Column: 5% market share, 100% impact!

Written by Rishi Raj | Updated: Jan 17 2011, 06:11am hrs
Eloquence is what distinguishes a good lawyer from a bad one. The current telecom minister Kapil Sibal is a lawyer and so is his predecessor A Raja. However, while Sibal has the ability to make his point eloquentlyhe sounds more convincing, making the same point that Raja made throughout his days in office. What Sibal calls the huge socio-economic benefits of not auctioning spectrum, leading to lower tariffs for consumers and leading to higher tele-density, was referred to by Raja as breaking the cartel of incumbent operators and bringing in more competition, leading to lower tariffs. So, a similar point was made by both with differing degrees of eloquence. Lets move from eloquence to actual substance in order to examine whether Sibal is right or if Raja was correct in saying that the grant of the controversial licences in 2008 brought in any competition in the mobile market, leading to lower tariffs.

Giving a historical account, Sibal, at his press conference on January 7, said that the average tariff came down from almost Rs 17 per minute in 1999 to about Rs 3 per minute in 2004 and by March 2010, this became as low as 57 paise per minute, while today it has reached a level of 30 paise per minute. This is a direct and tangible benefit. For all these reasons, the CAGs criticism that the policy of awarding licences and spectrum at reasonable rates involved a large loss to the exchequer has no merit. True, but none of this is due to any contribution of the licensees, which Sibal, in a convoluted manner, wants to defend. Whatever drop in tariffs have happened is due to competition amongst incumbent operators and not the Raja licensees. The new operators that were given licences in 2008 have less than 5% market share in the overall mobile market and their subscriber market share is in low single digits. At end-September 2010, Uninor had a subscriber market share of 2%, Sistema Shyam 1%, Loop 0%, Videocon 1%, STel 0%, HFCL 0% and Etisalat DB 0%. The best performer amongst the new operators is Uninor, with around 11 million subscribers in a market having 687 million overall users. The worst is Etisalat DB, with 56,583 subscribers.

Dig deeper and the small number of the new operators would throw up an even starker factbulk of their users are inactive ones. According to a Trai analysis done for the month of September 2010, of the 687 million wireless users, the active ones were only around 482 million. While an incumbent operator like Bharti had 89% of their users in the active category, none of the new operators had even 50% of their users in the same category. For instance, Etisalat DB has 43.55% active users, Videocon 38.87%, Uninor 30.91%, STel 24.33%, Sistema Shyam 46.25% and Loop 48.21%. This means that most of the subscribers of these new operators already have connections of either of the incumbents (Bharti, Vodafone, Reliance, etc) and so the new operators become the second, third or even the fourth choice.

Thus, it is quite clear that neither their entry into the market nor their tariff packages have led to any competitive forces, which may lead incumbents to lower their tariffs, leading to consumer benefit. The tariff war happened in the mobile market with incumbents like Tata Teleservices and later Reliance Communications coming out with a per-second billing in September 2009, which led other operators to follow suit. Similarly in 2006, when BSNL had come with its OneIndia plan, which had the same rates for local and STD calls, it led to a tariff war, with each operator coming up with its own variant of OneIndia, thus leading to death of distance in terms of telecom tariffs. Over time, not only call tariffs, but even roaming, entry charges and SMS rates have come down. The point one is trying to make is that irrespective of the entry of Raja, licensees tariff wars were happening in the country and would have continued. In fact, of the new operators, barring Uninor none of the others are visible through any advertisement campaigns publicising their tariffs. In fact, it would be a good idea to do a quiz programme asking under what brand name does Etisalat market its services.

The contradiction in Sibals assertion that the new operators brought in competition leading to lower tariffs and therefore consumer benefit becomes even more clear since hes already dashed off show cause notices to 119 licensees for failing to meet their stipulated rollout obligations. Of them, 81 licensees are the ones that were given licences by Raja. Its another matter that Sibals ministry only thought of sending these show cause notices when Trai sent it a list of 69 licensees whose rollout was so poor that it recommended that these licences be cancelled.

Sibals eloquence does not end at merely highlighting the fruits of increased competition. He went on to segregate the revenue loss to the exchequer due to Rajas move from the procedural irregularities bit and pronounced his verdict where it suited him, and where it did not, he stated that he does not believe in street justice. So, through his calculations he proved that there was no loss to the exchequer even though the matter is under a CBI probe under the aegis of the Supreme Court. However, when asked about Raja guilt on the procedural irregularities front, he said he does not believe in street justice and the matter is under investigation!

One expected the lawyer in Sibal to know better that any procedural irregularity on the part of Raja would obviously lead to some revenue loss! Or is Sibal trying to eventually prove that Raja was so incompetent that he did a series of things because he was unable to grasp the intricacies of public policy and therefore blundered. However, though the moves were stupid, it did not lead to any revenue loss but in fact led to benefits for consumers If thats the case, then once again Raja was being less eloquent than Sibal while telling CAG that polices are made through trial and error.