India is the world's most competitive telecommunications market. But, the 3G spectrum auction is going to land things as a fiasco for the common man, even while it is a bonanza for the exchequer.
The outcome of the 3G spectrum auction in the UK was disastrous. The 3G network did not diffuse for a decade thereafter, because firms were broke. They had no money left to invest in infrastructure after paying for the spectrum licence and interest. The telecom firms could not generate positive cash flow from 3G activities for a decade. In fact, the principal UK telecom company, BT, sold its wireless business to pay off debts incurred to acquire 3G spectrum licences!
What happened in the UK can happen in India. The firms that have bid Rs 67,719 crore for 3G licences may not have finances left to fund infrastructure. If they borrow substantially, the combination of licence and interest costs, to be factored into pricing decisions, will make 3G services expensive or completely unaffordable. And, as everybody knows, it is low price that enables high offtake of any product or service.
For the full essay in the TOI, click here.
Repeatedly we have finding the government failing in its primary role as the facilitator and regulator of orderly and healthy growth of business and industry, largely because of the revenue-oriented outlook of the babu's (check this), with disastrous consequences for the country at large. In the present instance, in addition, we have the insatiable greed of the minister in charge, whose shennanigans have already cost the exchequer a whopping Rs 70,000 cr, going by this New Indian Express editorial.
Even Lalit Modi's IPL had the foresight to cap bids (for teams as well as players) at what they guaged were limits beyond which sustainability was in question. As compared to that, our Babu's and Neta's have repeatedly shown themselves to be plain mercenaries, chasing their golden eggs totally unmindful of what happens to the goose.
Essentially, governments need to re-learn what governance is all about.
Muralidhar Rao
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how it should have been done
Readers will ask, isn’t it a good thing to auction spectrum rather than gift it to favoured telecom companies, as happened in the case of 2G spectrum? Aren’t auctions necessary to check crony capitalism and corruption?
Yes indeed, we must have auctions to ensure transparency and check crony capitalism. But this auction was wrongly designed. Telecom companies should have been asked to bid not for a one-time purchase of spectrum, but for the percentage of revenue they were willing to share with the government indefinitely. This would have been transparent and fair. It would not fetch an instant bonanza of Rs 106,000 crore, but it would have produced a sustainable stream of revenue in the years to come. The government’s share of telecom revenue would have risen over time with increased telecom use. That was the way to go.
For the full article by S A Aiyer in TOI, click here