Monday, March 11, 2013

Yet another telecom auction failure points to wrong government policies….

The 800 KHz CDMA spectrum sale has come acropper. This follows the repeated auction fiascos in the GSM arena in which spectrum has gone abegging. The problem clearly is the pricing formula. The pendulum has swung the other way. First it was a case of spectrum being given away too cheap; now it’s the reverse. The government claims its hands are tied by regulatory diktats. While it is true that havoc has been wreaked in the sector by the CAG, and to some extent by the SC, the government cannot wash its hands off its responsibility.

It was the CAG which start the murder of this vibrant “revolutionary” sector by sensationalizing imagined (fashionably called “notional”) losses incurred by the exchequer. The CAG broke all rules of even basic accountancy. It forgot (repeatedly, in many cases) to “discount” “future values” to arrive at the “net present value”, something even a first year BCoM student will know of. It failed to appreciate the difference between “selling equity” (in which the seller takes money home) and “issuing fresh equity” (in which the money comes into the company; to be deployed in roll-outs and operations, as happened with Telenor-Unitech). It benchmarked 2G spectrum values on the much more efficient and pricier 3G spectrum, leading to the figure of a crazy Rs 1.76 lac crores. All this points to just plain incompetency of the CAG, who incidentally, cannot be sacked because the impeachment process requires the support of the BJP in Parliament. And why should the BJP be so noble as to let go of this great chance to smear muck on the face of the Congress? That brings me to the political part. The CAG is rumored to have struck a deal with the BJP about being given an important post in the government should it come to power (see Murli Manohar Joshi’s telephonic chats in this context). Not surprising then to understand the zeal and gusto of the auditing body – addressing press conferences one after another in a never-before-done manner; and doing nothing to squash the unjustified leap made by political opponents of the Congress to equate the loss with corruption. Remember Sushma Swaraj called this “mota maal”? The CAG basked in the glory that such obnoxious reports brought it, even addressing a foreign audience in the US and furthering his attacks on the government. This was pure politics, not auditing at all.

The Supreme Court also got taken in by the “public sentiment”. By the way, public sentiment appears to be driving a lot of constitutional bodies in our country these days. When the Delhi gang rape protests were going on, the demands were that the perpetrators of the crime be instantly hanged. Well one of them did hang himself yesterday. It’s a shameful incident really, but I cannot be sure if this hasn’t caused a lot of joy in the aam junta. To a large extent, the public sentiment has also led to the government agreeing to – at least partially – with the death penalty in rape cases, thus equating a rape with a murder and perpetrating the orthdox viewpoint that when a woman’s body is vitiated, her “honor” is lost. Crazy. Well, in the 2G case, the SC was also influenced by the public sentiment, as it went ahead and canceled all 122 license granted by Raja. What kind of justice is this? Those who played by the rules also suffered. This is not justice. It is a travesty of justice.

But, it is the government that has been truly irresponsible and silly. Only Kapil Sibal had the guts to admit that offering spectrum cheap (at 2001 prices) was a planned government strategy, debated by the entire cabinet, and not just a decision taken by Raja. There was no loss etc. Of course, he got panned and he went mute. The PM and then Finance Minister Chidambaram scooted for cover. Instead, they should have been bold enough to come out and say “Yes, we debated the policy. And we approved the low spectrum charges”. Like cowards, they scooted. The culprit, Raja, was guilty of corruption, but what was scrapped was the policy itself.

So what we have now is a government out of control on the subject, a SC which should feel ashamed about its outreach, and a CAG which must be licking its chops at how it has proved it’s “independence” (in reality, incompetence). As a result of policy designed by the SC, the spectrum is now being doled out without auction as happened yesterday when MTS walked away with spectrum of its choice even without a fight. Is this what the CAG and SC wanted? In the meanwhile, there are no takers for the GSM spectrum, in spite of the repeated lowering of reserve fees. The government’s coffers are not overflowing, but of course, the CAG doesn’t feel any obligation to apologize to the nation. As for the BJP, the less said the better.

What should the government do now? First, it has to realize that it is the authority that is at the top of our democratic polity. It is the only elected body. Without a government, there cann be no CAG or SC. The government has to have the courage to stand up for what is right, even if it goes against public sentiment. The public sentiment itself has been fanned by an irresponsible media. But the government has to be strong enough to hold its own when it realizes that a whole sector can be destroyed by misinformed, ill-informed or even inimical forces. The path ahead for the government is simple then.

Lower the reserve fees down to near zero, if not zero. Explain to the public that a reserve fee is only the starting point of bidding, not the end price. By keeping fees low, induce more competition. Encourage telcos to pay higher by making payment terms friendly. Offer all available spectrum for auctions, so that market forces can determine the pricing. Stop litigating with telcos, and stop harassing them with earlier tax issues. The government of the day has to woo investors, not attack them. Once bidding happens under competitive environment, the true price will be discovered. That’s when the 2G industry will be rescued. That’s when the government can cock a snook at the CAG.

The real truth is that while several bodies are responsible for the problems in the telecom sector, the onus has to be taken by the government. It has to learn to operate with a clear mind, ignoring (at times) the noise all around. It has to realize that the opposition will oppose, the CAG will be political and the SC will keep an eye on the public sentiment. It has to battle on; after all, it is the only body “authorized” and “tasked” by the public to govern….

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