Hanging Up on Private Cell Companies

The state seems determined to protect its telecom monopolies

The government's policy change was supposed to open up India's mobile-telecom market and make it one of the most competitive in Asia. Announced in late January, the edict allowed fixed-line phone companies to offer mobile services at lower prices--less than a penny a minute. As chief telecom regulator M.S. Verma said: "There's no better way to serve the consumer than through an open, fair, competitive market."

Existing cellular operators didn't see it that way. They called the policy a naked attempt to hand over their business to state-owned monopolies. But they didn't get a chance to protest publicly. A day after the announcement, a massive earthquake struck Gujarat state. So the mobile operators tried quietly to convince the Ministry of Communications that the policy could put them out of business--not to mention wreck a strategic industry.

CHANGING THE RULES. Now that India is putting the quake behind it, mobile carriers are escalating their campaign. After concluding that the government won't budge on the issue, they are taking their case before an official telecom tribunal. Meanwhile, Hong Kong's Hutchison Whampoa Ltd. and AT&T have vowed to freeze expansion plans in India. Says Mahesh Uppal, a New Delhi telecom analyst: "Big players don't like rules being changed that significantly impact their businesses."

So what's wrong with allowing fixed-line operators to compete in the mobile market? Well, in India, the major fixed-line players are the state-owned and heavily subsidized monopolies Mahanagar Telephone Nigam Ltd. (MTNL) and Bharat Sanchar Nigam Ltd. Because they get free spectrum allocation and lower entry fees, they can afford to offer mobile services at cutthroat rates. "It's a case of predatory pricing and blatant discriminatory regulation," thunders a foreign telecom executive. "We'll become totally uncompetitive." That, say critics, is exactly the government's idea.

In principle, the private operators don't mind a little competition. In January, for example, state-owned MTNL entered the cellular market with a bang, announcing rates of 5 cents a minute--half the price offered by private players. Nearly 9,000 Indians subscribed to MTNL's service in the first month. Bharti Telecom Ltd. and Orange PCS Ltd., the top two cellular operators, announced similar price cuts; their usage has since doubled.

At that point, the mobile-phone market seemed ready to expand beyond its paltry base of 3.2 million subscribers. But if the new rate is a penny a minute, the private companies may not be around to see the market reach its potential.

Telecom officials deny the new policy favors state-owned companies. This is hard to take seriously, considering the other goodies New Delhi is prepared to throw to state businesses. Regulators gave them their new mobile licenses for free. By contrast, Hutchison, AT&T, and France Telecom paid hundreds of millions of dollars for their licenses. What's more, in the domestic long-distance market, fixed-service providers will keep up to 60% of their mobile revenues. But existing cellular players will pay 95% of their take for connection charges to MTNL and other state firms that together control India's land-line network.

State companies need all the government help they can get. Lousy service, waiting lists for connections, labor unrest--these are just some of their worst traits. MTNL, for example, has long resisted giving up its monopoly, fearing that it won't be able to compete with private operators in Bombay and New Delhi. Moreover, Indians now take for granted the superior service offered by mobile providers.

Nothing is more crucial to India than a farsighted telecom policy. Foreign investors have poured $3.5 billion into Indian mobile telephony. The last thing the government wants to do is scare them away. As it is, India is far behind rival China, which already boasts 80 million cell-phone users. New Delhi's latest policy, says Justice Savinder Sodhi, ex-chairman of the Telecom Regulatory Authority of India, is a "cockeyed, medieval solution to a 21st century problem." That's a serious indictment for a nation that aspires to become an IT superpower.

By Manjeet Kripalani in Bombay

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