By Rajat Kathuria
for several years following the liberalisation of the telecom sector in 1994, the ‘separation of powers’ (SOP) principle was met only in breach and was one of the major areas needing urgent attention. Telecom, like all other utilities, requires investments in large, durable assets with significant sunk costs. SOP,unnecessary for a government-mandated monopoly, became compulsory once private sector investments were sought. This change was first set out in the National Telecom Policy (NTP) in 1994, which stated that in order to realise the goals of India’s new economic policy (1991), and to build a world class telecommunications infrastructure, private investment was key, and, in turn, required setting up of an ‘independent’ regulatory body, the Telecom Regulatory Authority of India (TRAI).
The early architects of telecom reform recognised the politicised nature of the sector and were justly persuaded that the gradualist model would work best for India. Implementation of the 1994 policy was thus left to the Department of Telecommunications (DoT) to choreograph. DoT, who had been regulator, policy maker and service provider since independence, naturally misused the faulty institutional design to give itself many privileges over private operators, who had just begun commercial operations. This is, of course, well known, having previously been stated in this column itself (https://bit.ly/2IJ9jlI). But, here is the point. Inevitably, the operations of this institutional ‘jugaad’ ran into problems. In the litigation that followed, the Supreme Court declared that there had been delay on the government’s part in establishing an independent regulatory agency.
One could be gracious to the government and argue that the delay was planned; had the government adopted the Anglo-Saxon SOP model in 1994, at a time when there was almost no tradition of independent regulation in India, it might well have been accused of selling out to foreigners. Instead, it allowed an institutional equilibrium to emerge that derived its legitimacy from the local context, and that mimicked the model of independent regulation made popular by Anglo-Saxons for the telecom sector at that point in time. Thus, SOP was eventually achieved by creating TRAI separate from service providers, by limiting DoT to policymaking and by creating an appellate tribunal (TDSAT) that resembled a judicial body in form and character. The ‘unbundling’ of the erstwhile public-sector monopoly was complete—SOP, with an irrefutably Indian personality was achieved, in theory if not in practice.
Prior to TRAI’s entry, mobile telephony was the preserve of private players and peak mobile tariffs were extraordinarily high—Rs 16.80 for both incoming and outgoing calls. DoT had perhaps intended to price the private entrants out of the nascent market but underestimated Indian ingenuity. The excessive price inspired the Indian consumer to be thrifty. Thus, ‘missed calling’ became a necessity with pre-set interpretations of number of rings and timing of calls. While India now has one of the lowest tariffs in the world,it is still the ‘missed-call’ capital of the world.
Structural reform of the sector has no doubt borne much desired dividends, alongside offering rare insights into our political economy. Meanwhile, and relatively unobtrusively, the foreign direct investment (FDI) regime for the sector has been liberalised to keep pace with structural reform. The caps on the maximum foreign equity participation in telecom companies incorporated in India have been gradually eased. In November 2005, the Government, through Press Note 5 of 2005, raised the FDI limit applicable to the sector from 49% to 74%, subject to compliance with certain conditions, including that the majority of the directors, and selective key senior management personnel be resident Indian citizens and that a resident Indian promoter hold at least 10% equity of the company. In August 2013, 100% FDI in the telecom sector was permitted for all services. Cumulative FDI inflows to India in the sector until June 2018 were over $31 billion.
As Indian telecom liberalised, it became a darling with foreign telcos wishing to offset slowing growth in their home markets. Over the years, many came and exited while others came and stayed and, if you will, conquered the market. SingTel and Vodafone invested in India directly or through local operators. On the other hand, AT&T, which previously owned one-third equity in a telecom joint venture, exited along with Telenor, Swisscom, Belgacom and Japan’s NTT DoCoMo. Recently, Vodafone India merged with Idea Cellular while Bharti Airtel continues to be backed by SingTel. Reliance Jio’s success lies, in large part, in alliances—such as those with BT Group Plc and Deutsche Telekom AG among several others. Equipment makers Huawei, ZTE, Alcatel, Nokia and Ericsson have been the source of advanced technology while IBM has been a solutions provider to many telocs. Thus, it would not be an exaggeration to assert that behind every successful Indian telco there is a foreign hand! As a corollary, one could assert that Indian computer scientists and coders have played key roles in many telco successes abroad.
Structural reform expressed in the SOP principle and liberalisation, manifested in easing FDI norms, jointly transformed telecoms in India. Besides a billion-plus mobile subscribers, there are over 600 million internet users, of which 493 million use the internet regularly. Smartphone ownership is a staggering 450 million and rapidly growing. On social media, India surpassed United States in active Facebook usage (260 million vs 190 million). Instagram, a rising social media platform, has an Indian user base of 72 million. The rising tide of Instagram Influencers in India helps brands grow awareness and, increasingly, drive sales. LinkedIn, with 56 million Indian users, has facilitated job market search and matching. From being the missed call capital, India is well and truly ‘posing’ to become the selfie capital, embracing, regrettably, its dark side as well. But, let’s keep that story for another day.
The change in Indian telecom, especially for those who lived through the 1980s and 1990s, has been spectacular and offers vital insights, which can be usefully transported to present-day India even as the new government attempts to shape the future of emerging sectors of the economy. The primary lesson is this—a collaborative strategy that combines respective comparative advantages of various actors across space (and time) works better than an ‘India-first strategy’. To use a hackneyed turn of phrase, India will become first if it adopts a collaborative rather than a protective approach. Lest we be deliberatively misunderstood or misinterpreted, collaboration does not mean throwing India under the bus or selling out to foreign interests; rather, it implies recognising our negotiating strengths and doing what’s best for collective welfare. Cambodia, Vietnam and Indonesia, among other countries, are waiting and watching for us to move the wrong piece. But, if we make the right move, as the poet Majrooh Sultanpuri reminds us, we will be joined by others to create the extensive agglomeration effects mentioned in this article. ‘Main akela hi chala tha janib-e-manzil magar, Log saath aate gaye aur karwaan banta gaya’.
Ankitaa Sharma, research intern, ICRIER, assisted with the article