India's Great Telecom Bazaar

Indians who try to use their country's government-run phone system have long been used to getting nowhere. In a country of 900 million people, there are fewer than 9 million phones--and the waiting list to obtain one is two years. For the lucky wired few, getting past busy routes, rude operators, and ear-splitting static is a major feat.

Help is on the way. The Indian government is ready to open up its telecommunications industry, a move many say is desperately needed to meet the nation's target of 30 million phones by 2000. The cost of those new lines, upwards of $20 billion, is far more than the government alone can afford. So India is asking local and foreign companies for assistance. "Almost every telecom player in the world is trying to get their foot in the door," says Vinod Kumar, country manager for Sprint Corp.

POPULIST SPIN. Some parts of Prime Minister Narasimha Rao's economic-reform program may be slowed by the thumping taken by the ruling Congress Party in December state elections as well as by the recent resignation of several Cabinet members linked to corruption. But the telecom push is likely to continue. That's because improving the telephone system--unlike importing laser-disk players or giving corporate tax cuts--can be given a populist spin by politicians.

Under Rao's telecom policy, private operators in 18 newly designated regions will be allowed to compete against the government system operated by

India's Telecommunications Dept. Foreigners will be able to hold a maximum 49% stake in the new operators. Cracking the telecom market will be high on the agenda when Commerce Secretary Ronald H. Brown and 25 American CEOs visit India in mid-January.

Such U.S. companies as AT&T and Sprint are already doing deals. Sprint is offering electronic mail and other data-communications services in partnership with RPG Enterprises, whose interests range from tires to pharmaceuticals. Sprint is also eyeing cellular service. For its part, AT&T has joint ventures with two Tata companies to make transmission and switching systems. AT&T plans to start making telephones and fax machines next year, and it even hopes to find a local partner soon to offer basic telephone services.

But the costs of providing local service will be enormous and the returns a long time coming. The Telecommunications Dept. wants a $20 million application fee from prospective operators and as much as 35% of net revenues if they use its telephone infrastructure. If a new operator opts to go it alone, building a new system will cost an estimated $1,000 per line and an annual payment of $1 million to the government. That stance "ensures that nobody is going to get into the business who can't afford the costs," says Shankar Sharma of First Global Securities, Bombay.

For now, the government is holding on to long-distance service, which is more profitable. Rao is facing up to the power of the Telecommunications Dept.'s 450,000 employees and their unions. Having lost the battle to keep local service out of private hands, they are not about to give up long-distance services, too. "We will absolutely fight against this," says Ramalingam Venkataraman, secretary general of the Federation of National Telecom Organizations.

Less treacherous opportunities exist for newcomers in such areas as E-mail, radio paging, and cellular telephones. The government has been opening up these areas at a much faster pace and has set no limits on foreign ownership in some cases. Cellular licenses have already been granted in several major cities, including Bombay and New Delhi, all to foreign-Indian collaborations. "Value-added services are an emerging and lucrative area," says an executive at electrical company Crompton Greaves Ltd., which got the cellular license for Madras in partnership with BellSouth Corp. and Britain's Millicom Ltd.

SWAMPED? Others are taking advantage of the growing market for equipment. The Telecommunications Dept. wants to install an additional 7.5 million phones by early 1997, three times what the private operators are expected to place by then. Philips India, which supplies transmission equipment to the Telecommunications Dept., sees big opportunities. With nearly $325 million in sales and 9,000 employees in India, Philips wants to form joint ventures with Indian companies to make everything from cellular terminals to digital microwave.

Foreigners will face obstacles as vested interests dig in their heels. Some fear domestic companies will get swamped by the multinationals. But opening up the phone system is one of the most important reforms India faces. Attempts to turn India into an Asian tiger won't go very far if nobody else can dial in.

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