No extraordinary favour is being done here

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: There is an opinion that in an era of privatisation, BSNL and MTNL should not be automatically allotted one slot of 5 MHz of 3G spectrum without participating in the auction. As per the guidelines issued in August 2008, both BSNL and MTNL will not have to participate in the 3G-spectrum auction, but will have to pay a fee equal to that of the highest bidder. Another argument is that this will give BSNL and MTNL a lead time of several months in entering the market, since they can purchase and install equipment before the 3G spectrum auctions take place around the end of 2008.

However, there was discrimination historically against BSNL and MTNL in that they were not allowed to participate in the initial allotment of 2G licences. When the bids were called for providing GSM services in the four metros in 1992 (allotted in 1994-5), MTNL and the Department of Telecom (forerunner of BSNL) were specifically disbarred from participating. Similarly, when the GSM tenders were called for the circles in 1995, MTNL and DoT were not permitted to take part.

MTNL and DoT were finally permitted to provide GSM services as the third cellular operator only after the implementation of the New National Telecom Policy of 1999. When MTNL was finally permitted to commence GSM services in Delhi and Mumbai in March 2001, Bharti already had 3,28,000 and Sterling had 2,18,000 subscribers in Delhi. In Mumbai, BPL had 2,59,000 and Hutchison Max had 2,52,000 subscribers. And these constituted the high-income groups. Similarly, BSNL was permitted to start services only in October 2002, when there were already three well-entrenched operators in each circle, catering to the affluent classes.

BSNL and MTNL had perforce to go after the lower income groups of subscribers. In particular, BSNL had to operate in rural and remote areas, where the cost of reaching out to a subscriber is higher than in urban areas, whereas the revenues are much lower than in urban areas.

Today, BSNL's Average Revenue per User per month (ARPU) is Rs 196 for prepaid subscribers (90 % of its total subscribers) and Rs 330 for post-paid subscribers (10% of its total subscribers). In contrast, the ARPU for prepaid subscribers is Rs 282 for Reliance Communications and Rs 350 for Bharti.

The argument that BSNL and MTNL will be able to purchase and install equipment before the spectrum auction takes place and thereby capture the 3G market is also not borne out by past events. As public sector organisations, subject to the Central Vigilance Commissioner and the Comptroller and Auditor General, they have to perforce go in for an open tendering procedure that often invite legal wrangles.

Some of the number crunchers in BSNL are of the opinion that its break-even point for 3G would be several years later than for Airtel and Vodafone. BSNL and MTNL may have to subsidise 3G handsets, but with number portability coming, they will have no hold on retaining their subscribers. Others in BSNL feel that they will have to come up with imaginative schemes to cater to the special needs of rural segments that are largely unserved by the private operators.

One area where BSNL has an advantage over the private sector would be in transacting monetary remittances from migrant labourers, either abroad or in the metro cities, to their families in their villages—the electronic mobile equivalent of the Post Office Money Order. But the RBI is yet to issue the guidelines for mobile banking. BSNL is also planning to tie up with post offices for payments under NREGA where the code is relayed on mobile handsets.

In fact, MTNL and BSNL have long acted as trendsetters in lowering tariffs for consumers. By having the lowest tariffs by far, they have forced other operators to also lower their tariffs. BSNL was the first to offer STD/NSD at Re 1 per minute in February 2006. On 13 August, MTNL, which was the first operator to launch IPTV, launched mobile TV services at just Rs 99 for 16 channels. It also lowered its broadband tariffs by up to 50 %.

To sum up, no extraordinary favour is being provided to BSNL and MTNL by reserving one 3G slot for them in view of their Universal Service Obligations and their catering to the poorer sections of society, especially in rural areas, for over 125 years.