More than telecom is at stake

Briefly, what the cellular and basic telecom companies are saying is that since the telecom market is nowhere as large as they had anticipated, they cannot afford to pay the huge licence fees they had committed to when they had won the bids a few years ago. They point out that if they don’t get concessions, not only will the entire industry go sick, India’s potential telecom revolution (as well as the Information Technology one which has to function through telephone lines)will be nipped in the bud. The point that they’re trying to make here is that if they go sick, then no new entrant will come in either they will all feel that the market is not lucrative enough, and will shun it completely. Alternately, if they do come in, they will offer the government such paltry licence fees that it just won’t be worth while. In other words, the government’s best bet is to lower its expectations of licence fees and continue with the same telecom companies.

That, of course, is just so much balderdash, and is really an attempt to obfuscate the argument made by Swaraj when she was the communications minister. Namely, that if the government granted any major concession to them, this was tantamount to changing the licence conditions, and would be challenged in the courts. After all, any party that lost out the last time could go to court, saying that they would have bid an even higher amount had they known that the conditions could be changed later.

So what is the government supposed todo? Clearly, letting an entire industry go sick is not in the interests of the country, especially in a sunrise sector such as telecom. Apart from anything else, it dampens investor sentiment, clearly the last thing India wants at this point in time. But what the government must also bear in mind is that there are numerous other sections of industry, with far greater investments and far greater employment, that are clamouring for all manner of sops. If it keeps bending over backwards for the telecom industry, it can’t tell the steel industry, the synthetics one or the hundreds of units in other sectors, that it will not allow the country’s banks and financial institutions to bail them out. And while one can still argue for bailing out the steel industry on the grounds that a lot of investment has been made here, very little investment has actually been made on the ground in the case of telecom – most of it is yet to be made. Apart from the existing investment in steel companies, there’s also several thousandcrores of money invested in steel and other projects which are nearing completion, but are stuck for paucity of funds surely it makes sense to lend them more money and save the projects? To that extent, very little productive capital will go waste if the private telecom initiative gets derailed for the moment.

The government’s best bet, under the circumstances, would be to serve an ultimatum to all the private telecom operators, asking them if they wish to continue with their existing agreements that is, on the conditions agreed to by the Cabinet earlier and announced by Swaraj at the economic editors conference. If they do not wish to do so, cancel their licences, encash their bank guarantees, and take over their networks. And then re-bid them out again, perhaps on a revenue-sharing arrangement or whatever else looks the most feasible. Chances are, however, that few of the companies will actually want their licences cancelled. Most will try and sell their stake to some other, cash-rich company, much thesame way that Max India did recently others such as the Ruias of Essar have also divested much of their stake in favour of their foreign partners.

The point is simple: the government can afford to be tough with the telecom sector since there’s comparatively little that’s at stake. Taking a firm stand with the telecom sector doesn’t necessarily make it easier to resist pressures for bailouts from other sectors. But if it gives in on telecom, it has no chance in any other area.