Monday, November 12, 2012

Lukewarm 2G bidding shows how wrong CAG was….

The CAG started a vicious attack on the telecom sector (and I use these words carefully) with its bizarre report alleging that the Government lost Rs 1.76 lac crores by not auctioning 2G spectrum in 2008. That vicious attack was followed by the opposition converting the loss estimate to a corruption estimate. It was as if Raja (or the Congress) had pocketed Rs. 1.76 lac crores (and that’s what the common man on the streets today believes). Then the Supreme Court added to the blunder by canceling en masse all 122 licenses that Raja had allotted, putting at risk investments of several corporates as well as India’s image as a safe destination for investments. Foreign investors wont be able to trust even the sovereign Government of the country in the future. All this – and the flawed “revenue maximization” auction policy of the Government – will ensure that the telecom “revolution” and one of the most successful policies of the Government ever becomes a “disappointment” and its biggest failure.

What was it that the CAG had said? That had the Government auctioned 2G spectrum, it could have got Rs 1.76 lac crores? And how did this brilliant accountancy body arrive at this conclusion? By comparing 2G with 3G airwaves. Silly as this sounds now, this is exactly what it did. This was akin to comparing the high-toll expressways with the cheap-toll national highways, forgetting that the two were inherently different value propositions. The expressways were fast, and the few who had a need for speed, would have to pay a high toll. But those who couldn’t afford the high tolls and still wanted to travel could use the cheap-toll national highways. The CAG’s report forced the Government to make the tolls on the national highways same as those on the expressways. Well guess what? The people will soon be forced to stop traveling. They will be restrained to their centuries-old hell-holes rather than being able to explore the delightful new-world of opportunities. For the telecom revolution was just about that; empowering hundreds of millions of poor who no one could help. It was the 2G revolution that lifted them from the morass of inhuman poverty. And now, thanks to the CAG’s obnoxious report, that revolution is about to be undone. Pat yourself on your back, Mr. CAG.

I have written about this earlier. When spectrum becomes so expensive (Rs 14000 crores reserve fees), it leads to an increase in call rates. As rates increase, subscribers start to drop off. Not you and me, but the ones who are on the fringe. Already our subscriber base has come down by some 25 million in the last few months. As subscribers drop off, telecom companies feel relieved of burdensome obligations. They also need lesser spectrum. They start to actively “cull out” low value subscribers. The Government which is now party to this crime can’t push the telcos any longer for “inclusive” growth. The telcos cock a snook at the Government and tell it to decide whether it wants their money or inclusive growth? The poor have no hope. I fear that the subscriber base could shrink to less than 500 million in the next few years.

Of course, the CAG won’t accept its mistake. It didn’t when it ludicrously compared S-band spectrum with 3G spectrum and alleged a Rs 2 lac crore loss. When it realized its mistake, it went silent, but it never apologized. Now again, the CAG won’t apologize. Instead, we can expect it to say that “in 2008, the Government could have got Rs 1.76 lac crores”. Really? The fundamental illogic of the CAG’s report cannot be overturned by such silly assertions. The CAG has to answer itself now. Since it is accountable to Parliament, let is present its defence to Parliament now. Let it explain why its inference – that led to the Government changing its policy of cheap spectrum – was so wrong. Let the CAG address the poor of the country on prime time TV and admit it was wrong and had taken away the powers the telecom revolution had presented them. Like I have written in the past, the CAG has mixed up issues. It has created a concoction of really bad accounting with really strong political ambitions. The institution has been abused to no end.

The BJP also must apologize. The policy it assailed the Government for has been overturned by the Government desperate to prove that it was not corrupt. Had the BJP supported what was primarily its own policy, we would not have had to do this. But the BJP sought to play cheap politics. It somehow made the creative leap of converting the CAG’s “notional loss” into Congress’s “mota maal”. Well, it should be clear now that there was no mota maal there at all. All the slogans they raised – that there was corruption above and below the surface of the earth – are now going to bite them. Because the BJP has to count itself as a party responsible for the destruction of this vital sector. For snatching away the one chance the poor had to help themselves.

The Anna brigade also has a lot to answer. By demanding that all national resources be auctioned, and by demanding that the Government maximize its revenues, they have contributed to encouraging an anti-people policy regime. On the one hand they are solidly Leftist, but on the other hand, and maybe without understanding the issues, they are capitalistic. If resources are to be given only to the richest, then how will new entrepreneurs emerge? Will India forever remain in the grip of the Tatas, Birlas and Ambanis? Will that not be “crony capitalism”?

Where do we go from here? I think the Government needs to take a u-turn. Maybe it should think about “Right to telecom” ahead of “Right to Food”. Maybe it should reduce Reserve fees drastically. Maybe, it should release all the spectrum that was vacated post the SC order. It should adopt auctions as the method for allotting scarce national resources, but it should abandon revenue maximization as its goal. Even the SC hasn’t asked for this. In fact, it has stated that “maximization of common good” should be the primary objective of the Government. Its policies must ensure that the poor don’t have to drop off because of high rates. I will now wait to see how it handles the situation.

The real truth is the failure of the 2G auctions will prove that the CAG, the BJP and the Anna brigade were all wrong. There was no loss when the Government gave away spectrum cheap; no “notional” loss either. It was a conscious Government policy….a policy that ensured that a billion Indians benefitted; most of all the poor. It may not be too late even now. The Government must replace its revenue maximization goal and substitute it with a maximization of the common good…..


  1. Can’t agree more. More than policy wise what govt. did is totally wrong in technology point of view. I have over 50 years of experience in telecom and of which over 10 years in Mobile. As head of technology I have implemented one of the earliest Mobile services in Mumbai in 1995. I had to fight with DOT even for direct connectivity between the GSM operators within Mumbai city. Then, it took almost a year pursuing to allow roaming. I had suggested to do away with Circle wise service area concept and to treat entire country as one service area. It would have save the country billions of dollars in foreign exchange in importing redundant systems.
    Fed up with all these I left the country in 1999, I have been writing to all concerned about the folly of govt. trying to milk the industry with heavy license fee, spectrum charges etc instead of supporting it with all possible sops for quicker growth of telecom. As the author rightly said in every service industry the policy of the govt. shall be people centric not money centric. Govt. should have kept their foot down and rubbished CAG report in the first place. Please see my blogs related to telecom topics in papaulsblog in (1) Who need spectrum?
    (2)It was (is) wrong to sell wireless spectrum by auction or else. (3)The never ending Telecom muddle in India. (4) Segregation of Service Provision from Network operation / Universal Numbering Plan.
    The unfortunate part is the Telcos by themselves did not stand firm and oppose these harmful policies, the media never bother to do any analysis on their own instead just gulping and vomiting back what the self serving politicians feed. I send to almost all news editors but no one seen to care. More painfully, the Hon. Courts do not care to take the opinion of the technology and business experts while looking into such matters.

  2. I read this post comρletely about thе cοmparison of moѕt
    rеcent and еarlier technologies, it's awesome article.
    My blog post ... work from home