Discomgooglation: The feeling of distress or anxiety when unable to gain immediate information access. Inadequate dosage of daily internet access because of a faulty data card and the eventual relief once it started working made me realize that I am not too far from experiencing the symptoms of discomgooglation. Many things have happened since the previous post on the blog leaving me with no dearth of ideas to pen my thoughts on. Between the final 2 viz., the facebook phone and the lost billions due to 2G license sale, the quantum of the lost billions prevailed. This was not merely because of the policy decisions that led to it but also because of the far reaching impact it may have on the forthcoming 3G spectrum auction. This post is not about the classic Raja Vs. Maran comparison that the media is so fond of. Frankly both of them in their own merits have been India's best telecom ministers till date. If Mr.Maran was credited with lowering the overall call rates and fostering telecom equipment manufacturing in the country, Raja in his term should be credited with fostering competition and taking the biggest leap forward in comparison to his predecessors on the 3G spectrum auction - Unfairly though, his success or failure will eventually depend on whether he can successfully oversee the 3G auction as a telecom minister. India saw unprecedented growth rates during the term of these two individuals - 10 mn users a month - something we may rarely get to see again. No matter what be the case, the talk of a huge loss to the public exchequer by giving away 2G spectrum for free along with licences at prices that prevailed in 2002 is something which will always haunt Raja.
It all started when he took over the reins as Indian Telecom Minister from Dayanidhi Maran in 2007. After close to 5 months of "successfully" renegotiating the price for BSNL tender of 45 million lines, eventually saving Rs. 1500 crores (during which BSNL conceded its second position in the market to the then, Hutchison Essar), he set his sights on increasing the competition in the industry before setting the 3G ball rolling. This because it was felt that in the present market condition where 3 private GSM and 2 private CDMA operators were holding the aces, a spectrum auction may not yield "right" valuations. The two areas where he got it wrong were deciding to give away 2G licences at prices prices that 2002 and the much reviled First come First served basis of allotting licenses - both of which will be discussed later. What followed was mad rush for 2G licenses. From Realty to Retail, from consumer electronics to power, companies from every sector suddenly wanted a share of India's telecom pie. Selling licences at Rs.1651 crores and getting spectrum for free didn't look like a bad deal when many foreign players with big pockets were waiting for an avenue to enter India before the 3G auction. No one till date thought so much spectrum was ever available. We may never get to know the truth behind Maran's comments about spectrum shortage.
Between the allotment of licenses and spectrum, the recession factor kicked in much to the dismay of Raja. Once the new players were starting to receive spectrum they were promised, players like Unitech and Swan duly sold stakes in the to Telenor & Etisalat which eventually valued their companies 7-8 times the price they paid for the license 6 to 8 months ago without even commissioning a single tower. It would have been double those valuations, if credit was much easily available. Considering the above valuations, a conservative estimate is that there is a loss of close to Rs.60000 cr to the exchequer. The figure is made to look even bigger by comparing it with India's current year fiscal deficit at Rs.130000 cr. But before accusing an outright scam one must understand what sort of a market structure are we looking at had it been a 2G auction scenario
With India's top business houses and world's largest mobile operator among the top 5 players in an Industry where scale economies are the order of the day, an auction for 2G spectrum would never have been an attractive proposition for a new player. An under priced license along with free spectrum gave a new player some incentive to test the waters in unknown shores which in turn guaranteed government definite revenues through license sale. I'm thoroughly of the view that a reviewed license fee along with free spectrum should have been the way forward and that is where I repeat the government got it wrong by selling license at 2002 prices and deciding that allotment will be on a First come First served basis. A reviewed license fee would have covered much of the losses that are being projected today and with more competition during 3G & BWA auction, government would have realized much better value. But with a recessionary market scenario, the spectrum may never meet its correct valuations - yet another case of noble intentions falling by the way side (remember the BSNL tender sale). The Ministry has now proposed measures like one time fee on operators holding more than 4.4 Mhz of spectrum, higher revenue share, definite lock-in before stake sale, disengagement fee for majority stake sale etc. some of which can be challenged legally because contracts cannot be changed retrospectively.
Raja's assertions of a better valuation for 3G spectrum due to 2G license sale will be thoroughly tested in the future. One wonders how would the scenario have been had the Ministry revalued the 2G license fee, had the TRAI been more clear in its recommendations about first come first serve basis, had the market not slumped - all these would have stood testimony to "noble" intentions of Raja. Maran learned it before, and Raja is learning it the hard way now, that good intentions do not always mean good outcomes.
