NEWS & VIEWS TODAY = 05th, JUNE, 2012 = TELECOM 2 G AUCTION = UNWINDING THE TELECOM TANGLE = ROOM FOR RATE-CUT (BY RBI) = HUGELY WELCOME FOR GROWTH

NEWS & VIEWS TODAY

05th, JUNE, 2012

TELECOM 2 G AUCTION

(UNWINDING THE TELECOM TANGLE)

ROOM FOR RATE-CUT

1.    NEWS :Ever since Sri A. Raja awarded the 2 G spectrum without following established rules and procedures,  the Indian Telecom Industry is having heart breaks of one kind or another.  What was a reasonably smooth path till then, came under violent upheavals. 

India created a world class Telecom service on the basis of the EARLIER EXISTING RULES, and was eminently successful in providing the telecom services at the LOWEST TARIFFS in the world. The speed of Growth of Telecom sector in India was extraordinary by any standards. Revenues to Government did come – because of this huge expansion of telecom service, if not as Licence fees.

That clearly proves the correctness of the then Existing Rules and Methods. Government Revenue must not therefore be the sole criterion in implementing infrastructural services. The MAXIMUM PUBLIC GOOD must be the criterion.

So what exactly went wrong? The Cabinet system of Governance collapsed due to the following (inter alia) factors :

(i)           Individual Ministers disregarding the Finance Ministry Opinions and advices

(ii)         Individual Ministers disregarding GOMs, nominated by the Prime Minister in respect of their Ministry

(iii)      Individual Ministers disregarding the Advice of the Prime Minister and not accepting his primacy and chief responsibility in the cabinet system.

(iv)      Individual Ministers not seeking impartial, unbiased advice from TOP BEREAUCRATS – but rather, putting pressure on them TO tender advice according to the Minister’s own thinking.

The Telecom tangle, or for that matter, any problem in any Ministry in any state / centre, is precisely because of this disregard of the basic building blocks of the cabinet system of Governance by Individual Ministers. Once the Cabinet system is effectively demolished and each Individual Minister behaves like a king / dictator in his Ministry, nothing works well and any thing can go wrong.

In any alliance, be it UPA or NDA or Left Front or any other – the alliance partners especially must be willing to abide by these BASIC BUILDING BLOCKS of Governance. Else, Governance fails absolutely as happened in the telecom case. The same applies much more to the majority (ruling) party Ministers. Parliament must look at this SYSTEMIC FAILURE very seriously and come up with effective remedies for it. Else, this type of failures will recur in future .

Beyond all these factors is the factor of TOTAL LACK OF TRANSPARENCY in crucial aspects of Governance. It is high time that Government unwraps its functioning to the maximum possible level. If a Minister disregards PM’s advice, it should be known to the nation. Why not? In my language, the is a beautiful proverb which says, “cover it today and see it stink tomorrow”. Attempt cover-up of anything – and it will stink very badly soon. This is what is happening.

If there is a notional loss to the Government, because of the vast expansion of telecom service at world’s LOWEST TARIFFS, that should be examined. CAG is not an Enemy from an enemy country. Supreme Court more so. Many things we learn by hind sight. That is life. CAG,CVC, CBI, SC are all there to tell the Government the truth that it either did not know or did not think of its importance sufficiently from these angles. The Auditor’s angle is very important though, it is Post Facto. The CVC’s advices are important, and they can either be Post facto or they can even prevent a wrong doing happening right now. Same is the case with CBI. Supreme Court comes at any stage based on who takes a matter to its notice and at what stage. These are checks and balances – and Government must respect them in the Nation’s interest.The Government has to build a system wherein - it can seek advice of the Auditor on specific queries (giving him full info); Quick Auditing of crucial decisions can be done instantly - even before implementation.

Instead, the Government tried to defend the indefensible; both matters and persons, was unwilling to look at all facts known to it and was  looking for scapegoats all around; in the process, it sought to include all actions that occurred from the NDA period under scrutiny -through a curiously extended logic.

Supreme Court has given a Verdict for adopting Auction Method - for all Government resources. The court went by the material and arguments placed before it. The way the Minister went about giving licenses – by twisting the rules, the Court had NO OTHER WAY than to cancel all Licences and ask for fresh auction. When you look from the point of view placed before the Court – this is of course the RIGHT OPTION – because, it fetches the maximum possible revenues for the Government.

Now, Government is set to go by the Auction Process. But, what are the implications of the AUCTION PROCESS – the way Government wants to implement it?

(i)           RESERVE PRICE :- TRAI has recommended an astronomical level for licence fees – i.e., reserve price, which has come in for justified criticism from the Industry. TRAI seems to be more interested in avoiding a CAG observation- than any thing else. The DOT, it is understood, has hiked it further. Reasons, ditto, from my view point. Now, it is with the Government. Possibly Government may go one step further. No one seems to think of its effect on Telecom Tariffs later, and on the affordability of the reserve price for the Industry (the bidders). The huge one time receipts Government is aiming at – is likely to devastate the Industry – much beyond what Shri A.Raja did. To his credit, it must be admitted, that the tariffs remained attractive for the consumer, after all his actions.

(ii)          NUMBER OF OPERATORS : Worldwide, the number of operators giving the telecom service in any place is LIMITED to 6-7. If there are exceptions, they are places where the services are bad enough. Many operators closed shop in even advanced countries in such circumstances. India must decide on the optimum number of operators it needs, so that the Industry remains healthy. Without deciding this, can it go for an indefinite number of operators? Foreign Technology Partners are a permanent part of the scene. But, India must ensure that countries inimical to the country’s interest are not allowed to be partners. Third, the time is also ripe – to insist that the foreign partner along with his Indian partner must be willing to establish local production centres for indigenizing the technologies. There should be a distinct preference for such operators in bid evaluation scheme.

(iii)         SERVICE AREAS :- Do we need efficient, uniform level of services all over India, or, do we need different grades of services in different parts? In other words, do we need PAN-INDIA operators or circle-wise, city-wise operators? We have seen that PAN-INDIA operation is the need for India, if we have bidders capable of rolling out service all over India. At the beginning, we probably did need the circle wise licences. Now, there is no such need. It is best to award only PAN-INDIA, ALL CIRCLE licences. No operator should be allowed to leave out any part of India from coverage. But, this implies that only the best of operators will be in the fray and that is good for India.

(iv)         POTENTIAL FOR DEFAULT : Government must ensure that the bidders in the auction (i) have the financial capability to pay the reserve price and (ii) have the further financial capability to roll out their networks to all parts of their allocated service area within a reasonable period of say 3-5 years.

Now – are these conditions satisfied even in case of present incumbent operators? Can the BSNL and MTNL, the Government’s own PSU incumbent operators, pay this reserve price when they are already in losses? There are Private operators as well who are not much in profits and some are in losses. How will they Pay? If an incumbent operator is unable to pay – what is his position? In fact, at this point of time, even the BEST of private operators do not have a reasonable return on capital. It is their innovative business models that are saving them from losses.

In some earlier tenders / auctions, there were defaults by the bidders – after quoting huge amounts, to bag the tenders.  Will it recur this time?

(v)          ROLL-OUT OBLIGATIONS :-The payment of the Reserve Price is just the first step. The real goal of the whole exercise is – ensuring the ROLL-OUT OF NETWORKS by each of the operators? How is the Government going to ensure that the bidders have the financial muscle to roll out their networks in all service areas quickly, say, within 3-5 years. Government must get sufficient proof of that – especially from the non-incumbent operators (who have not rolled-out any significant network so far). Those who failed to roll out their networks as per terms of earlier bids – can be barred from participating  in current auction. If they could not do it then – can they do it now?

(vi)         GOAL ACHIEVEMENT : What is the Goal of this whole process? India must have an efficient, state of the Art technology driven, reliable, telecom Network at most affordable tariffs and the network must reach out its services to every nook and corner of the country.

(vii)        TARIFFS : Today, even an Auto Rickshaw Driver  sells his service on MOBILE PHONE. He gives his number to all customers and seeks their patronage and they too call him on his cell phone. You will not be surprised, if you find even a beggar touting a cell phone. The telecom penetration is such a huge success in India – thanks to the earlier policy. The economic benefits to the common man because of this Mobile revolution are immense. This is because of the extremely competitive (world’s lowest) Tariffs prevailing in India. Now, with the astronomical reserve price set by Government which can be pushed further up by some operator into the sky through his bid, what will happen to existing TARIFF STRUCTURE? World’s lowest Tariffs can overnight become world’s Highest TARIFFS! Is this what we are aiming for through the Auction process?

(viii)       TRAI’S DUTIES : There was a time not long ago – that this Blog Advocated that TRAI  must use its powers to set MINIMUM FLOOR LEVELS FOR TARIFFS below which operators should not go – as that was resulting in very unhealthy competition. The world’s LOWEST TARIFF LEVELS were sinking further and further into a bottomless abyss. Now, the EXACT REVERSE is likely to happen – pushing the prices to the world’s highest levels. Can the TRAI and the DOT, after recommending mind boggling amounts as Licence fees, now fix upper ceilings on Tariffs at reasonable levels? The reasonable levels will move a similar number of times up, that the licence fees has moved up in TRAI/DOT’S recommendations.

(ix)         AUCTION : While the Government is tied up with the Auction route for the present – there may still be options within the Option route. The auction can be – on the basis of the LOWEST AFFORDABLE TARIFFS quoted (say, fixed for 5 years) by the MOST COMPETENT OPERATORS selected on techno-financial considerations + Incumbent operators; In this way, the revenues are directly flowing to the people back, rather than through the Government.

(x)          WHAT CAN BE THE PROCEDURE : So, the procedure can be roughly As follows : (i) Let all licences be PAN INDIA LICENCES – AND NOT STATE-WISE, or CITY WISE LICENCES. We don’t need efficient operators at one place and an inefficient ones at another. Let us not have varying Grades of service by different operators at different places. (ii) Decide on the number of operators needed by India – there has to be a limit. It cannot be infinite (ii) Choose the technically & financially most competent operators – up to this limit (including the incumbent operators) (iii) Open the AUCTION to these technically and financially qualified operators only (iv) Let the Auction be based on the LOWEST TARIFFS TO THE PUBLIC OFFERED-for next 5 years. Each service can be given a weight for assessing the overall LOWEST TARIFFS. (v) Select the BEST BID  on this basis – and apply it to all incumbent operators.(vi) Government can of course seek sufficient DEPOSIT (EQUAL ) from all Bidders, as always, to ensure that they are serious contenders. (vi) The networks upto a certain density must be rolled-out within 3 years – This is a usual roll-out obligation. In other words, most efficient and widespread  network at low tariffs – is what the SPECTRUM AUCTION should achieve.
(xi) BSNL / MTNL : These are Government's own PSUs, employing abut 3 lakhs of people directly (and probably double that number indirectly) .There is almost Rs.1 lakh crores of public money invested in it - and these are serving some definite public purposes even today. There is a need to revamp their services. They are both running in LOSSES and there is a need to make them profitable. Most importantly - Government must remember that it is PUBLIC MONEY that is tied up in the 2 PSUs. They can be specifically exempted from payment of the Licence Fees. That gives them only an initial advantage to cope up with others - not ahead of others, which is not going to happen, given their INTERNAL DYNAMICS. This too is a PUBLIC PURPOSE, as much as auction of 2G spectrum is.

2.   ROOM FOR RATE-CUT : There are indications that RBI feels that there is now room for RATE-CUT. This blog has always advocated  for a serious RATE-CUT, to propel the economy on the Growth Path. Now, Government is also giving sufficient indications that it wants Growth and is willing to plan for Growth seriously. This is the need of the hour. RBI must bat for Growth. Government can take care of INFLATION, if only it applies its fiscal measures –especially in respect of INFLATION PRONE commodities and Industrial products. Let there be Growth first. Let the confidence of Indian Entrepreneurs, Indian investors, FIIs and investors in FDI be restored. Government must understand that some of its recent RETROSPECTIVE TAX CHANGES have created a huge trust deficit in foreign Investors. These changes are absolutely unnecessary. Every change must have only prospective effect. Likewise, looking at all FII /FDI flowing from Mauritius etc suspiciously seems meaningless.  Even admitting that it is Black money flowing back into the country as white money – the solution is to arrest the generation of Black Money within the country first. That is what Baba Ram Devji  is seeking. Swiss Accounts may be secret accounts. Not so the Mauritius Accounts. They are coming in openly. The treaty is evidently doing GOOD to India. We need more countries from which FDI should flow into India. But, Black money generation and its flight to other countries – is what should be arrested first. If the focus is clear- India will get all the FDI it needs.

 *  *  *  E  N  D  *  *  *