While irate opposition members talk about the ‘Himachal’ connection (HFCL’s top brass hail from the state), the basic reason for discontent is the policy of capping, allowing HFCL to choose three circles, resulting in a loss of Rs 20,000 crore to the exchequer. Had the Government asked HFCL to select the circles where it had bid the highest, as it ought to have, it would have to pay Rs 45,000 crore instead of the Rs 25,000 crore it will now pay.
Established in 1987, two of HFCL’s promoter-directors, Vinay Maloo and Mahendra Nahata, are quite clueless about the telecom business. Maloo made a living selling marble slabs and Nahata hawked tea leaves in pre-HFCL days. Only HFCL Managing Director Deepak Mal-hotra has any technical grounding in telecom—he has a PhD in telecommunications from the US. And compared to existing telecom monoliths with turnovers ranging between $2 billion and $70 billion, HFCL—with 1994-95 revenues of less than Rs 100 crore—is more than a little out of league.
In fact, before the basic service bids were opened, none in the tele-com industry had taken HFCL seriously even though it had formed an alliance with Israel-based Beseq and Thailand-based Shinawatra. Against this background the company’s staggering bid of Rs 85,000 crore for nine telecom circles in the basic services tender opened on August 31, came as a complete shock for both Indian and foreign telephone companies in the bidding race.
The unrealistically high bids were the first sign that the entire process of telecom privatisation could be jeopardised. It was obvious that HFCL had bitten more than it could chew and that it did not have the resources to raise Rs 85,000 crore to meet its licence fee obligations. In fact, Nahata confessed as much to Outlook: "The details for raising the money haven’t been worked out."
Even the Telecom Industry Services Association (TISA), of which HFCL is a member, cried foul. Said P. K. Sandell, TISA president: "By quoting such high figures, HFCL wants to keep other bidders out of the race and get the choicest circles. This sort of adventurism will not do."
It was a dangerous game, agreed tele-com company executives, who doubted HFCL’s ability to build and operate nine telecom circles. Said Z.A. Baig, director of Tata Communications Ltd, one of the bidding companies: "Even big business houses like Tatas would be stretched to build networks and offer services in even a couple of telecom circles."
However, HFCL apparently found a saviour in Sukh Ram who announced a cap of three circles per bidder in A and B circles on November 2. HFCL decided to choose Delhi, Haryana and UP (west) circles among A and B circles, for which it was to shell out Rs 25,000 crore by way of licence fees. Industry observers doubted HFCL’s ability to even honour these limited commitments. By then the capping issue became less important as the Communications Ministry announced new rules for the 13-odd circles that it had opened up for rebidding, including reserve prices for each telecom circle. But for the opposition, waiting for an issue for the coming Lok Sabha elections, the bailing out of HFCL has become a convenient rallying point.
But though it may be an issue from heaven for the opposition, their aggression isn’t exactly making the telecom industry jump with joy. Says Sandell: "We hope and pray that the situation in Parliament does not lead to cancellation of the basic telecom tender." About $90 million has already been spent on preparing bids by telecom companies.
"You can’t expect these firms to write off the money," he says. Already the frequent changes in the rules by the Communications Ministry are sending negative signals to foreign telecom companies.
One major grouse of telecom companies is that the tendering process has been bedevilled by a lack of transparency.
While initially there were two dozen-odd foreign telecom companies in the fray, now only five to six remain in the field, thanks to the slow and erratic movement of the bidding process. "Our worst fear is that all foreign telecom companies may return home if the telecom privatisation process is politicised any further," says a top executive from a telecom TNC. That isn’t quite what could be called a good turn of affairs.