Telecommunications Industry in India

State, Business and Labour in a Global Economy

Dilip Subramanian

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138552531
• eBook ISBN: 9781351374132
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Business History
• Index: Technology & Engineering

Telecommunications Industry in India represents the first comprehensive study of a state-run enterprise in the telecommunications industry. The study traces over a period of half a century (1948-2009) the growth and decline of Indian Telephone Industries (ITI). At the heart of the monograph stands one central interrogation: How does the socio-technical system of production in a state-controlled firm shape the relations linking the four main actors: the state, management, union and workers? The original contribution of this book lies in combining business history and labour history within a single conceptual framework. The author evaluates the broader conclusions about the telecommunications industry and public sector through the lens of an individual firm to arrive at a more nuanced understanding of the dynamics of change in the globalizing Indian economy. The work is well in command of the literature on the global business history counterparts of ITI in the telecommunications industry. It is further strengthened by the use of French material on the subject which is now accessible for the first time in English.

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chapter one

Construction of a Monopoly

In line with the objectives of the ruling elites seeking to establish a ‘mixed’ economy regime, the first Industrial Policy Resolution, issued in April 1948, identified six industrial sectors deemed to be of national importance. In these sectors, the Indian state reserved for itself the exclusive right to start new ventures if it so wished. One of these was the production of telecommunications equipment.¹ Accordingly, in July 1948, the government founded ITI, making it the first public sector unit to be established after Independence. Protected from internal competition following the government’s decision to exclude the private sector, ITI would also be protected from foreign competition, owing to the stringent restrictions enforced on imports. In other words, tariff barriers would supplement politico-legal measures to entrench its monopoly.

Organized at first as a departmental production unit of the Department of Post and Telegraph (P&T) which was itself attached to the Ministry of Communications, ITI was incorporated as an independent enterprise under the Companies Act two years later with an initial authorized share capital of Rs 25 million. This would be raised subsequently to Rs 40 million of which the government of India owned 89.7 per cent, the Mysore state government 7.8 per cent, and the English company and ITI’s first technology partner, Automatic Telephone and Electric Company (ATE), 2.5 per cent.²

Contrary to any outward impression, the transition from a department under the control of P&T to a full-fledged commercial company, while marking a formal change in ITI’s status, did not bring about any transformation in the relations between the two organizations. It continued to remain under the administrative authority of P&T whose representatives sat on the ITI board of directors to whom the management was now officially responsible. Moreover, what distinguished ITI from practically all the other public sector enterprises, with the exception of companies producing defence equipment and fertilizers, was that P&T was not merely its parent body. It was also its sole customer. This would have significant implications for the functioning of the company throughout its existence.

The objective of setting up ITI had been to fabricate the equipment P&T needed to equip the national telecommunications network with. Inversely, ITI was the sole supplier of equipment to the state carrier.³ This relationship of a monopsony-monopoly type in which the two sides were entwined thus gave their dealings a unique character, generating a sense of mutual dependency and symbiosis. It would take the onset of deregulation four odd decades later for these bonds to begin disintegrating. But while overall the power ratio may have favoured P&T, we must be cautious not to overemphasize this point. As the exclusive supplier of equipment, ITI too possessed adequate resources to ensure its own interests were not compromised. While it was, no doubt, unable to make its voice heard on issues of strategic importance, on operational questions at least, it could leverage its monopoly position. It could, therefore, not only extract concessions from the parent concern but also negotiate a definition of the situation that did not operate entirely to its disadvantage. The very fact that P&T had no choice on several occasions but to downgrade its quality norms and accept sub-standard equipment that the company produced itself demonstrated that the scales of power did not systematically tilt in the direction of the tutelary authority.

This cosy arrangement offered, at least on paper, appreciable benefits for both P&T and ITI. The latter was assured of a buyer for the totality of its output, as well as an unbroken even growing demand given the continuous expansion of the national network, thereby allowing it to operate in conditions of relative stability. If anything, lacking sufficient capacity, or failing to utilize it optimally, the company often struggled to meet P&T’s requirements, obliging the latter to go in for imports with World Bank-backed financial assistance.⁴ A practice of advance payments whereby ITI received, during the first half of the financial year, 50 per cent of the value of the total annual budgeted production also reduced the obligation to obtain working capital from external commercial sources.⁵

In addition, the cost-plus pricing system devised by P&T to govern its commercial transactions with ITI guaranteed the company healthy profits regardless of its production expenses. While this arrangement had the merit of encouraging supplier transparency with regard to production costs because the supplier was assured of generating profits, it also contributed to waste and, more generally, to low levels of cost consciousness and efficiency. The report submitted by the high-power Committee on Telecommunications (also known as the Sarin Committee) to the government in December 1981, in fact, categorically declared that the ‘present system of pricing should be given up as this has an imperceptible but growing deleterious effect on … efficiency …’⁶ Initially, profit margins on equipment sales to P&T were fixed at 7.5 per cent before being hiked to 10 per cent in 1961, the figure staying more or less flat thereafter until 1986 when the ministry introduced a new pricing policy.⁷ Not surprisingly therefore, the first time that ITI recorded losses in its history was in 1994–95 after deregulation had blown away its monopoly privileges. To cite a former ITI executive,

P&T only checked how we arrived at our costs. Its cost check units would verify prices of all components. But there was no auditor to determine whether and by how much we could reduce our costs.⁸

From the standpoint of P&T, full ownership of a captive industrial arm represented no negligible advantage either. Even the feeble moves initiated by ITI management to lessen its dependence on the state carrier by diversifying its revenue base, encountered strong opposition from the latter. Above all else, ownership of ITI paved the way for vertical integration, albeit of a bureaucratic variety. Since the company catered exclusively to its demands, P&T could make sure that the entire output was closely calibrated to, and technically fully in conformity with the requirements of the national network. In turn, ITI’s familiarity with the workings of the network meant that it could respond easily to its parent’s exigencies, thus bringing down transaction costs. Then, it enabled P&T to pool its resources with those of ITI, as well as coordinate and monitor their deployment more effectively. This point is well illustrated by the indigenous development of a fairly wide array of transmission equipment, owing to which the country could largely dispense with foreign technological inputs during the initial years. Next, a vertically integrated configuration provided P&T with a great deal of flexibility. The manufacture of transmission equipment again serves as a good example. Indigenously conceived designs lacked the sophistication of foreign ones, and P&T engineers frequently revised specifications, based on field reports of product performance, which in turn often imposed a stop-go rhythm on the ITI manufacturing schedules.⁹ Such customer-induced interruptions of production flows would in all probability have been resisted by independent suppliers, but ITI, as a captive unit of P&T, had no choice but to bow to the wishes of its owner and principal buyer. Indeed, a former chairman of the company, who had spent his entire career with P&T before coming to ITI, accused the parent authority of treating ITI as its ‘personal workshop’.

They (P&T officials) would ask ITI to make anything they had difficulty in making or were importing. For example, they found it difficult to import the clocks with telephone exchanges which measures conversation time. They asked ITI to manufacture it … The utilization of manufacturing resources was entrusted to P&T rather than ITI … The demand from P&T was such that it would distort any sensible production planning. You have to have production runs which are economical, but it was not so.¹⁰

Finally, backward integration by P&T facilitated, to some extent, the circulation of information. Systems engineering for strowger automatic exchanges, for instance, a task vested in the hands of ITI until P&T’s own research cell, the Technical Research Centre, took it over in the early 1970s, called for the smooth exchange of information in both directions.¹¹ Based on the data furnished by P&T on the total number of exchanges required for a given geographical area as well as estimates of traffic volumes, ITI had to actually design the exchanges, determining the exact number of switches and the types of switches needed, the number of racks, and so forth. Known as a trunking diagram, this blueprint would then be submitted to P&T, and only after it had given its approval could production commence. Communication lapses could either lead to production shortfalls or the supply of wrong kinds of equipment, and as a result, delay the commissioning of new exchanges. Errors in communication could therefore prove to be costly and had to be kept to a strict minimum.

Were the two key features of the market that we have identified, monopsony-monopoly relations and vertical integration, particular to India? The answer is no.¹² Identical conditions prevailed in the telecommunications sector in the USA, Canada and Italy Prior to its dismantling in 1984, AT&T, for example, depended totally on its industrial affiliate Western Electric to turn out the full gamut of equipment the private American monopoly needed for the provision of economical services. At the same time, much like ITI, Western’s monopolistic advantages were tightly interrelated to the fact that it could not accept work from any other customer barring the US defence forces, and even here, parent AT&T often voiced strong objections.¹³ Across the border, Bell Canada operated in roughly the same manner, buying most of its equipment from subsidiary Northern Telecom.

Though the pattern in the other developed countries diverged somewhat from that of North America, it must not be forgotten that there too in the high noon of dirigisme, national telecommunications agencies by virtue of their monopolistic positions inevitably ended up being monopsonists. Second, even if vertical relations of a formal, institutional kind did not exist, national carriers generally tended to restrict the purchase of equipment to a small and select network of suppliers who usually shared the orders between them on a non-competitive basis.¹⁴ In turn, the latter, capitalizing on their long-standing relations with the telecommunications carriers, acquired an intimate knowledge and experience of the structure and functioning of the network and so could easily adhere to the specifications, hence managing to considerably reduce transaction costs for their main customers. As Mark Granovetter asserts, it ‘takes some kind of “shock” to jolt the organisational buying out of a pattern of placing repeat orders with a favoured supplier or to extend the constrained set of feasible suppliers’.¹⁵

If the protectionist policies followed by domestic carriers, plus the oligopolistic nature of the telecommunications manufacturing industry, partly accounted for the privileged commercial linkages that united buyers and suppliers, other factors also militated in favour of such a development. The technical complexity and scale of the equipment, the relatively high level of investments involved, the need for new switching gear to be compatible with the existing exchanges, supplemented by the fact that the equipment would be inducted into publi...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Tables
• Acknowledgements
• Introduction
• 1. Construction of a Monopoly
• 2. History and Politics of Technological Change
• 3. The Burden of Monopoly and State Regulation
• 4. The Advent of Competition: A Fallout of Global Telecommunications Deregulation
• 5. Market Forces in Full Play: Management Gains or Losses for Labour?
• 6. Spheres of Practice: An Ethnography of Printed Circuit Board Assembly Work
• 7. Workers and Independent Unionism
• 8. Rank-and-File Challenge to Union and Management Authority
• 9. Passions of Language and Caste
• Conclusion
• Epilogue
• Index