Cleaning up the 2G mess

The demand for 2G cellular mobile telephony has reached saturation levels. From a peak monthly addition of 15-18 million GSM cellphones, addition has come down to 7.55 million. The CDMA additions, too, have come down to half. Most of the new connections are in the rural areas. Extending the network and increasing its capacity in rural areas involves heavy capital expense (Capex). Rural telephones produce inconsiderable revenues. While urban telephones produce an ARPU (average revenue per user per month) of a few hundred rupees, rural ones yield only a revenue of Rs 100 or less.

Urban teledensity has reached approximately a hundred phones for hundred people. Some adults, however, have more than one phone, or more than one SIM card with the phone. Urban teledensity has gone beyond hundred in many cities, just as in many advanced countries. The profits of the companies are coming down quarter after quarter. It appears that the prices now are below costs. If this continues, companies will start making losses.

3G SERVICES

3G services are already being rolled out. High-end customers are taking 3G services. These will replace 2G, because whatever is available in 2G will also be available in 3G. 2G will, therefore, be a sunset service. It will be good for the non-sophisticated rural customers. We have enough pre-2008 licensee 2G service providers.

In no country are more than 4 or 5 companies competing in any one service area. Why should we have more? By 2008 itself, prices had come down to be affordable to many. That is why we were adding 12-15 million telephones a month. The post-2008 licensees, in order to gain a market share, are offering ridiculously low prices. These companies have put in high investments in rural areas, but have low revenues, and are hence incurring losses.

When the demand for 2G services is declining, and the existing demand is low-revenue-yielding, obviously, the rupee value of the 2G spectrum won't be as high as it might have been in 2008, if it were to be auctioned. The 3G auctions produced a lot of money, because it is the 3G services which will increasingly be taken up.

This is just like the demand for Ambassador cars coming down, and that for the new generation of foreign cars going up. The foreign car is more versatile, more fuel-efficient, and more comfortable. So are 3G services, in relation to 2G services.

SPECTRUMS AND LICENCES

What is the point in delinking spectrums from licences? What will the 2G licensee do without spectrum? If spectrum holders are A, B or C, and licence holders are D, E & F, the latter will have to buy spectrum from the former group. That is, there will be trading in spectrum. Is this what we want? Some time ago, there was trading in international bandwidth. In fact, there was a bandwidth exchange operated in London. Are we going to have a spectrum trading exchange in India?

When there was fraud in the Satyam Computer Services, the government stepped in very quickly. It superseded the then Board of Directors, and appointed some others with the mandate to clean up Satyam. Satyam was auctioned, and it is now doing wonderfully well with a new management. Assuming that there was corruption in the allotment of spectrum for the 2G licensees in 2008, it is the corrupt who are to be punished, rather than customers, subsequent investors and lenders. The clients of Satyam computers were protected by cleaning up the company's accounts and removing the corrupt.

The subscribers of all the post-2008 cell phone companies have to be protected. This must be the first task of the government. India nationalised life insurance companies and banks. The policyholders and the depositors weren't affected. They were protected. How about the government taking control of these companies, and paying compensation for the acquisition? The quantum of compensation can be decided in a fair and transparent manner after consultation with experts and the public, so that the investors aren't hurt.

FAIR SOLUTION

Maybe, all the post-2008 2G licenced companies could be consolidated into one, and perhaps, merged with BSNL, or alternatively just as the nationalised private banks continued in independent existence as distinct PSUs, the post-2008 licensees may be dealt with in a similar manner. Since a huge amount of FDI has come into these companies, any government action which will hurt those investors will have serious adverse consequences as far as FDI in India is concerned. Already, there is talk of the affected companies invoking the intervention of their countries' governments. Why should we create an adverse climate for FDI?

It is very clear that corruption hurts badly. It hurts the companies, the investors and the government. Today, corruption has become uncontrollable because the corrupt have gained control of the levers of government and the highest and mightiest seem to be compromised. The poor among the public, who are hundreds of millions, are fooled into inaction by being given some crumbs by way of “welfare” from increased budgets for schemes like NREGA, food security, loan waivers, interest free loans, Indira Awas Yojana, and so on. All these involve corruption.

A lion's share is going to MLAs, MPs and ministers in power, government officials and businessmen. Increased moneymaking requires increasing government spending, and increasing government spending involves increasing corruption, leading to revolutions like in West Asia. The corruption-led welfare spending is only postponing the day of reckoning. The Government is expecting huge revenues from the sale of spectrum. These revenues will increasingly go for “welfare” spending.

(The author is Director, Centre for Telecom Management & Studies, and Chairman, Pragna Bharati, Andhra Pradesh.)

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