Fix Problems Before Complete Failure

Posted by Shyam Ponappa at Jul 31, 2019 02:43 AM |
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We need some real solutions on the ground. Examples - Jet Airways post mortem findings applied as the way forward for difficult NPAs; and a radical change of course a

The article by Shyam Ponappa was published in the Business Standard on July 4, 2019 and Organizing India Blogspot on July 5, 2019.


There is much talk about improving the big picture in India. What we really need, though, is some successes on the ground — some actual resolution of problems as building blocks for further success. Two instances are discussed below.

The first is a puzzling business failure: Jet Airways running aground in slow motion. It is already bankrupt, but unravelling the sequence could make such financial predicaments, of which there are many, more tractable. India’s once dominant airline slipped up and, inexplicably, was allowed to collapse. Over 16,000 employees are affected, and India’s airline services are in turmoil. One estimate of liabilities was Rs 26,000 crore.

Why didn’t lenders and government agencies use a combination of executive action, judicial process and bridge financing to keep the airline afloat? Did legal obstacles genuinely prevent resolution? Or was it irresolute collective action, including lenders being gun-shy because of the Non-Performing Assets (NPAs) and witch-hunts, or manipulation, complicity, or vindictiveness? Answers and corrective action could help fix other high-profile NPAs.

The second is a macro-level example from telecom: The mishandling of BSNL and MTNL. Since the 1990s, successive governments have repeatedly attempted to give a fresh impetus to these hapless telecom entities, while depriving them of what could actually have made them successful, namely, strong, informed leadership, with independence/non-interference. Consequently, BSNL’s accumulated losses amount to nearly Rs 1 trillion. This is nearly five times Jet Airways’, and double Air India’s accumulated losses until March 2018, the latter being roughly the size of India’s annual health budget.

Sorting out these infrastructure service problems is crucial because of their effect on everything from security, education and healthcare, to work and entertainment.  If BSNL and MTNL can change course constructively, we may be able to get them off their collapsing trajectory. Resolving this situation would remove severe impediments to our effectiveness and convenience, and an enormous drag on productivity. Connectivity and communications are so critical to social and economic capabilities, and our approach for decades has been so flawed and on a disastrous trajectory, that it is incomprehensible that we should be resolutely following this failing path without changing it. Now, the government is reportedly considering infusing thousands of crores into the same business, together with monetising land and assets.

What Is In The Public Interest?

The first step is setting appropriate objectives for BSNL and MTNL. What public-interest needs do they serve? The communications minister mentioned strategic areas like home and defence, and services for crisis management during times of disaster such as cyclones and floods. Two others that he mentioned appear unjustifiable: That they are national assets, and leading providers of free services. The first is just an assertion, while the second is inappropriate for commercial undertakings. It’s time to drop wishful thinking and take honest stock. For instance, after policy statements supporting spectrum sharing, regulations were framed to be so restrictive as to make it not worthwhile. Instead, policy-makers should set objectives that actually serve the public interest.

Thus far, we have had confused and absurdly contradictory objectives in practice: High government collections from auction fees and charges, while expecting ubiquitous, reasonably-priced, good-quality services. It seems self-evident that such contradictory objectives cannot possibly be achieved. The fact that high government charges deprive networks of funds and increase user costs are documented in the following reports:
A Study of the Financial Health of the Telecom Sector”1 and 

The Impact of High Spectrum Costs on Mobile Network Investment and Consumer Prices”2

Suggested Objectives

A genuine reset could be attempted on the following lines:

  • Connectivity is the most essential objective. The ideal must be balanced with the practical, through trade-offs and phasing. The top cities and clusters have a major share of economic and social activity and are therefore a priority, of which 35-50 may be the fastest growing, with the next 50 requiring attention because of sheer size. For instance, Sweden’s phasing for 2025 is for 98 per cent of the population to have a minimum of 1 Gbps at home/work, 1.9 per cent at least 100 Mbps, and 0.1 per cent at 30 Mbps. But to the extent communications are available in our hinterland together with roads, water and sanitation, activity and prosperity will spread, with less pressure to migrate to urban centres. The longer term objective therefore needs to be good connectivity everywhere (within reason).
  • An equally important objective is to safeguard the public interest, while ensuring good, reliable services at reasonable prices. The question is not whether to shut down BSNL and MTNL, but how to provide the right structuring and support including reskilling and continuing education, so that they participate effectively in consortiums and provide safety, security, and oversight in the public interest.
  • A third is to avoid disrupting markets with unsustainable prices, including free services. Governments have done this repeatedly in telecom, airline and electricity services. It needs to stop. People need high-quality infrastructure for productivity, not shoddy services that undermine productivity and waste their time, pre-empting better services because of low pricing.
  • A fourth is to actively ensure adequate capacity and quality in services to not constrain or waste public resources and potential. This is to avoid the shoddy services referred to above, that are bottlenecks that subvert alternatives as low-priced barriers to competition, through constraining revenues while draining public resources.
  • Finally, we must embrace infrastructure- and spectrum-sharing. Sweden provides a model not only for the European Union, but also for India. Singapore had a model public-private partnership until some years ago, when SingTel, a passive anchor partner, took over OpenNet. We need mandatory active network sharing (including spectrum) through consortiums run by the private sector, with BSNL and MTNL as guardian anchor participants. A report by Stokab in March 2017,3 the City of Stockholm’s IT infrastructure company, provides details of an operator-neutral fibre and mobile infrastructure.

Resolving connectivity problems that affect many people may be more easily doable than, for example, clearing the NPAs, or reconfiguring agriculture.


Shyam dot Ponappa at gmail dot com

1: http://icrier.org/pdf/Working_Paper_380.pdf

2: https://www.nera.com/content/dam/nera/publications/2017/PUB_High_Spectrum_Costs_0517.pdf

3. https://www.stokab.se/Documents/Nyheter%20bilagor/Provins%20rapport%20mars%202017_en.pdf

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