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The line up for the final telecom race

The common strategy of all the companies in attempting to set up a countrywide network is to metamorphose their operations into ones that offer a complete bouquet of services from national long distance to local services, says Sandeep Dikshit.

If bidding for WILL (wireless in local loop) based basic licences and the fourth cellular licence had not been caught in the crossfire of corporate rivalry, the emerging czars of the telecom services sector in post-liberalised India would have been more easily identified.

Despite the haze cast by several court cases, companies with pan- India aspirations in the telecom sector have already made their intentions known. There is some uncertainty whether they will be able to put their plans into action. Some of them are neck deep in debt and the current expansion could be one way of increasing the worth of their companies.

Besides, none has been given the opportunity of depositing the licence fees in the Central Treasury. A note of caution is in order because the history of the deregulated telecom sector in India is packed with instances of companies hesitating to pick up licences when a hefty licence fee has to be simultaneously paid to the Government.

But the line-up at the starting blocks of what promises to be a prolonged race testing the endurance of even the most battle scarred corporate giant is clear.

Identified as the favourite by the media and conventional wisdom of telecom analysts is the Reliance group. Standing alone without the aid of a deep-pocket investor or a company with a record of operating telecom services elsewhere in the world, Reliance already has licences to operate cellular services in practically the entire eastern region as well as a small but lucrative pocket in the western region.

The company had earlier opted out of matching the bids made by other companies for cellular licences but has made its intentions clear by applying for a large number of WiLL basic service licences for which it has payed a relatively small amount when compared with the huge licence fees involved in the competitive bidding for cellular licences.

The conditions stipulated for WILL licences are tough and as of now it is unclear whether other companies which had set their sights on a countrywide footprint will be willing to emulate Reliance.

The second favourite after Reliance is Mr. Sunil Mittal who started out as a cellular operator in his family's adopted hometown of Delhi. Operating at a time when owning a cell phone was a fashion statement for Delhi's numerically strong upper crust of power brokers, politicians and businessmen, Mr. Mittal did not have the many disadvantages that dogged companies which applied for licences in the second stage of bidding. His company, Bharti Cellular (as were BPL and Hutchison in Mumbai), did not have to worry about factors such as price resistance or payment of hefty licence fees. His latest patron is Singapore Telecom which quickly filled in the space vacated by Mr. Mittal's former comrade-in-arms British Telecom.

Bharti appears to have adopted a three-pronged strategy to become an all India operator of telecom services. On one hand, he has been among the most aggressive bidders for the cellular licence. On the other, his team uncannily spolled cellular companies in trouble and bought them out. The third part of his strategy is the WILL based basic service route adopted by Reliance. If the cellular bidding had not been derailed, Bharti would have assured for itself six cellular licences, from Tamil Nadu and Kerala in the South to Mumbai in the West and Haryana, Madhya Pradesh and U.P. (West) in the heartland. Besides, the acquisition route has seen Bharti establishing a presence in Kolkata, Bangalore and Hyderabad. It has also set the pace for the Gujarat circle.

Then there is the composition under the unwieldy-sounding banner of BATATA-BPL. For the uninitiated, it stands for the grouping of three Indian corporates - Birla, Tatas and BPL - and the American multinational AT & T. The list of circles they have in the bag and those they intend acquiring through bidding is longer than this grouping's acronym. In brief, practically the whole of South and West India. This consortium is also in line for WILL licences.

Hutchison, the other player keen on a national footprint, like Bharti started out with cellular operations from a metro, Mumbai, and is keen on the very areas that have been acquired or are being eyed by Bharti and the BATATA-BPL combine. Hutchison too appears to be following a two-pronged strategy. In between is Escorts which is currently limiting its ambitions to large portions of north India.

However, the last word has not been said on the alliances. Just like a cornered BPL opted for a tie-up with BATATA, Hutchison, Bharti and Escorts may also join forces. Even a company of the size of Reliance could find the task of establishing an all-India presence lonely and financially demanding. So far though it has shown little inclination for aligning with other established companies.

The common strategy of all the companies in attempting to set up a countrywide network is to metamorphose their operations into ones that offer a complete bouquet of services - from national long distance to local services. They will also be keenly following the progress of the Convergence Bill to weigh the costs and opportunities of providing video and Internet along with telecom services.

The euphoria over each and every move by these corporate compositions is understandable. But the path to success as an all India telecom giant is strewn with unpredictables. The foremost is the slowing down of the economy and the deep monetary mess caused by sloppy management of Central and State finances. In such a situation, the fight for every new subscriber by the new entrants is going to be ruthless.

The second is whether the companies will also be keen on picking up WiLL licences for which all of them had applied in a big way. The only cautious observation made by an MNC official during the heydays of the telecom boom in the mid-Nineties is still valid. ``Getting licences in India seems to be tough. But this is the easiest part in a complex market like this.'' The maxim still holds true.

The market may be good enough for two or at the most three groupings. The two state-owned companies - Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) - are still giants on the national scene and it will take tremendous amount of ministerial and bureaucratic bungling to bring them to their knees. This leaves the field open for only two private groupings to survive. A natural outcome will be a tremendous amount of bloodletting unless the companies go for a further round of mergers.

The situation may radically change if the foreign equity ceiling in telecom services sector is hiked to 74 per cent from the present 49 per cent. The entire scenario could dramatically change and lead to new combinations coming into play. Many of the current players are deep in debt while some are finding the simple act of survival an ordeal. In case the FDI limit is hiked and the chimera of a stable policy regime becomes a reality, perhaps the present frenzy of acquisitions may turn out to be just an attempt by many of these formations to increase their valuations by striking alliances and acquiring licences for new areas.

* * *

Litigation derails plans

The Chennai High Court has become the focus of attention of the telecom community after two PILs (public interest litigations) were filed recently. The first sought annulment of the allotment of letters of intent (LoI) to basic phone service companies. This month-long stay had delayed the plans of several companies which had together applied for over 100 licences for State level licences for WILL basic services. It is only now that the companies have been permitted to receive the licences.

A separate PIL in the same court has alleged collusion among some companies in order to grab cellular licences at basement bargain prices. Yet another PIL in the Mumbai High Court by a union has sought the inclusion of its company in bidding for the fourth cellular licence. Till the end of last week, the Chennai High Court had ordered status-quo till it had heard both parties.

Then there is a case before the Telecom Dispute Settlement and Appellate Tribunal where one company has questioned the grant of cellular licence to another company for fees lower than it had paid in the mid-Nineties. Apart from the litigation challenging the bidding, the courts and the TDSAT are seized of several issues of discord between the policy maker (DoT) and the service providing private companies. The dispute over revising interconnect charges is a case in point. As of now, it is unclear how long these issues will remain in the judicial domain.

The Communications Ministry, whose plans of further deregulating the telecom sector were derailed by the court cases, suspects that at least two of the cases were inspired by corporate houses which were out to muddy the waters for the other side. As of now, it is actively attempting to get the stays vacated and, if that fails, to get the petitions transferred to the Supreme Court.

- SD

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