Of Mr Raja, 2G licences and Honorable Supreme Court

Finally the verdict is out i.e. cancellation of 122 telecom licences which are issued in 2008 for 2G services in India. Supreme court rightly said as a corporate if we can have fruits of government good decision then we should also be ready to cover the cost of government wrong doings. Fear that it can impact FDI inflow in India is a misleading as whoever have invested in these companies knew that the cost of spectrum is much higher. So it is a calculated risk which Telenor or Docomo’s of the world had taken by knowing the fact that it can be canceled by the court on the basis of wrong procedure or otherwise.

If we have some resource which is unique and abundant then we would like to sell at the fixed price but if the same unique resource is limited then we would like to auction it to maximize the return. The same basic principle was not honored by Mr RAJA and his team for 2G allocation in 2008.

Now congress party is saying that it was following the NDA government policy which was based on fixed price and FCFS (first come first served) basis. But the catch is the whole process is – in 2001 our total mobile base was close to 5 million and price was discovered at Rs. 1620 Cr (all India Licence cost) but Mr RAJA and his team also kept the price of spectrum at Rs 1620 Cr even when market was proven, our mobile base was 500 million (please refer the exhibit for more details in telecom licences). The price of 2001 can not be justified in 2008 (though it can not be justified in 2003 either), at-least he and his team should have adjusted the price for the inflation.

Govt sometime give national resources at through away price to create the market or to keep price of end services or product low. But here this was not the case as companies who got the licence got a very high valuation just after the spectrum allocation and part of this they realized after diluting some stake. If government had intentions to have low prices then they should have prevented trading after the allocation which was not the case. Price of telecom services in India is cheap not because of cheaper spectrum but because of the hyper competition in this sector. India is one the very few countries where we have 11-12 operators in each circle which creates a very high competition scenario but in case of US/Europe this number is 3 or 4 which keeps the competition away and prices are higher.

Exhibit:

1995: two operator in each circle, policy was auction based and price discovered at $750m. Third operator added was BSNL (MTNL in metros) – it resulted in huge loss for the operators and government returned auction money. Revenue sharing scheme was put in place lately.

2001: fourth operator added, policy was auction and price discovered was $350m for all India licence.

2003: fifth and sixth operator added, policy was fixed price and price was fixed at $350m (price discovered in 2001 auction) for all India licence.

2008: 122 new licences (about 5-6 operator in each circle total 11 or 12), policy was fixed price and price was fixed again at $350m (a price discovered in 2001 auction) for all India licence.

[Guest article contributed by Salil Agrawal. Reproduced from his blog]