant company should have a minimum paid-up capital of Rs 2.5 billion on the date of application. The promoters of the applicant company shall have a combined net worth of Rs 25 billion. The net worth of only those promoters who have a minimum 10 per cent stake in the applicant company shall be counted for this purpose.
What appears to have put off prospective entrants is the stringent rollout obligations. The main thrust of the guidelines is on infrastructure build-out. All companies have a four-phase network roll-out obligation and must cover the entire country in five-seven years. It has been pointed out that the guidelines do not spell out how the coverage is to be achieved, whether it can be done, for example, by VSAT or other satellite alternatives.
In addition, several critical regulatory issues – equal access, interconnect and open last-mile access – remain unresolved. TRAI, which will have a major role in ensuring equal access and regulating inter-connection agreements, has just started on the process of public consultation. There is the question of tariffs, which are to be set by TRAI. It remains to be seen whether TRAI fixes the tariffs or allows the market to set them, as in the case of internet services. Other issues that have not been addressed include internet telephony and NLD resale.
The first application for NLD service has been filed by Reliance Telecom. Reliance Infocom is furiously implementing a 60,000 km optic fibre cable network that will cover 115 cities. The all-encompassing IP-based broadband network will include internet data centres, inter-national gateways, long distance phone services and IT-enabled services, and will offer a basket of bundled services.
Bharti Telesonic, the joint venture between Bharti Enterprises and Singapore Telecom (SingTel), was the second company to apply for an NLD operations licence. Bharti is planning to launch its NLD services in 92 cities by July 2001 and in 151 cities by December 2001. By March 2003, the company would complete the 25,000-route km project by covering 250 cities. Bharti Telesonic, which is laying a terrestrial cable between Chennai and Mumbai, will also act as a carrier for the BhartiSingTel submarine cable project connecting Chennai and Singapore. Bharti Telesonic has set up a network centre in Chennai from where traffic within India will be routed through Bharti Telesonic’s optic fibre network. The company will invest Rs 18 billion for entering the long distance sector along with SingTel. Of this, Rs 10.5 billion would be generated through borrowings from a consortia of lenders, including banks and other financial institutions. According to company sources, the paid-up capital of the venture is expected to be around Rs 6 billion.
Others who are expected to apply for NLD licences are the two state-owned service providers, MTNL and VSNL. As part of the compensation package for terminating its monopoly on international long distance services, VSNL is to be awarded a licence to run NLD services. The government would pay VSNL a sum equal to the amount paid by VSNL as entry and licence fees for a period of five years commencing April 2001. Further, the performance guarantee of Rs 4 billion for the prescribed rollout would be waived.
The BK Modi Group has also announced its intention to make a foray into the long distance service segment under the Spice banner. Spice provides cellular mobile services in the circles of Punjab and Karnataka and the metro city of Kolkata.
DoT will first closely scrutinise the applications and examine the fulfilment of entry conditions. The first licence would be granted soon.
Meanwhile, there have been a number of applications from infrastructure providers. The guidelines envisage two types of infrastructure providers: Category I, who would provide towers, building and dark fibre and Category II, who would provide end-to-end bandwidth. There were over 11 applications for Category I providers and they have been granted registration. For end-to-end bandwidth there were more than five applications. Among those who have applied for Category Il are RailTel, Power Grid, Bharti and GAIL. GAIL has firmed up an investment plan to lay 6,000 km of optic fibre cable and it proposes to lease capacity to broadband service providers. It proposes to interconnect 90 cities across 11 states by 2003. GAIL has signed a memorandum of understanding with Power Grid, Bharti Telecom, BPL and Shyam Telecom.
Cellular services
The government has formally invited bids to award licences to a fourth operator in four metro cities and 17 telecom circles besides filling up two vacant slots in the Andaman & Nicobar circle and one slot in West Bengal. The tender form for fourth licences in cellular circles was made available from March 23, 2001. The last date for submission of bids is June 8, 2001.
The licences, which will be for a period of 20 years and will be for the same service areas as those of the existing licences, will be awarded through a tendering process structured as a “multi-stage informed ascending bidding”. A prequalification round will be followed by three rounds of financial bidding. The highest price quoted by the prequalified bidder in the first round will be treated as the reserve price for the next round. The successful bidder will have to pay a one-time entry fee based on the final bid and a revenue share of 12 per cent of the gross revenue which includes two per cent revenue share towards frequency usage.
In order to keep out non-serious bidders, the government has imposed stringent eligibility conditions. The bidder company and promoters should have experience in the telecom sector. The net worth of its promoters (with minimum 10 per cent stake) has to be Rs 300 million for each category C, Rs 500 million for each category B and Rs 1,000 million for each category A circle. The paid-up capital of the bidder company should be Rs 30 million for category C, Rs 50 million for categories B and C, and Rs 100 million for A, B and C circles.
The C. Sivasankaran-promoted Aircel, the cellular operator for Tamil Nadu, was the first to purchase the tender documents. Birla-AT&T-Tata, formed by the merger of Birla-AT&T and Tata Cellular, plans to bid for the fourth cellular licence in as many as seven circles. To fund this and the recent acquisition of RPG Telecom’s licence in Madhya Pradesh, the company plans an initial public offering.
The DoT decision to allow the existing operators who have defaulted in paying the licence fee to bid for new licences for cellular mobile services has drawn flak. This policy decision will especially benefit Koshika and Aircel Digilink as they will be able to bid for the licences despite being defaulters in the first round of bidding. However, the government feels that there is little chance of defaulters in this round as the tender condition requires successful bidders to shell out the entry fee upfront, before signing the licence agreement.
During the first round of bidding, operators had to pay the licence fee over a period of 10 years. As most of the operators quoted a high licence fee they could not pay their dues. In 1999, the government came up with a bail-out plan offering defaulting operators the option to shift to a revenue-sharing arrangement. The operators were, however, required to pay the licence fee dues up to July 31, 1999 in order to shift to the new regime. All the operators, barring Koshika and Aircel Digilink, paid up and shifted to the new regime.
International services
International services are to be opened up to private participation only in April 2002. However, internet service providers (ISPs) have been allowed to set up satellite gateways and submarine landing stations for international connectivity. Several ISPs are setting up submarine cable links and will be ready to offer international services once they are opened up. A recent policy decision allows ISPs setting up gateways to provide international bandwidth to other ISPs.
The Bharti Group and SingTel have announced three joint ventures. The first, Network i2i, is India’s first private submarine cable company. The equal partnership joint venture would lay a sub-sea optic fibre cable with a capacity of 8.4 terabits between Singapore, Chennai and Mumbai.
The job, for which Alcatel is the turnkey contractor, will cost $250 million. Work on the first phase – the 3,200 km Singapore-Chennai cable – has commenced and is expected to be complete by December. A total of eight fibre pairs would be laid on the fibre bed. The second phase of the project – the 5,600 km sub-sea cable between Singapore and Mumbai (around Sri Lanka) – is slated to be complete by mid-2002.
Once connected to Singapore, India would be linked up to other Southeast Asian countries and Japan, and then on to the US. The entire project is estimated to cost $650 million. The debt-equity mix is likely-to be 1:1, and the partners will contribute equally to the equity. The first phase will be funded entirely by equity. Network i2i would resort to debt funding for the second phase.
Bharti Aquanet, a 51:49 joint venture of Bharti and SingTel, will manage and operate the two cable stations at Chennai and Mumbai. The two cable stations will cost about Rs 1,500 million. Work on this leg has also commenced.
A third joint venture would also lay a terrestrial cable between Mumbai and Chennai. This is being done by Bharti Telesonic, a joint venture of the Bharti Group and SingTel, which is spearheading Bharti’s foray into NLD service. Work on the terrestrial cable between Chennai and Mumbai is “half complete” and could be over by July 2001.
DishnetDSL, the Chennai-based broadband ISP, has entered into an agreement with TyCom for the Southeast Asian network. TyCom will design and build a fully protected high-capacity cable connecting Chennai with Singapore, Guam and Jakarta. In Guam the cable will connect to the TyCom trans-Pacific ring, allowing traffic to be carried to the US.
Reliance has also planned a submarine cable linking India with Malaysia and Singapore. The company plans to tie up with Maxis Communication of Malaysia and Star Hub of Singapore. The landing stations are expected to be in Hyderabad and Visakhapatnam in Andhra Pradesh.
Satellite telephony
Shyam Aces India, a joint venture of the Shyam Group and Aces International, has received a letter of intent to implement a geostationary satellite-based telephone service in India. For the satellite phone services, the company will utilise the satellite Garuda launched by Aces International, which is a joint venture of Lockheed Martin, Pacific Satellite, and Philippines Long Distance Telephony.
Shyam Aces will set up a gateway in Gurgaon with an investment of Rs 1,700 million. The Aces system has been designed keeping the interests of the Asian consumer in mind, according to the promoters. The handset has been manufactured by Ericsson. The company hopes to provide coverage in 250,000 villages.
Conclusion
After 10 years of reform, the government has deregulated all the segments of the telecom market in India. If it does succeed in completing the process of awarding new licences for long-distance, basic, cellular and satellite services, it would have created a truly competitive telecom market in India. Competition would help in regulating the market and bringing improved, reliable and inexpensive services to the Indian consumer.
