View from Delhi: Unified licence pushes cellular companies to the wall

Some companies in the telecom industry received a Diwali present last week when they were told that there will only be a single licence for telecom companies, not three as is the case now.

The unified licence will cover all three cases, namely, cellular, limited mobility or WLL (wireless in local loop), and fixed line services.

This means that all those who were operating only one of these services will have to pay more or get out of business. There are already loud complaints that big companies like Reliance Infocomm which offer WLL services will be the main beneficiaries, as they will be able to offer full-mobility at a fraction of the cost of cellular firms. Their infrastructure costs are only a third of cellular firms and they can now wipe out the competition.

Fees and penalties

All they have to do now is pay additional fees to cover the unified licence and also some penalties for offering roaming services.

Reliance Infocomm operates in 16 states and has to pay Rs21.3 billion to cover new fees. Tatas, who are also in the field, will pay about Rs6 billion. The two houses will then compete with existing ones like Bharti, a much smaller firm that may not be able to stand the competition.

Pundits say that a shake-out is imminent and will probably leave no more than three or four firms in the field, instead of the present ten or so. There will also be some consolidation as firms merge their businesses to face competition. Ultimately, only Reliance and Tatas will probably survive, and maybe one or two other foreign firms, like Hutchison.

Bharti was in business long before Reliance and Tatas, and will now have to take on the new powerful rivals head-on.

At the same time, there are moves to hike the foreign investment cap from 49 to 74 per cent, to which there is some opposition from intelligence agencies.

Bharti's foreign partner, SingTel, a Singapore-based telecom firm, is keen to increase its stake in Asian ventures. Bharti's Sunil Mittal may have to sell out to SingTel and look for other business.

The real beneficiary will be the consumer who will see his bills go down sharply as the new regime takes shape. There has been something of a revolution ever since it was thrown open to the market six years ago and call rates have been going down drastically. Cellular phones are now as common as umbrellas in the monsoon.

Mass appeal

In Delhi, even schoolchildren carry cell phones to keep in touch with their mothers or chat away in school buses or even in classes.

The small urchins who sell mineral water bottles at street corners also sell cellular phones, probably stolen ones.

In Goa, people carry cell phones while jogging on the beach or taking their morning dip in the sea.

But just because the government has come out with a new scheme doesn't mean it is the last word. In India, nothing is final until the matter is settled in the courts, who remain final arbiters in policy matters.

Cellular firms are threatening to go to court to demand compensation since they believe they were forced to pay high licence fees earlier. Their real complaint is that they were pioneers in the line and did all the preliminary work and brought cellular services to the common man.

Now, they say, they will be driven to the wall by the new big entrants and their phones will stop ringing.

The author is an India-based senior economic adviser