'Broadband expansion is a different case from that of mobiles'
The telecom sector has been witnessing tough times of late, with the Central Bureau of Investigation investigating the allotment of licences in 2008, other parliamentary panels looking into the spectrum controversy, which led to the arrest of former minister A Raja, and talk of cancellation of some licences after the CAG report. R Chandrashekhar, secretary, Department of Telecommuniations, in an interview with Mansi Taneja, talks about these and other issues. Edited excerpts:
The industry is battling many issues currently, including CBI investigation and other enquiries, showcause notices for cancellation of licences by the department over non-fulfilment of rollout obligations and eligibility norms. Many foreign players have invested in the telecom segment here. Do you think cancellation of licences is a solution?
The issue here is whether anybody has violated the law. The key message is that violations of law will not be accepted and will be dealt with in accordance with the law. If that results in some action, I do not think that should be a cause for alarm for anybody because everybody, including investors, want to be reassured that rule of law applies.
But when foreign firms Telenor and Etisalat invested in India, their respective Indian partners (Unitech Wireless and Swan Telecom) had eligible licenses issued by DoT. However, as mentioned in the CAG report, if DoT earlier flouted some rules and issued licenses without checking eligibility criteria, do you think the licenses of these companies should be cancelled? These foreign companies have already invested a huge amount of money.
Certain things come into play as normal business risks. When you are getting involved with some company, the due diligence of their track record and performance is done. When companies are bought out by some other company, then whatever liabilities exist will remain, whether visible or not visible at that moment. It does not get extinguished because somebody else has bought into it, whether a domestic buyer or an international buyer. The legal obligations of a corporate entity continue, irrespective of the changes in ownership.
How many showcause notices for cancellation of licenses have already been issued?
Eight-five showcause notices were issued for alleged non-fulfilment of the eligibility criteria. Subsequently, showcause notices have been issued in the recent past for cases of failure to comply with rollout conditions. Eight such notices have been issued and some more are in the pipeline. In total, 17 such showcause notices will be issued.
DoT is in the process of formulating the new telecom policy after a decade. What can we expect on mergers and acquisitions? Two, what kind of relaxation are you looking on rollout norms?
On M&A, there is a point of view that there is adequate or more than adequate competition in the sector today. The broad view is that the government’s role is primarily to ensure a minimum level of competition. It is not to fix what exactly should be the amount of competition, as that should be determined by market forces. So, the only thing which needs to be fixed is a floor, in terms of number of competitors, and that has been indicated by the minister as six, including public sector units. This has been agreed in-principle.
Subject to this floor, any artificial barriers that may have crept in, which prevent such consolidation from happening, are being reviewed.
Doesn’t fixing a minimum floor at six restrict the competition in the sector?
Yes, this will prevent consolidation beyond that floor. If pure market forces were to result in a smaller number of players, then that is being consciously restricted. The government has an obligation to protect the interests of consumers as well.
Has the department issued any directive to Nokia for banning of its push-mail services?
We have not issued any such directive but there have been some references from the home ministry and security agencies saying that such services should not be allowed. We have, so far, not issued a ban or any blanket ban on such services. We are still looking at such security issues internally. All the services which use encryption in one form or the other are being looked at. The issues here are not company-specific, but being looked at from a generic point of view and what is required from a security point of view.
Both telecom PSUs, BSNL and MTNL, are facing challenging times. Their revenues are decreasing and losses are increasing. How do you plan to revive both, once among the top players? Is the department looking at some kind of subsidy? And, what is the status of the merger idea of the two?
Merger of both PSUs is one aspect. A number of business compulsions do favour merger of these two. But, it is not something which will happen overnight or in a very short period. Second, they have faced very intense and severe completion. Naturally, we cannot expect a pre-existing monopoly to continue and with a predominant market share as they had earlier.They have had considerable stress in keeping up with competition, because the nature of business requires very aggressive marketing and very rapid decision-making and continuous adjustment of strategies and policies. These are challenging for any company and even more so in a PSU environment, because there are certain special constraints under which they operate.
But as PSU undertakings, they also have certain advantages which can, to a significant extent, compensate for these disadvantages…for example, they have the largest quantum of infrastructure in terms of optical fibre. How do you leverage this strength is a question. Appropriate strategies have to be thought of.
Is there any plan to reduce the employee base of BSNL, as suggested by the Sam Pitroda report? MTNL also had given a proposal to the department for laying off excess staff.
BSNL has close to 300,000 people. It is a not a simple matter of simply asking some random 100,000 people (as suggested by Pitroda) to leave the organisation.While agreeing to the need of some reduction in the staff, it was felt that it should be a targeted reduction and in categories in which surplus is identified. Subsequently, a targeted VRS (voluntary retirement scheme) will be introduced.
If you simply have a reduction, you may end up losing people in areas where you actually need more people and retaining people in areas where you do not need. BSNL is working on this issue and will give the details to the department. A similar issue is there in MTNL, so it will also be a targeted reduction.
But in both cases, if a significant number actually opts for VRS, it would require a lot of upfront funding. While it is a sound strategy in a business sense, it has its own implications in terms of cash flow.
When will the National Broadband Plan be finalised and how does the government plan to increase broadband penetration across the country?
The idea of the Plan is to make available broadband services ubiquitously and to ensure that in the next two-three years at the most, these will be available through wireline or wireless. The uptake of broadband will also depend on what are the services that will become available through it. In the mobile segment, phenomenal growth has taken place because nobody had to teach people how to talk or the need to talk. But that is not the case in broadband.The whole purpose is not only to make available the connectivity but also to create an ecosystem where a lot of services will proliferate.
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