Friday, December 24, 2010

The real truth about the 2G scam

Not many people have understood the 2G scam at all. The media and the opposition parties have of course sensationalized the matter by referring to an arbitrary number of Rs 1.76 lac crores. But lets find out the real truth about this number!

The point that has been made out is that the government (and hence the people) "lost" Rs 1.76 lac crores. Really? The immediate impression created is that politicians have pocketed this amount. The real truth is that telecom companies got this concession from the government. And they passed it on to average consumers in the form of ever-lower telecom pricing. All of us have enjoyed these low prices. These low prices have brought this powerful medium of communication to the poorest of the poor in the country. All of us have gloated with pride when our plumber, driver, maid and shoe-shine-boy have all started carrying mobile phones. This low pricing has made India the fastest growing mobile market in the world. Would all this have been possible if the pricing had been....say Rs 5 per minute?

Telcos have not profited from this. Need proof of this? Check out the profitability of telecom companies. The #1 company Airtel has a decent operating margin (OPM) of around 35%. The 2nd largest company Reliance has less than 10% OPM. Tata Tele and Idea have margins of 15%-20%. These are low margins. So if these companies had made the killing, why is it not showing up? The fact is that they have passed on the gains to the consumers.

This represents the most efficient distribution of public resources. Just imagine if the government had gone about distributing this money out itself? At least 30% would have been lost in corruption!

Yes.....there was corruption in the 2G spectrum allocation. Obviously, some of the shareholders of the new companies made a killing by selling their stakes. Most likely some politicians had benami stakes in these companies. But the scale of the corruption is much much lower. People must understand this. What is made out to be a Rs 1.76 lac crore scam may be no more than a few hundred crores or maybe a thousand crore that's not very sensational is it???!

And that's the real truth behind the 2G scam!


  1. The low pricing, if at all, was the unintended outcome of these deals. It is certainly not a part of a well thought out strategy based on sound economic principles. Also, the fact that 3G services are not really expensive in spite of the mind boggling fees paid by the telecom companies suggests that the rationale does not hold true.

    Unless we strive for ethics in public life and the media acts as a watchdog, we will not progress towards being a 'developed country'. In doing so, the media sometimes goes overboard but that does not mean it is wrong.

  2. Thx for the very first feedback Paritosh! Well, 3G pricing is horribly steep. Minimum outflow for just a few GB of data will run into more than 1000 rupees...this is why it won't be adopted by too many people

  3. That's very well said, actually a new dimension to look at the public distribution system.

    The low telecom tariffs today in isolation, are not sustainable however. Just wait for the MnA policy and we will see going all these up again. Point to note here is that - Convergence will allow companies to sustain. It company will provide all telecom solutions at your home. Your Mobile Phone, Land line, Cable / DTH, 2G, 3G, 4G, Video Conferencing, Video Calls, Wireless broad band, High speed Internet, Remote monitoring, all will be given by one operator. And they will in total charge say some fixed amount per home - ( say some Rs.3500) Everything will be free from counting minutes of usage / Local / STD / ISD. Yes even ISD.
    e.g Tata Docomo has 1 p / sec tariff as Local, STD / ISD to US and UK.
    Regional ISD Tariffing will also come in existence.
    Etisalat - Middle East - Free
    MTS - Russia
    Uninor - Europe
    Airtel - Africa, Sri Lanka, etc. and so on.

    Moreover on 3G, it will not be that steep what it is perceived to be. With ICR ( Intra Circle Roaming) coming in all companies who dont have the 3G license for a particular circle will also be able to provide seamless 3G services on ICR. Remember the older days when, only one state operators were able to give National Roaming by tie ups with other operators.....Its lot happening in telecom here.

  4. Very interesting view. If it is true, for once the public distribution worked well, but only as an unintended by product!

    How, if at all can this be institutionalised, is worth a thought,