Hello, Private Operators Here

Of the originally planned 20 licences for basic services that DoT was to award for all the telecom circles, only three have actually been signed. Bharti Telenet for Madhya Pradesh, Hughes Ispat for Maharashtra and Reliance Telecom for Gujarat have accepted the interconnect agreement with DoT. Two more, Tata Teleservices for Andhra Pradesh and Essar Commvision for Punjab were scheduled to sign on the dotted line last week. But it was postponed by another week ostensibly because banks, which were on holiday, could not issue the drafts

If Essar and Tata sign the licences this week as is very likely it will bring five circles under private telphone services. And the companies will be the first to tap a very lucrative market.

The plain old telephony services (POTS) market in is estimated to be worth almost $100 billion in the coming years. And the three licensee who have signed on are putting their plans into action with Bharti Telenet, the joint venture between Bharti Televentures and Stet of Italy, leading the pack. The first telephones will be available by December, says Sunil Mittal, CMD, Bharti Enterprises.

Privatisation of basic services is expected to bridge the widening gap between demand and supply in the POTS market. It aims to make telephones available on demand in the urban areas as well as to provide connectivity to the six lakh odd villages in India.

The demand is certainly huge. There are nearly 17 million telephone lines today. DoT plans to add at least 20 million lines by 2000. But this will still not fill the gap since demand has been growing by 20 per cent a year for the last five years and is likely to keep the same pace. Also, at least another 20 million lines will be needed to reach the target of six telephones per every hundred residents. So this will have to be met by the private sector.

For the private operators who are already on the ball, the main objective is to get off the ground quickly and wean customers away from DoT.

The magic is going to be in the number of subscribers and servicing them as quickly as possible, believes Deepak Kapoor, partner at accounting and consulting firm, Price Waterhouse. Bharti Telenet is trying to do precisely that.

Its strategy hinges on two key aspects: quick roll out using wireless in the local loop (WLL) and targeting high-yield customers in the initial years. To achieve the first, Bharti has already commissioned US-based Qualcomm Technologys code division multiple access (CDMA) WLL techonology to provide telephones in the key areas of the state. Bharti is spending nearly $180 million to set up its network and build the telecom backbone.

The first phase of Bhartis network roll out will cover 18 of the 45 districts of Madhya Pradesh. These include Indore, Gwalior, Bhopal, Ujjain, Jabalpur, Bilaspur and Vidisha. These areas, accounting for about 3,000 square kms or one per cent of the total state area of 4,43,000 sq kms, bring in the highest revenue. In fact, almost 90 per cent of DoT's revenue in MP comes from this area. Bharti also plans to exploit this.

It has targeted to break even within three to five years of operation. For this, the high-paying customer will have to be a priority. High yield customers will be our main targets in the initial years though we obviously cant afford to ignore any of our other customers, says Mittal.

As for Reliance and Hughes Ispat Limited (HIL), they are still evolving their strategies. While the Reliance licence fee of Rs 3,396 crore is spread over 15 years and seems manageable, the HIL bid of Rs 13,909 crore for Maharashtra seems steep. HIL is a joint-venture between Nippon Denro Ispat, Hughes Electronics, AllTel Corporation of USA and Alcatel of France.

John Michael Lind, director, Hughes Ispat and CEO, Strategic Partners, a telecom business development firm, however, doesnt think so. The Maharashtra bid is very close to our competitors. We agreed on the licence fees after extensive research and analysis, he says. But that hasnt convinced any of the lenders. HIL, which also has the licence for Karnataka (for which it bid Rs 5,796 crore), has applied to DoT to float another company for this licence. DoT hasnt agreed so far and seems unlikely to do so in future.

The reason is simple. HIL won the licences for both states and if it is allowed to transfer the licence for one state to another company even with HIL being the main partner it will violated DoTs tender conditions. But it this doesnt happen, the banks are unlikely to finance the projects. So HIL is caught in a dilemma.

In Maharashtra, however, HIL hopes to commence operations by end-1998. It will use Hughes Electronics WLL systems to provide connections in the initial years. In the first three years, HIL will add 600,000 lines and this will go up to a one million lines in five years. HIL expects to earn revenues of between Rs 1,200 to Rs 1,500 per month per line against DoT's current average of about Rs 1,100 in Maharashtra. In all, HIL will invest nearly $ 4 billion in Maharashtra including licence fees.

Both Mittal and Lind, however, feel that the present telecom tariffs set by DoT are skewed. DoT subsidises local calling from long distance revenues. This will have to change, says Mittal.

Tata Teleservices, a joint-venture between the Tata group and Bell Canada International, which has bagged the Andhra Pradesh circle, may soon jump into the fray. Tata plans to invest nearly $2 billion. It will add 300,000 lines in the first three years and progressively scale it up to 2.7 million lines by the end of the 15th year. At this point, it expects to have an at least 52 per cent market share.

Tata hopes to earn Rs 1,200 per line per month against DoTs average of Rs 914 a month (1994 figures) in AP. Long distance calls account for 65 per cent of this. According to Tata's projections, the business sector will be the most lucrative segment accounting for 27 per cent of all revenues. This will be followed by the household business and public call offices (PCO) segments. DoT currently earns Rs 8,026 a month from PCOs.

The strategy makes sense. As Kapoor says:, Sustainability and financial muscle will be the key in this business.

But even as these few projects take off the ground, the key question is what about the other 15 circles? If indications from DoT are anything to go by, the next round of bidding for basic services may not involve high licence fees. A revenue sharing formula is most likely to be worked out instead.

Private players are all set to bridge the demand-supply gap.

John Michael Lind, director, Hughes Ispat, does not agree that the licence fees are high.We agreed on the licence fees after extensive research and analysis," he says.