India Week continues at DTW

This is turning into 'India Week' here at DevelopingTelecomsWatch. Today's musings begin by revisiting yesterday's discussion here about the imposition of Mobile Number Portability (MNP) in the country. We will also consider - not for the first time - the ways in which the Indian Government's concerns about national security might lessen the appeal of this vast, growing market for foreign telecoms groups.

The reason we are returning to the MNP debate so quickly is that yesterday saw an open house discussion in Hyderabad on this theme. Hosted by the TRAI, India's telecoms regulatory body. This rejoiced in the snappy title 'Determination of Port Transaction Charge, dipping charge and porting charge for mobile number portability'. The surrounding media coverage provides more information on the range of concerns expressed by India's cellcos.

Speaking to an Economic Times reporter at the workshop was TRAI Chairman SJ Sharma, who said he expects MNP to go live on December 1st. While Sharma is confident that his agency will have its MNP regulations in place by the end of August, he expressed the belief that some of the operators do not seem to have ordered enabling equipment yet, meaning that a delay of 2-3 months is likely.

Yesterday, ahead of the Hyderabad discussions, we considered the estimated cost one operator had calculated for the implementation of MNP. State-owned BSNL had come up with a USD 250 million estimate, complaining about this cost in light of its contention that only 2% of "elite customers" are likely to use the facility.

Today, drawing on an article from K.V. Kurmanath of the Business Line, we can see how BSNL's numbers stack up against the estimates of some of its competitors in the mobile space.

Reliance Communications, and Tata Teleservices have indicated that they expected MNP-related expenditure to the tune of USD 20.6 million each. Vodafone India has come up with the much larger figure of USD 72.3 million. Much lower numbers than those mentioned by BSNL, then, but still pretty significant sums of money. I invite anyone with a view on this to offer an explanation for why this set of estimates varies so much.

"The regulator asked the service providers to send in their points on these issues by Tuesday," Mr T. R. Dua, Deputy Director-General of the Cellular Operators’ Association of India, told Business Line, whose article states that "keeping in mind the huge expenditure", the telecos want the TRAI to ensure that they are compensated for their "huge investments".

Let's see, then, if December 1st really is the date after which Indian mobile users can elect to switch their cellular providers while keeping their phone numbers.

In the meantime, I want to consider once again how the Indian authorities' concerns about national security are impacting on the telecoms sector.

In a recent piece here about worldwide developments across the footprint of Scandinavian telecoms group Telenor, I noted that the company had been facing difficulties around establishing a controlling interest in Unitech Wireless, the start-up Indian cellco in which it currently has a minority stake. For India's security agencies, the stumbling block was Telenor's presence in Pakistan and Bangladesh - apparently a cause for concern in light of strained relations with both of these neighbouring countries.

Telenor's immediate problem appears to have been resolved with the Indian Home Ministry's suggestion that security clearance for a bigger stake in Unitech Wireless up could be provided on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation are employed in India. Other security concerns affecting the telecoms sector more broadly, however, continue to be aired pretty regularly.

For example, all telecoms firms present in India may find themselves subject to further personnel restrictions. Late last week, Joji Thomas Philip of the Economic Times wrote that India's intelligence agencies now want all telcos to have a native Indian in the post of Chief Operating Officer. At present, only operators' CTOs need be a resident Indian citizens, while foreigners are allowed to hold all other key positions such as Chairman, MD, CEO and CFO, subject to clearance from the Home Ministry on a yearly basis.

If enforced soon, this proposed new regulation might not make a big impact right away because, as Philip notes, none of the existing telcos currently has a foreign COO.

This is not to say that such restrictions will have no impact, however. An article in today's Financial Times goes as far as stating that such stringent personnel requirements would lessen the appeal of India for foreign strategic investors and will restrict the freedom of companies already operating in India to make use of existing foreign expertise within their global organisations.

The article also contends that such restrictions on management positions could complicate corporate merger and acquisition activity such as Bharti Airtel's planned tie-up with MTN, the South African telecoms firm with interests across and beyond Africa. This would just add to the concerns of some analysts who are already sceptical about the wisdom of that proposed deal for Bharti Airtel shareholders. On Monday, India's Financial Express noted that day's 4.8% drop in the market-leading cellco's share price, which seems to have been triggered by worries that the company will increase by 5-10% its offer to buy a stake in MTN. The article quotes Sonam Udas, VP Research at BRICS Securities, who says: "we don't understand the logic for this deal at all. Why does Bharti want to change from a company with a net cash position of USD 1 billion to a debt-ridden firm? We do not buy the argument the deal is going to add value. There is nothing in the deal to highlight as adding strategic value."

Operators may not be the only telecoms value chain participants affected by the Indian Government's security concerns. Joji Thomas Philip writes that the Home Ministry fears that "suspect vendors may install back-door entries, remote logic facilities and also design Trojan horses in networks and hardware. This could be used to remotely bring down the network or to monitor it." Philip states that the agencies are particularly concerned about Chinese vendors.

One definite casualty of all this worry about national security is Swiss-registered firm ByCell. On Saturday, the Economic Times confirmed that after much wrangling, the company is to be prevented from entering the Indian mobile services market, with security concerns about the company and its shareholders being the deal-breaker.

A busy week for Indian market watchers so far, then. Let's see if the rest of the week has enough action in store to warrant another look here at DTW.

India Week continues at DTW