Wednesday, June 1, 2011

India Moves to Revamp Telecom : WSJ

NEW DELHI—India is finalizing an overhaul of its telecommunications policies to address criticism that regulations are wrecking one of the nation's hottest industries by fostering price wars, degrading service quality and blocking much-needed consolidation.
Bloomberg News
'India's cellphone rates have plunged in the past several years. Above, a mobile phone shop in Mumbai.
In an interview with The Wall Street Journal, Kapil Sibal, India's telecom minister, gave the outlines of a major revamp in telecommunications policy expected to be unveiled by September. WSJ's Paul Beckett and Amol Sharma discuss what's at stake.
India's cellphone rates have plunged in the past several years in a hypercompetitive environment. Averaging about seven-tenths of a U.S. cent per minute, the rates are among the world's lowest. That has helped to bring mobile phones to the masses and turn India into the world's second-largest wireless market, after China, with more than 800 million subscribers.
The industry's rapid growth over the past decade is frequently cited as one of modern India's greatest success stories and has attracted billions in foreign investment.
But the setup has battered cellphone companies, whose revenue and earnings have declined sharply.Average revenue per user per month at Bharti Airtel Ltd., the nation's largest wireless carrier, dropped to just over $4 in the quarter ended March 31 from about $10 four years ago. Other carriers have reported similar drops.
Carriers have pulled back on capital investment, which dropped 42% from 2008 to 2010 to $7.2 billion, according to Prashant Singhal, head of the India telecom practice at consulting firm Ernst and Young. That has raised fears that operators aren't nurturing their networks for the next phase of telecom development, the rollout of wireless Internet services. While India is in the early stages of introducing such third-generation services, the U.S. and many other developed markets are upgrading to 4G.
The government's new rules will go a long way toward determining whether India's telecom revolution sparks anew or fizzles over the next few years.
Mr. Sibal, a Harvard-trained lawyer who was appointed telecom minister in November when his predecessor resigned amid a corruption scandal, is trying to strike a balance in the telecom rules. Current call rates are unsustainable, he said, but the new policies must not put telecom services out of reach of India's poor.
"Ultimately, technology is meant to serve a public purpose, so that objective cannot be lost," Mr. Sibal said. "At the same time, the operator must get a return on his investment that is attractive, and the industry must prosper."
Telecom firms complain that strict merger rules, such as a stipulation that a carrier can't have more than 40% of the revenue or subscribers in any market, have headed off deals between midsize and large carriers and left the industry with far too many players, fueling price wars.

Operators also say they are desperate for the government to make more airwaves available. A sluggish bureaucracy and the reluctance of government ministries to give up airwaves have meant that Indian carriers have a small fraction of the spectrum that their counterparts have in the U.S. and Europe.
"There is an artificial scarcity of spectrum in India, which is holding back Indians from getting world class telecom service," said Nick Read, chief executive for Africa, the Mideast and Asia Pacific for Vodafone Group PLC, a major player in India.
Kunal Bajaj, a telecom consultant with Analysys Mason in New Delhi, estimated that under current levels of spectrum, carriers will be able to provide reliable broadband service to only 117 million users in 2015, even though there will be demand for a further 65 million connections.The amount of lost potential revenue to the industry would be equivalent to 0.7% of gross domestic product, he said.
Mr. Sibal said the government will move swiftly to sell more spectrum through a "market-based" mechanism that will ensure that prices are fair to carriers. He said the sale wouldn't necessarily be through an auction but wasn't more specific. Prices skyrocketed in last year's 3G auction, forcing companies to shell out several billion dollars apiece to cover just a portion of the country. "The big companies who have deep pockets only want an auction because they can snuff out everybody else," Mr. Sibal said.
In a shift, operators that aren't using all of their spectrum also will be allowed to rent portions to other companies, who could then offer wireless service. A common practice in many developed markets, including the U.S., this would put spectrum to more efficient use, Mr. Sibal said. "We want the regime to be far more flexible than it's ever been before," he said.
Still, there will be some major constraints. Mr. Sibal said companies will have to pay a one-time fee for any spectrum they hold over a specified limit, a move big carriers like Vodafone and Airtel oppose because it could cost them billions of dollars.
Mr. Sibal said spectrum availability and the number of players in the market also could be affected by a lawsuit that alleges that the government sale of 2G frequencies in 2008 was corrupt. The case, which is being heard by the Supreme Court, could result in some companies having their licenses revoked or having to return spectrum to the government.
Shifting and unpredictable regulations have put further stress on operators. After several companies finalized offerings of video calling on their nascent 3G networks late last year, the government said they would need a special security clearance.
"You can't launch a service and then be told after the fact that you need some new permission," said Srinivasa Addepalli, senior vice president for corporate strategy at Tata Communications Ltd. "It leads to uncertainty in the market and a waste of resources."
Regardless of what regulators do, Mr. Sibal said, operators and their investors shouldn't be concerned about a meltdown. "India is a market that cannot be snuffed out. There's no way in the world that will happen."
Write to Amol Sharma at amol.sharma@wsj.com

Disclaimer

A BLOG FOR ALL THE SHAREHOLDERS OF SSTL (FORMERLY SHYAMTELELINK LTD) TO COME TOGETHER AND DISCUSS ISSUES OF COMMON INTEREST. YOU CAN REACH US AT AMSOST@GMAIL.COM