With the waves of economic liberalisation that swept the country in the early nineties, it was felt by the planners that telecommunications would be an important sector for private sector participation. The status then was that India had a teledensity of 0.8% way below some of our other South Asian neighbours and not to speak of world average of 10%. One would recall the long waiting period of several months if not years in some cases, the ‘tatkaal’ connection which came at a premium of Rs 15,000/- since exchanges did not have capacity to dole out connections on demand. This lead to a huge waiting list of nearly 2.5 million phones every year and demand always outstripped supply. Rural connectivity was also very poor and only 25% villages had access to telephone facilities. Looking at this grim situation, telecom services were given national priority status for increased economic development. It was felt that all different services available internationally should be available in India too. Some early signs of these services being available in the country did show up in limited pockets restricted to the metros, leave alone any other cities and towns. However, once the plan targets were revised, it was seen that there was a huge resource gap which could be bridged only with private sector participation. Thus telecom services provided a great opportunity for the private sector and threw open the sector to foreign investment in keeping with the economic reforms drive the Government had undertaken. The National Telecom Policy 1994 was thus announced which allowed private sector entry into a Government dominated sector and tenders were floated for selection of players for Basic and Cellular Mobile services in early 1995.
After inviting bids for services from the private sector with compulsory collaboration from foreign service providers, the Government in 1995-97 period was able to award 8 metro licenses alongwith 34 circle licenses for cellular mobile services and was able to issue only 6 licenses for Basic Services. Competition was restricted to two private players for mobile services from the private sector, whereas a single private player in Basic Services to compete with the Government who provided these services then. Huge bids were made by the award winning licenses since attractiveness of the bid was one of the important criteria. Stringent conditions were levied on operators who had to rollout their networks in a time bound manner and start generating revenues to pay their annual license fee dues. Ultimately, network rollouts got mired in various procedural bottlenecks as the Government authorities slowly learnt how to “liberalise” and let go of their ‘super-power’ status. As a result, the actual revenue realisations were well short of expectations and the projections on the basis of which bids were made to win these licenses resulting in operators being unable to arrange finance for their projects and complete rollouts. After seeing the problems the private operators had landed into, the Government took a macro-level decision to allow for mid-course corrections and allowed a bailout.
Snapshot of Telecom in India (prepared in Feb ’04)