The Hullabaloo over 2G Licenses

Last year, Time Magazine listed the Indian Telecom Scam 2^nd (after the Watergate Scandal) in the “Top 10 Abuses of Power” list. Considering that it has been making headlines since 2010, I suppose most of you know the details of the scandal. However, for those just tuning in, I thought I’d do a post featuring the 2G Licenses and Spectrum Scandal.

What happened?

In 2008, A. Raja, the erstwhile Minister for Communication and IT, decided to allocate 2G licenses and spectrum to several telecom companies, some of whom did not meet the basic requirements to be granted a license. Furthermore, he sold the licenses and spectrum at apparently throwaway prices, causing the exchequer to suffer from revenue losses, estimated up to Rs. 1.76 Trillion ($ 35.2 Billion) according to the Comptroller and Auditor General of India. Interestingly, Kapil Sibal, the incumbent minister of Communication and IT, dismissed the estimates calling them meaningless “notional” figures. Either way, this led to several new players entering the market, and the increased competition (read: price wars) meant lower tariffs for users, and squeezed the profitability of the incumbent players. 

The matter was mute for a couple years of until 2010, when during the 3G license and spectrum auctions, the government realized the amount it had lost in 2008. This incident of poor governance was termed as another scam by our particularly hardworking media. After much political ruckus, the Supreme Court of India declared the allotment as “unconstitutional and arbitrary” and cancelled all the 122 licenses issued by A. Raja. According to the Apex court’s judgment, A. Raja “wanted to favor some companies at the cost of the public exchequer" and "virtually gifted away important national asset" It is worth noting that the Telecom Policy does not have any specific provision for the licenses or spectrum to be auctioned off, and it was only in 2010 that an auction process was deemed to be the most appropriate method of allocating national resources.

Cancelled Licenses and Affected Parties

 

These firms, especially the foreign players, have complained that the Supreme Court ruling disregards the interests of the business community. Furthermore, it is unfair as it makes businesses suffer for what is in essence the Government’s gaffe.  They also said that such moves would make foreign investors hesitant and cautious against investing in India, and this would hurt the nation in the long term.

So what are the implications?

The cancellation of the 122 licenses will affect close to 45 million people around the country (roughly 5% of the total active user base) who will see their services go off. However, the court has given the companies 4 months, so the users will have some time to switch to a different service provider. As for the companies, they are left with 3 options. First, they can go to court and appeal against the verdict (a very lengthy and expensive undertaking). Alternatively, they could bid for the licenses and spectrum (whenever the auctions happen). Or finally, they could exit the Indian telecom market altogether. As for the incumbent players such as Vodafone and AirTel, it is an opportunity to increase their subscriber base, and also a chance to bid for more spectrum. The sector overall will hence see some much needed consolidation, and with competitive pressure reduced now, the unsustainable price-wars can end and the profitability of the firms would increase too.

Personal Take

At just point, I would like to highlight a couple of points, and let you assess the event at your own terms.

Firstly, If 2G spectrum was to be auctioned (like 3G was, and 4G seemingly will be), the government would get more revenues (only to give out more subsidies in my opinion). But would the tariffs be as low as they are? Would your milkman, driver, domestic helper, fruit vendor, etc. all be able to afford it? Would your life be more convenient or less if that was the case?

Secondly, since the spectrum was allocated on a “First Come First Serve” basis instead of an auction, many new players were granted license and spectrum. As a result, incumbent players such as Vodafone and Airtel who have a larger subscriber base were left with too little spectrum to work with while the newer players who were unable to build a sizable subscriber base were sitting idle on precious resource. So this not only prevents the players from achieving economies of scale, but it also translates to poor quality of network coverage for the 800 million mobile phone users across the country.

Thirdly, the scam has further tainted the image of the Government. However, one should really take a step back, and think if this was really as scandalous a misdemeanor as it seems? After all, it did make mobile usage more affordable to the masses. Would 3G (which was auctioned to service providers for Rs. 670 billion or $ 13.4 Billion) be able to achieve the same reach in India’s price elastic telecom market?

Finally, considering as telecommunication and connectivity as a vital infrastructure of the nation, it was an industry that grew at an exponential pace for some time, but that growth has now halted. Little room to expand due to over-competition has led to unsustainable business models. Hence, some consolidation could do wonders for both, consumers as well as the businesses.

The 2G licenses of 2008 were issued at 2001 prices, on a first come first serve basis rather than an auction.  

So, at this point, would you call it a scam or a blunder ?

Corruption or mere Inefficiency ?


I will let you decide for yourself . . .

Goodbye 2011 - The D Year

|   Debt   |   Default   |   Downgrades   |   Demonstrations   |

|   Drama   |   Destruction   |   Death   |   Disasters    |

 

2011 has been a busy year for news agencies with the incessant newswire keeping the staff over-worked and printing press running overtime. The year brought hope and marked new beginnings for some, but for many others it brought destruction and loss. So it was no surprise that as the New Year dawned upon us, some of us drown ourselves in celebrations, while others lament the loss of their loved ones. I wanted to do a piece before the 2011 finished, looking back at the year’s major events. But then halfway through it, I noticed that TV channels, newspapers, magazines, etc were all doing it anyways. So I scraped that draft and decided to look at the bigger picture instead. I wanted to reflect on the broader themes instead of looking at individual events in isolation. After all, what’s the point if we cannot connect the dots right?

Looking back, one of the 1^st things that comes to mind is the frenzy of protests all round the world, throughout the year. The seeds were sown in Tunisia in December 2010 with the suicide of Mohamed Bouazizi, a jobless graduate turned vegetable vendor. This germinated into a revolutionary wave of pro-reform protests led mostly by youth demanding an end to autocracy and seeking political freedom across the Arab World. The movement, known as the Arab Spring, toppled governments in Tunisia, Egypt, Libya and Yemen and saw dictators ousted and killed. But the Arab World wasn’t the only region shaken by such civil uprising. Sick of grave unemployment, welfare cuts, economic inequality and political corruption, citizens took to the streets and resorted to violent protests in the UK, Italy, Spain and Greece too when the governments of the debt-strapped European countries announced their the austerity plans to tackle the economic slump. The uprisings in the Middle East and Europe inspired Canadian activist group Adbusters to initiate Occupy Wall Street (OWS), a movement against corporate greed and targeting primarily the financial sector. In less than a month, ‘Occupy’ protests had taken place in more than 80 countries worldwide using the slogan “We are the 99%” referring to the inequality in wealth distribution between the top 1% income earners and the other 99%, and indicating that most people end up paying the price for mistakes made by a small minority of people.

A similar sense of indignation had also swept other parts of the world. In India, thousands of demonstrators turned out to support the India Against Corruption campaign, led by social activist Anna Hazare. Their mighty neighbors China too saw public demonstrations as well as online protests sparked by a factory accident, and a high-speed-train crash. Meanwhile in Chile, students and trade unions marched the streets demanding higher social spending from their governments. Israel too saw protests against higher cost of living. If those weren’t enough, Russians too were seen protesting for political reforms, irked by corruption, election fraud, and political opacity.

While the year 2011 will be remembered, much like 1989 (Think: Berlin Wall and Tiananmen Square Massacre) for civil disobedience, it also ought to be remembered for its share of natural calamities. The year’s devastation started in Australia, Brazil and New Zealand. Come March, Earth’s fury was directed towards Japan as a magnitude 8.9 M_L earthquake triggered a 23-foot tsunami in the Pacific coast of Tohoku. What’s worse, it caused the cooling systems at the Fukushima Daiichi Nuclear Power Station to fail, thereby causing an explosion in 2 reactors. With 16,541 people dead, thousands still missing, and more than 1,200 aftershocks, the quake practically destroyed Japan and left behind a damage repair bill of over $300bn (excluding nuclear plant damage estimates). This was by far the single biggest natural calamity of the year, and an event that would not be forgotten for a long time. I have compiled a list of some of these calamities so that you get an idea of what Mother Nature was telling us throughout 2011.

1. 4000 people still missing
 2. Estimates exclude Nuclear Plant damages
 3. 133 critically injured
 4. Over 100million Yuan was allocated for repairs and relief efforts by government 
     agencies, but exact cost of damages unknown.
 5. Burma, Thailand, Laos, China and Vietnam
 6. 30 people still missing
 7. Philippines, China, Vietnam, Laos, Thailand
 8. Micronesia, Philippines, China, Japan, North Korea. South Korea
 9. Philippines, Taiwan & China 
10. East coast of USA, Canada, Bahamas, Dominican Republic, Haiti, Puerto Rico
11. USA, Lesser Antilles, Canada, Europe
12. Combined deaths and damages
13. Expected to cross 2,000 as more than 376,000 people have been displaced in 
      the evacuation process.
14. Additional Damages post the Sept-Oct Typhoons
15. Damage Cost estimates not available yet

All in all, the 2011 Atlantic hurricane season, which lasted from June to November, produced 20 tropical cyclones, 19 tropical storms, 7 hurricanes, (3 major Category 3+hurricanes). Killing more than 100 people, the total damages exceeded $1.2 billion. Meanwhile, the 2011 Pacific Typhoon season (April-December) caused 21 major storms, 8 typhoons, killed almost 1800 people, and left a damage repair bill of over $ 5 billion. Similarly, 2011 Pacific Hurricane season (June – November) saw 11 storms and 10 hurricanes, killing 42 people, and cost about $ 200 million. It’s astonishing that these numbers are only representing seasonal calamities. Instances such as those in Japan’s Tsunami and Thailand’s monsoon floods are non-seasonal. One can only guess the estimates of losses arising due to supply disruptions in, for example, Hard Drives (Thailand) or Car Parts or Electronics (Japan). Another event was a volcanic eruption in Chile (June), which caused an Ash-cloud in South America, and disrupted aviation across the Southern Hemisphere. While no fatalities were reported, estimates of notional losses, to airlines, to tourism and business dealings have been in the billions too. Other notable mentions include floods in Cambodia – 250 casualties, economic cost of $150 million – and Vietnam – 120 casualties; economic cost of $130 million – and finally, multiple earthquakes in Turkey, which killed 650 people, and caused about $ 80 million worth of damage.

Apart from mass Dissent, Demonstrations and natural Disasters, 2011 will also be marked for some notable Deaths. So I made a collage of the 9 personalities whose deaths made headlines, not only in their respective countries, but also across the globe. This includes names of 2 geniuses from the computing world Steve Jobs, the co-founder of Apple and Dennis Ritchie, the creator of computer programming language “C”, and the “Unix” OS. Also in the list were a couple of villains of the world, Osama Bin Laden, leader of the terror group Al-Qaeda, and Libyan Dictator Muammar Gaddafi. Among the national leaders who died in 2011, two that would stand out are North Korea’s Supreme Leader Kim Jong Il, and Czech Republic’s 1^st President, Vaclav Havel. In the world of entertainment and showbiz, notable personalities that left us included actress Elizabeth Taylor, and singer Amy Winehouse. Distinguished Indian spiritual leader, Sathya Sai Baba also demised this year.

 

The year 2011 also saw some other important events unfold. But instead of writing more ‘briefs’ about them (do you really want to read more?), I thought I’d made some more collages and make this post a bit more pictorial. These included events such as:

• British Royal Wedding
• The Bunga-Bunga Parties
• News of the World Hacking Scandal
• Cricket World Cup (Winners: India)
• Rugby World Cup (Winners: New Zealand All Blacks)
• Terror Attacks in Norway (July) & India (Mumbai in July and Delhi in September)
• Worsening of the European Debt Crisis
• S&P Downgraded USA's Credit Rating from AAA to AA+ 
• Bankruptcy of MF Global 
• Legal battle against Extradition of Wikileaks' Founder, Julian Assange to Sweden (Accusation: Sexual Assault)
• 1^st ever Donor-less Organ Transplant using Stem-Cells (Sweden – synthetic windpipe transplant) 
• The World Population Reaches 7 Billion
• Spain's Basque Separatist militant organization, the ETA declares end to 43 years of violence 
•  Formal End of the Iraq War

I think it would be fair to say that 2011 was undoubtedly an eventful year. Considering that the year precedes the apparently apocalyptic 2012, the events would hardly come as a surprise for those who advocate Mayanisms, or any other Doomsday Theories or Pseudosciences for that matter.