My two cents on the 2G scam.

As we all know, a major debate that has been raging on today is about the 2G spectrum & license allotment scam. The major point being bandied about is the supposed Rs 1.76 lakh crore revenue loss to the Government (as calculated by Comptroller & Auditor General [CAG] of India) because of the First Come First Served policy followed by the Government in granting licenses & spectrum to operators. This is the point I am going to discuss in this blog of mine. Of course, I could be completely wrong and would be happy to correct myself if any flaws in my viewpoint are pointed out.

Telecom sector was opened to the private operators on 1994, and there existed a fixed fee for each license then. Then, came the revenue shared license regime in 1999, wherein the operators which were given license had to pay a certain percentage of their Adjusted Gross Revenue (AGR) annually as their license fees & spectrum fees. I believe, the practice of granting licenses on a First Come First Served basis also started from around this time itself, which is what was followed during 2007-08 too - which is in focus in the news nowadays. In 1999, very few licenses and very little spectrum was granted as opposed to 07-08 when many licenses and much of the spectrum was given, and thus the spotlight on the 07-08 period.

In Ratan Tata's letter in reply to Rajeev Chandrasekharan's open letter to him, he mentions that, applying the loss-calculation method of CAG (which they based on the bidding model followed while allocating 3G spectrum) in the license-granting done by the Government in 1999, a supposed loss of Rs 50000 crore had occured then too. But he also mentions that because of the revenue sharing model adopted instead of the bidding model, there has been much growth in the industry and reduced tariffs.

This thought of his provoked me into thinking, are we right in crying foul over the hypothetical loss of revenue to the state exchequer? Was it completely evil to not open the license & spectrum to bidding? The answer, I feel, is no. We must first remember that our Government should not act as a profit making organisation, but must act in a way so as to help the citizens of the country, to preserve equality, to give right of opportunity to everyone. Building networks and telephony infrastructure itself involves humungous amount of money, and, on top of that, if there had been a bidding war for licenses & spectrum from the beginning, we probably would not have seen the likes of Spice Telecom, and probably even Bharti-Airtel in India today, as they had lesser capital to begin with when compared to the likes of Reliance & Tata, who had many other large profit making businesses of their own and were already financially very strong, and thus would have been easily outbid. This would have resulted in lesser cellular operators and lesser competition, and also much higher investment for the operators whose bids would have been successful, as they would have had to pay the spectrum & license amount upfront to the Government. Less Competition plus High Investment equals high call rates. And higher call rates would have discouraged people from using cellphones, thus hampering the growth of this industry, resulting in lesser growth of employment opportunities, poorer poverty alleviation, and so on. But this has not happened because the Revenue sharing model followed while granting licenses has helped such smaller companies immensely, and reduced their initial capital investment by a high degree. And because of the high competition that spawned up, thanks to the above said license & spectrum granting model, we live today in the 0.5 paise per second tariff era.

But this doesn't mean that the Government would have completely lost out if the industry grew big (which it has done today). The Revenue Sharing model has effected in more revenue for the coffers of the Government as the industry has been growing, i.e. the more gross revenue for the operators, the more money the Government gains. The "flawed" model that we have been crying about, the CAG has been complaining about, actually cannot get any better, isn't it? The farsightedness of the people who have brought in this system must be wholeheartedly commended.

Now, let us come to the particular case of license & spectrum allotment in 2007-08. Here, A Raja and his cronies have been accused of being partial in granting spectrum & licenses. They have allegedly favoured Reliance Communications the most, according to the report of CAG, by granting them licenses and spectrum ahead of the people/groups who had applied before them. Also, due diligence was not carried put while handing out licenses to new companies, with 85 out of 122 licenses given not meeting the criteria set by the Department of Telecom while granting licenses. Now, these are the points we need to cry and protest about, and not the supposed loss to the exchequer. The perpetrators, who arm-twisted the system to favour a specific group, and the benefactors of this are the ones that must be looked down upon and brought to book, rather than blaming the revenue sharing model that has helped our country in general, and telecom industry in particular, so immensely.