Indian telecom sector: hostage in policymakers and auditors slugfest

The debacle witnessed in the latest round of auctions of precious airwaves for India’s telecom sector where close to half the spectrum on offer went unsold is another rap on the knuckles of the country’s official auditor and a lesson again for the government.

The question, naturally, being asked is: Where is that presumptive loss of Rs.1.76 lakh crore, or around $32 billion going by an exchange rate of 55 rupees to a dollar, which the Comptroller and Auditor General of India had so sensationally estimated?

There is no denying the fact that the government got it all wrong in the manner in which it handed out 122 licences and related spectrum to new telecom players in 2008 which was later ordered cancelled by the Supreme Court, as it found the process followed wanting.

But what the government actually got from the latest auction of the airwaves of 1,800 MHz spectrum in 18 circles was just Rs.17,343 crore ($3.14 billion) — Rs.9,407.6 crore ($1.75 billion) and a one-time fee of Rs.7,936 crore ($1.44 billion).

Just 10 percent of that startling figure is mentioned as presumptive loss.

To be charitable to the official auditor, its report had presented several scenarios and said presumptive loss could be estimated at between Rs.57,000 crore ($10.3 billion) and Rs.1.76 lakh crore. But even the lower end of that estimate has proved to be fictional.

What has happened in the interim?

In the case of auction of airwaves two years ago for third generation (3G) telephony and broadband services, the government did get a whopping Rs.106,219 crore ($19.3 billion). But the high price took its toll on subscriber accumulation as the fee charged had to be high.

A report by Wireless Intelligence, a global authority on data related to the telecom sector, said India’s 3G connection base was estimated at a mere 33 million in the first quarter of 2012, as compared to the total telecom subscriber base of around 900 million.

In the case of broadband, too, the subscriber base stands at a mere 15 million.

Clearly, it is the customer who has suffered. India has, indeed, come a long way since the 1980s when one needed proximity to someone in authority to get a telephone connection. None of that today. The subscriber base stands at 937 million, which is no mean achievement.

But a much better technology — read 3G and broadband services, as opposed to second generation (2G) telephony — at affordable prices is also something which telecom subscribers must be entitled to. Particularly when airwaves are scarce.

Therefore, in hindsight, the government has got it wrong this time as well.

Harping on the erroneous calculations of the official auditor will not help any longer, especially after the Supreme Court clearly said policy-making was the executive’s sole preserve and that even the judiciary had no role to play in this regard.

The government, led by Communications Minister Kapil Sibal, says the combined value of unsold spectrum is Rs.62,000 crore ($11.2 billion) at this realised price. Even if half of that is secured, it will be close to the target of Rs.40,000 crore ($7.25 billion).

Is that the point? Not at all. The executive scored a point — that calculations by the official auditor had no basis. But what is in store is a more glaring scenario. That is the threat of a 30-40 percent hike in telecom tariff due to high spectrum cost.

This will bode ill for telecom penetration in India where the bulk of the subscribers in terms of numbers are low-end users. At a larger level, it will affect growth, as studies show that a nation’s output expands one percent if telecom penetration rises 10 percent.

The health of the industry is equally important — millions of people are employed by the telecom companies and billions of dollars of public money is riding on them. There is also the question of nation’s credibility among foreign investors.

Clearly, the high reserve price fixed for the latest auction has not worked. What else would explain an absolute lack of interest among telecom players for Delhi and Mumbai circles, the two most lucrative areas in the country for telecom revenues.

The government certainly needs to balance its policy, weighing the options between the need for resources and prevention of irrational bidding on the one hand, and ensuring market-led fair price for airwaves and affordable telecom services on the other.

The best part in all this is that the myth of high presumptive loss has been broken and even the Supreme Court has paved the way for the adoption of right policy, without the lingering fear of a future reprimand. But the government has to show maturity!

by Arvind Padmanabhan (IANS)

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