Telecom Pact Has Little For Indian Consumers

The governments offer at the World Trade Organisation (WTO) negotiating group on basic telecom talks holds precious little for the consumer. Charlene Barshefsky, the US trade representative-designate, feels the average cost of international phone calls may drop by 80 percent over the next few years.

This, however, is going to be a distant dream for Indian telephone users since the government negotiators have neither made any commitment on phasing out the monopoly status of Videsh Sanchar Nigam Ltd (VSNL) nor have agreed to bring down telecom accounting rates (TARs), negotiated rates between international telecom companies to carry and end a call from one country to another. TARs constitute a significant portion of international call tariffs.

 

Offers made by countries at WTO talks are voluntary. India has taken advantage of this and has not tabled anything pathbreaking, although its telecom policy is among the most liberal in the world. For instance, tender guidelines prescribing private entry into telecom services allow up to 49 per cent foreign equity. And, if a pyramid structure involving holding companies is adopted, the foreign holding goes up to 74 per cent. It can theoretically go up to as much as 93 per cent if operators use a four-tiered holding company structure.

The pyramid structure involves routing investments through holding companies. To finance 51 per cent Indian equity in an operating company, the domestic partner floats a holding company in which 49 per cent is sold to foreign investors. If the operating company has a Rs 100-crore paid up capital, foreign equity will effectively will be some Rs 74 crore in the venture. And, if more holding company tiers are added to the structure, the foreign equity goes up further.

Therefore, at a time when India has virtually removed foreign equity ceilings in telecom service ventures, there should not have been any hesitation in binding itself on at 49 per cent foreign equity. Binding offers are irreversible commitments which countries risk reversing at the risk of heavy sanctions, and Indias strategy seems to be will allow at a later date; why now? a Mumbai analyst said.

Given the pace of changes in telecom technology, policy-makers privately admit that India will have to phase out VSNLs monopoly by 2000-2002. In such a scenario, making an additional commitment to review the monopoly status augurs poorly for Indian consumers and businesses.

Competition in international services would drive call-charges only one way down. Foreign telecom carriers would price services at cost, which would mean a 60-70 per cent drop in charges right away. Businesses with an increasing international profile like exporters would be affected the most, an Indian executive with a telecom MNC says. In any case, services like satellite telephony bypass existing monopolies and such restrictions will become increasingly meaningless, he adds.

Vesting the right of national long-distance services with the department of telecommunications (DoT) is detrimental as quality of long-distance services will take time to improve. However, the silver lining here is that the review date for phasing out the DoT monopoly has been set in 1999. It is likely that DoT will go through a bidding process once again as in basic and cellular telecom services for the long distance telecom services licence.

Another disturbing feature of Indias telecom offer is that it has not accepted a safeguard laid out in a standard reference paper on regulatory principles disallowing the use of cross-subsidisation in an anti-competitive manner. This essentially means that India has not agreed to bind itself on rationalising its tariffs. That is, a move to bring down long-distance tariffs and raise local call and access charges could take time.