Opinion Clear the air and move on

There is no single correct way to manage the deregulation process. Auctions are good — but there are risks associated with auctions. With the best of systems,it turns out that all collusion among the bidders cannot be eliminated. High auction prices can stymie the growth of the industry. Auctions favour large corporations and leave energetic new entrants at a disadvantage as they do not possess large endowments of cash. One way governments have sought to deal with the third risk,is to make payments prospective through revenue-sharing,for instance,rather than having upfront lump-sum requirements that favour behemoths. The state is obliged to look for three outcomes: maximum phone penetration,lowest possible prices for phone services and largest revenue accretion from auction proceeds. These objectives can work against each other. The Singapore government,which prides itself on being omniscient,had to reverse some of its initial decisions to ensure that the juggling of these three objectives happened efficiently.

Technology adds another set of problems. There are two competing technologies — CDMA and GSM — and then there is 2G morphing into 3G. In normal circumstances,customers would choose the technology they like. Given that spectrum allocation is the sovereign right of the state,it is not as simple as customers preferring Windows to Linux or vice versa. From the very beginning,controversies over auctions and questions as to whether in fact companies can comply with onerous conditions have been around. The very first dispensation required significant changes just to get the industry to take off. In this respect,India was no different from Singapore. The first licences were awarded on the assumption that GSM would be the dominant technology in nation-wide delivery while CDMA would at best apply to local services within a circle.

When this assumption got challenged,the government was in a bind. The nation-wide delivery of CDMA services was “regularised” by payment of fines. This action of the government was bitterly fought by GSM operators who finally lost the battle. Since auctions or similar transparent mechanisms were avoided by our government,the controversies never fully died down. One set of operators accused another set of “hoarding” spectrum. These mutual accusations kept the pot boiling. To add to the confusion,there is another problem: by all accounts,the defence forces in India are hanging on to too much spectrum which could and probably should be allocated for private commercial use. The defence forces,in turn,have their own litany of complaints. They had been promised a nation-wide terrestrial network that has never been delivered on account of government apathy and ineptitude. A classic case of turf battles and state silos paralysing one another!

In the middle of all this,we set up an “independent” regulatory authority for telecom,the Telecom Regulatory Authority of India (TRAI). This authority never created for itself the reputation of independence and rectitude that is enjoyed by the RBI or SEBI or IRDA (I sometimes think this is the case because TRAI is headquartered in Delhi. The other agencies are domiciled in Mumbai and Hyderabad.) In any event,the government of the day has made it a habit to ignore TRAI — so one way or the other,its recommendations have been pretty much irrelevant.

Unclear rules regarding cut-off dates for applications,confused eligibility criteria,confusion between new entrants and incumbents — all of these seem to have been used by the executive branch of our government to lead us into one of the worst corruption scandals in our history. The same government decided to go ahead with an auction for 3G spectrum. (Many in government must be regretting this decision). This had the unintended consequence of blowing the lid off the 2G allocation which just preceded the 3G auction. Constitutional functionaries like the comptroller and auditor general and the Supreme Court swung into action. Our government has been caught like the proverbial emperor with no clothes.

The best way to move forward is for the JPC to recommend the setting up of a “Telecom Settlement Commission” to once and for all resolve spectrum allocations. Auctions,including those that involve prospective revenue sharing,not just lump-sum payments,as well as other transparent processes can be used. At the end of the process,some companies will have to lose licences and spectrum allocations. Others will have to pay fines. All prior period issues should then be treated by the settlement commission as “closed”. Going forward,the air would have been cleared. The industry can assume its growth trajectory and increasing numbers of Indians can look forward to greater and cheaper voice and data connectivity. That is a goal that the government and the opposition should both pursue.

The writer is an entrepreneur based in Mumbai,jerry.rao@expressindia.com