Reliance Jio: A New Test of Cronyism for the Modi Government

Reliance Jio clearly wants to disrupt the market. But the question is whether such disruption will happen in a fair manner where no special advantage accrues to any one player.

Reliance Jio clearly wants to disrupt the market. But the question is whether such disruption will happen in a fair manner where no special advantage accrues to any one player.

Jio Juggernaut: Will Reliance's telecom entry happen in a fair manner? Credit: Reuters

Jio Juggernaut: Will Reliance’s telecom entry happen in a fair manner? Credit: Reuters

The Modi government has publicly claimed that the conduct of economic policy and regulation under the NDA has been even handed and the days of cronyism are over. The first time this claim got tested was when liquor baron Vijay Mallya, a wilful loan defaulter who owed banks Rs.9000 crore, was allowed to leave the country in full knowledge of the CBI and other enforcement authorities. There is a list of much bigger loan defaulters among big businesses who collectively owe banks over Rs.7.5 lakh crore and the market is waiting to see how the government deals with them.

Sometime ago Prime Minister Narendra Modi had also publicly asserted that his government did not make policies for “the Ambanis”. However, this claim too is being questioned as the existing telecom operators such as Vodafone, Bharti Airtel, Idea Cellular and others have openly accused the Telecom Regulatory Authority of India (TRAI) of showing a pronounced bias towards Mukesh Ambani’s Reliance Jio which has entered the market on a trial basis and promises to provide a slew of packaged services, including voice and data, at very high speeds. Reliance Jio has already spent Rs.1.15 lakh crore on this prestige project and the market perceives it as the most ambitious ever to come out of the Reliance stable. In short, it is seen by the Mukesh Ambani Group as a project too big to fail. But the moot point is whether the regulator and policy makers have also started seeing it as too big to fail! That is where the real problem lies.

The Cellular Operators Association of India (COAI) representing the existing telecom players such as Vodafone, Bharti Airtel, Idea Cellular, have  alleged that the telecom regulator,TRAI, has issued an unusually large number of discussion papers over the past few months which seek to review key policy measures favouring a new entrant, which is Reliance Jio. They see the attempt to rush through so many policy papers as being linked to the timing of Reliance Jio launch. The COAI has formally written to the government and regulators saying, “We are shocked that some papers seem to have been crafted and timed to serve the interest of new players, with complete disregard for massive investments made by the existing players…  We hope TRAI would take a more balanced view on issues impacting the entire telecom industry and ensure a level playing field as some of its consultation papers are heavily loaded in favour of new players and point to a bias against existing operators.”

Take one of the more contentious consultation papers issued by TRAI last week. On Friday, the telecom regulator suggested the removal of “inter-connection usage charges (IUC)”, a fee that telecom operators pay other operators while terminating calls that originated on their network (if  a call that originates on Airtel’s network terminates on Vodafone’s network, Airtel would be required to pay Vodafone a termination charge). Last year, TRAI reduced this termination charge from 20 paise to 14 paise and now believes it could be done away with completely. While TRAI’s logic centres around how IP (internet protocols) networks will soon become dominant and the general lowering of call rates, the rest of India’s telecom operators view it as favouring new player Reliance Jio.

Indeed, this is a grave charge levelled against the regulator and the impact of this will be felt on the Modi government in the days to come. It is useful to remember that such bitter corporate wars in high visibility sectors such as telecom have taken a heavy toll of the ruling regime in the past, as seen in the spectrum scam under the UPA.

New minister, new policy

The existing telecom operators have just raised a war cry with their letter to the regulator and have sought a meeting with the new telecom minister Manoj Sinha, who is new to the department. It is just as well that Ravi Shankar Prasad has moved away from the Telecom Ministry because many industry observers had pointed to a possible conflict of interest  as Prasad, a well known lawyer, had held a retainership with the Mukesh Ambani group in the years before the NDA came to power.

If  Prasad had continued as telecom minister he would have been in the unenviable situation of conducting policy adjudication between Reliance Jio and the rest of the industry. Technically, the government can claim that the charges levelled against Reliance Jio is a matter for the regulator to resolve but history tells us that the government of the day does influence the regulator’s behaviour, especially when things get very controversial.

The TRAI on its part has refuted the allegations of bias in favour of the new entrant made by the COAI and said it was merely following its mandate to protect consumer interest and grow the industry in an orderly manner. There will be few takers for TRAI’s claims of innocence. Some veterans of the telecom sector recall how the TRAI had made identical claims in 2001 to 2003 when a similar battle had raged between the existing telecom players and a new entrant — Reliance Infocom. It almost seems like history repeating itself – hopefully not as tragedy.

The cellular mobile industry then was nascent with just voice services and Reliance tried to enter belatedly through the fixed line wirless in local loop(WLL) technology. Essentially, Reliance got into fixed wireless services and then sought to covert that licence into a full mobile services one by arguing that technology had advanced so much that the distinction between mobile and fixed telephony had disappeared. It was seen by most experts as a clever ploy then. Reliance had already got a large number of subscribers and that made it easy for the then TRAI Chiefs M.S.Verma and later Pradip Baijal, to argue that more competition was necessary in a growing market to bring prices down for the consumers. Reliance’s mobile license was regularized upon payment of a fresh entry fee that the other cellular operators had initially paid. The entry of Reliance Infocom, with the offer of free handsets packaged with cheap talk time, did bring prices down. But the manner of its entry remained controversial.

The situation today is not dissimilar. Again, Reliance Jio is trying to enter late with a slew of advanced voice, video and data services. Jio has already got about one million subscribers on a trial basis. It will claim that more competition will bring prices of data services down. There is talk that it will throw cheap tablets or smart phones to grow the smart phone population which is barely 160 million today – as against 950 million mobile subscribers. This would fit in with Modi’s ‘Digital India’ dream!  In short, Reliance Jio clearly wants to disrupt the market. But the question is whether such disruption will happen in a fair manner where no special advantage accrues to any one player. The Modi government will be tested on this one, just as it is tested over the big loan defaulters.