All... Interesting article about the difficulty of doing business in India. Didn't Irwin allude to possible expansion of Q's Indian (WLL, I think) trials? Also, I was not aware that there might be a middle class as large as 250 million as stated in the article. Can anyone confirm this estimate?
India Telecom Goals Disappoint
By ASHOK SHARMA
Associated Press Writer
NEW DELHI, India (AP) -- When the Indian government's telecommunications monopoly ended,
big names rushed in hoping to hook a middle class estimated at 250 million people to cell phones,
pagers and basic telephone service.
Four years later, companies like AT (NYSE:T - news)&T, Bell Canada and British (NYSE:BTY -
news) Telecom, all partnered with Indian companies in the telephone projects, are admitting their
dreams were inflated.
They stumbled into a morass of red tape that has delayed the ability to make even the money owed
the government for the right to do business in India.
Telecommunications was the showpiece after India launched economic reforms in 1991, breaking
five decades of socialist-style insularity. The telecommunications monopoly was ended in 1994, and
more than a quarter of the total foreign direct investment in India in 1996-97 of $6 billion was
earmarked for telecommunications.
Among the problems companies like AT&T have encountered is finding that a deal struck with one
arm of government -- the Department of Telecommunications -- didn't clear the way to doing
business. When it came time to lay cables for basic telephone service, the Surface Transport
Ministry asked for fees on top of the license fees owed the Telecommunications Department. When
some companies tried to avoid that extra cost by stringing their lines from existing electricity polls,
the Power Ministry made its own demands.
''Sometimes it takes longer than expected'' to do business in India, said Virat Bhatia, AT&T's
spokesman in New Delhi.
A new government took over in March saying it would concentrate on developing India's
infrastructure. In his budget, Finance Minister Yashwant Sinha promised to cut red tape for
investors and proposed spending 611 billion rupees ($1.5 billion), a 35 percent increase, on what
he called the key areas of energy, transportation and communications. But such pledges have been
made before, with little to show today.
Some things have improved. In 1991, it could take all day to make a phone call from New Delhi to
Calcutta or Bombay because lines were so few. Intercity calls are easier now, but thousands of
villages still have no phone lines. In a country approaching 1 billion people, there are fewer than 18
million telephones.
In the heady early days, says entrepreneur Sunil Mittal, ''every hotel room was occupied by
bankers, consultants and technicians. You couldn't even talk without being overheard by rivals.''
Mittal's Bharati Enterprises, in partnership with Telecom Italia (NYSE:TI - news), launched India's
first private telephone service in early June in Madhya Pradesh state with 2,000 subscribers.
Foreigners can have up to a 49 percent share of Indian telecommunications companies.
Mittal, from a politically powerful family, also runs cellular services in northern Himachal Pradesh
state and in New Delhi.
It took more than three years for even the politically savvy Mittal to get to the first Bharati phone
call. He said it is gradually getting easier to do business.
Corruption has plagued the reform effort, though few people are willing to discuss the issue for fear
of angering government officials with whom they want to do business. Former communications
minister Sukh Ram is suspected of taking bribes in exchange for awarding government contracts --
federal agents raided his New Delhi home in 1996 and found 30 million rupees ($857,000) in cash
and jewelry.
As for cellular, growth of mobile phone subscribers began to slow after reaching 100,000. Revenue
per subscriber was estimated at around 2,500 rupees ($59) per month, but it turned out to be less
than 1,000 rupees per month, said T.V. Ramachandaran, executive vice-chairman of the Cellular
Operators Association of India.
Nearly 8 percent of subscribers don't pay their bills, a higher than expected default rate. The 23
cellular companies operating in India, all partnerships between Indian and foreign companies, have
together accumulated losses of 20 billion rupees ($476 million), Ramachandaran said.
Individual companies won't specify what losses they have incurred because they have not yet been
able to start doing business. And they say they did not expect to make money right away.
Entrepreneurs say their survival depends on the government suspending license fees for two to three
years. Fees vary widely, and are based on the bids the company offered to win the contract. One
company bid 140 billion rupees ($3.3 billion) over 15 years to provide basic telephone services in
Maharashtra state, while Mittal won a similar contract in Madhya Pradesh for just 6.54 billion
rupees ($155.7 million).
''We made a mistake,'' said Ramachandaran, saying investors were misled by India's annual
economic growth rate of 7 percent to 8 percent in the early 1990s.
Growth was 5 percent in the fiscal year 1997-98, the lowest in the last five years. Prospects were
further battered by a sharp plunge in the rupee following international economic sanctions imposed
as punishment for a series of nuclear weapons tests in May. It will be tougher to arrange foreign
funding for projects in India, said AT&T's Bhatia.
Bhatia said the industry was desperate for ''a definite, dynamic gesture'' from the government.
The new government is expected to pronounce in September whether it will give entrepreneurs the
fee break they have requested, a communications ministry official said on condition of anonymity.
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