Phone firms wary in Indian regulatory void
Thursday, May 6, 1999
TELECOMS
BLOOMBERG
Distacom pumped US$300 million into four Indian
mobile-phone ventures, lured by a market of about one
billion people with only two phone lines for every 100
persons.
Now, the Hong Kong-based company says it will not
spend much more until India's bureaucrats stop being
distracted by politics and define new regulations for the
industry.
"If India doesn't come up with a [phone licence] policy
soon, they'll really open the door for anarchy," with
companies shifting money to countries that are trying
harder to attract foreign investment, said Richard
Siemens, Distacom's chairman.
As India's third national elections in three years puts
policy decisions on the back burner, some of the more
than 35 phone companies that have invested about $1
billion in networks in 130 cities in the past decade may
give up, following in the footsteps of Swisscom,
Switzerland's No 1 phone company, which sold its
stake in its joint venture.
Like Distacom, they overestimated the amount of
money they could make in India - with the revenue
shortfall at as much as $120 million a month - and paid
exorbitant fees to the government for phone licences.
Phone companies - including British
Telecommunications and AT&T, which owns 49 per
cent of Indian phone company Birla AT&T - had
expected the attorney general to help them re-negotiate
their fees this month.
The fall of the Bharatiya Janata Party-led coalition
government may put that on hold until the elections in
September.
Meanwhile, licence fees due to the government have
reached $700 million, and that number grows every
year even as none of the phone companies is making
any money yet, analysts said.
Distacom owns 49 per cent of Modicom Network,
which runs two mobile-phone companies, in the
northern state of Punjab and the southern state of
Karnataka.
It also owns 20 per cent of a cellular-phone company in
Bombay and 25 per cent of another in Calcutta. All the
ventures are losing money.
If there is no decision until September, some phone
companies will probably go out of business because
they are losing money and cannot get new money, Mr
Siemens said.
"A lot more guys are going to start to fall over," he said.
"Whether you are an investor or you are a banker there
is no way you can move until you know what the rules
are."
Armed with huge growth estimates, most phone
companies bid too much for 10-year licences to
operate.
Now they cannot afford to pay their fees as
bureaucratic barriers, weaker than expected economic
growth and demand for cellular phones, has made
business less lucrative than they had hoped.
Some investors predicted an estimated two million
cellular subscribers would spend about 3,000 rupees
(about HK$544.26) a month on calls by now; only one
million Indians have mobile phones and they spend
about 1,000 rupees a month, analysts said.
The confusion in the telecoms industry comes even as
India says it needs at least $26 billion every year for the
next four years to build its ports, roads, power plants
and phone lines.
India's phone-service industry had sales of more than $6
billion last year and is expected to expand more than 10
per cent a year for at least a decade, but the flow of
new investment has slowed because firms cannot risk
losing money on policy changes.
"It's almost the nadir" for the industry, said R.
Amarnath,an analyst at ABN Amro Asia Equities. "You
can't mess up things worse than they already have."
Granted, if regulators can move forward in the midst of
political instability, India's market will attract billions of
dollars in investment, investors said.
"We would definitely look at one or two other projects
and expand our base if we knew what the rules were,"
said Mr Siemens.
He said that, even with elections looming, the
government may announce a new arrangement with
private telephone companies by the end of this month.
He expects the government to reduce the licence fee by
asking companies to pay only for the first two or three
years, rather than the 10 years they had originally
planned. After that, phone companies may have to pay
the government 10 to 16 per cent of their revenue, he
said.
He said that with clearer, investor-friendly policies and
more wooing of foreign investment as the mainland has
done in other areas, the number of cellular-phone users
in India could rise to five million.
"With 950 million people and a virtually untapped
market it's one of the most promising markets in the
world" along with the mainland, he said. "China is taking
advantage of that and India has its head stuck in the
sand."
Copyright (c)1999. South China Morning Post Publishers Ltd. All Rights Reserved.
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