Rs.1,76,000,00,00,000 Amount is more or the Zeros?

Every year India has been hit by some or the other trouble, may it be terrorists attack, may it be a tsunami or an earthquake, and may it be some epidemic. Year 2010 has been hit by a tsunami of the scams. While mid year marked the shameless abuse of public money in the commonwealth games scam, the sheer size and scale of scam in 2G spectrum allocation has left the country dumb struck. The audacity of the former Telecom Minister in brazenly throwing all rules to winds, presiding over the allocation to spectrum – country‘s precious resources – to dubious companies – who then went on to make crores of profits by simply reselling these licenses to their foreign companies allies.

The telecom sector has always been notorious for its scams — with ministers like Sukhram, Pramod Mahajan and now A Raja. It’s been a sector where dubious decisions and brazen corruption have always ruled. 

There are several aspects in the 2G scam, but I will address two things that are bothering the citizens of India the most. One, how do we recover the money swindled in the 2G scam and two, what needs to be done to ensure such a scam will not happen in the future.

The background to this crime is pretty simple to understand.  It is calculated that loss to government suffered due to the fault ridden First Come, First Served basis for 2G spectrum allocation was Rs. 1,76,000 crores. In simple words, this money Rs. 1, 76,000 crores belongs to the people of India but went into the pockets of colluders in the swindle that includes the Minister, officers, regulators and the beneficiaries who connived in this crime against nation. 

The big question that now needs to be answered is – How did the 2G cellular licenses sold from 2004 to 2007 onwards get the government only Rs 1500 crores each? Is it because the government chose not to tender these and opt for a more dubious route? 

What is the loss to the Government? Assuming that these 2G licenses were to be valued at marginally less than 2G licenses at Rs 10000 crores each (there’s no evidence pointing to a need to assume 2G as cheaper than 3G licenses and using the secondary transactions of Unitech and Swan as benchmarks), the loss to the government is in the region of Rs 50,000 Crores. That’s a realistic estimate and doesn’t include the spectrum given as follow-on spectrum to existing telecom companies. As the International economy was booming in 2007 the proceeds and value would’ve been higher.

Coming to the point of how to recover this swindled money and how to prevent such loot in the future, there are three options:

• Government should not only order forfeiture of the licenses of the erring companies besides making the existing players with excess spectrum pay up at market rates. 
• Government must impose a windfall tax on companies who have made money. 
• Government can cancel all the licenses, take back the spectrum, and sell it at market rates and recover the entire value that was lost.

Now, what needs to be done to prevent such scams in the future?

Scams of such magnitude and scale cannot happen without the active collusion and connivance of ministers, bureaucrats, regulators and the beneficiaries.

• There must be an independent funding of the regulators. Rather them funding them from the union budget there must be a separate source of income, like Universal Service Obligation Fund (USOF), fees from licences, spectrum etc.
• There is a much needed review about the institution of the independent regulators. The practice of stuffing them with retired or serving bureaucrats has made them a second bureaucracy, with little or no will to establish and affirm their independence from politics. 
• The focus must now be to treat this as a crime and investigation launched under the supervision of the Supreme Court to identify all the perpetrators and prosecute them under the law. 
• The institution of independent regulators must be reviewed so that they don’t become passive onlookers to crimes being committed and third, abolishing of all discretionary powers of the ministers that allows them to indulge in corrupt practices.

Can we see Dr. Manmohan Singh, who as the Finance Minister in the 90s, initiated bold economic reforms that unshackled India and paved way for progress to the same and reform the Telecom sector? Do the Prime Minister and the government have the courage to take action against the perpetrators of this white collar crime committed against one billion Indians?

That is a Rs. 17,60,00,00,00,000 question!

Mingle and Jingle

Telecom is staring down the abyss, and faces the prospect of rapidly turning from a sunrise sector to an inviable business proposition. Its the time to call for mingle.

Inevitability finally catches up with the new entrants in the Indian Telecom industry. It is a no brainer to see that a market with 15 players will not have space for the bottom rankers. With 14-15 players jostling for share of the consumer kitty, consolidation is now setting into the Indian telecom markets. In most circles, only about 6 players continue to sustain market momentum. The top 6 players account for 90% of the market shares by subscriptions and higher shares by value.

India has of course been through this before. In the late 1990s and early 2000s, today's leading operators, led by Bharti, consolidated many smaller operators which existed after the original 2G licence auctions in the mid 1990s.

The main difference between the first consolidation process and the one we are about to enter concerns the fundamental drivers of consolidation.

In the first process the likes of Bharti and Tata were building a geographic footprint. Operators were expanding their original few circles via a series of acquisitions of similarly small operators. Most of the operators today have a presence in many if not all 22 circles, so the current consolidation process will not be driven by a desire for wider geographic presence.

The first wave of consolidation was also driven by the need to acquire subscribers. Back in 2003, India had 13 million subscribers or a 1 percent penetration rate. Mobile telephony was still a luxury commodity. Today's consolidation process will be about providing a merged entity with a better chance of improving variables such as average revenue per user (ARPU) and more importantly average revenue per minute (ARPM).

The earlier process also involved a willing number of international investors keen to exit India. Major international operators such as AT&T, Telecom Italia, Telia, Telstra and Swisscom were all happy to sell up after years of growth which failed to live up to original expectations. This time around we have committed international investors who seem intent on staying, albeit going forward possibly as smaller shareholders in a larger entity.

Finally the earlier consolidation process involved many risk hungry investors, desperate to build market share and take risks on acquisitions. 

So what lessons can we draw from the earlier consolidation process and also from other markets in Europe and Asia where the consolidation process is well underway?

It is interesting to observe some of the recent consolidation moves in the mature mobile markets of Europe and Asia and their relevance to India and forthcoming consolidation. During the past few years we have seen mergers in mature markets such as Australia (Vodafone-Hutchison), Netherlands (TMobile-Orange) and UK (Orange-TMobile). Large international operators such as Deutsche Telekom, France Telecom, Hutch and Vodafone saw a better future as part of a merged entity rather than battling on stand-alone.

Critics claim telecom consolidation reduces competition and promote monopoly. 

But I think this new mingle process is likely to be a little more “defensive” driven, finding the right partner to team up with to diversify future financial and operational risks. The mergers are a part of a healthy competitive process and would foster innovation and bring benefits to consumers. They will improve the competence of the operator also increasing diffusion of different cultures coming from different merging entities. Finally, the success of a merger hinges on how well the post-merged entity positions itself to achieve cost and profit efficiencies. Careful valuation and disciplined negotiation are vital to successful acquisition, but in business as in life, it is sometimes more important to be lucky than smart.

Currently, there are a number of restrictions on M&As in the telecom sector. Consolidation is not allowed for three years after the grant of a licence, and there is a lock-in period of three years for the promoters’ stake. The combined market share of a merged entity cannot exceed 40 per cent in terms of both subscribers and revenues in any circle, and no consolidation will be allowed if it leaves less than four operators in a circle. These restrictions were viable when the market was having 6-8 operators and were placed to create a healthy competition in interest of consumers. But now the number has drastically increased to double defeating the purpose, as it is not making a viable business model to toil on.

Consolidation will result in synergies in the areas of infrastructure, human resources, spectrum and other areas. This can bring down costs, improve quality of services due to the availability of sufficient spectrum and increase investment. This would lead to a win-win situation for everyone involved, and ensure that the amazing growth story of Indian telecom remains on track.

The Date With The Hate

With lots of ruffle going in telecommunication arena following 2G scandal,3G rollouts, launch of Mobile number portability, price wars, I wonder where is the telecom business moving towards. There are lots of articles and debates I am witnessing about consolidation, evolution of MVNOs, formation of cartels, interconnect/roaming agreements.

The industry is buzzing with talks, round table meetings, frank chats, dinner parties, dates among various stakeholders in telecom ecosystem.

Months of discreet lunch or dinner dates in Mumbai and Delhi restaurants or in private dinner parties are now being arranged. Some operators are sending out their investment banking advisers on a "pre-date" to see how receptive their planned future partner would be to a tie-up.

Telecom Minister Kapil Sibal hold frank chats with telecom elephants’ mahouts including Ratan Tata, Anil Ambani, Sunil Bharti Mittal and Kumarmangalam Birla to get their views on what ails the telecom sector and how the problems can be resolved.

With the 3G and broadband wireless access (BWA) auctions now out, no operator bagging pan-India 3G spectrum, which enables services such as video calling, interactive gaming and high-speed internet on phones, the dating game amongst India's thirteen private sector mobile operators has now started.

Some of the corporate dates in news are:

•   Aircel & Tata Tele are in talks for an alliance to use each other's 3G airwaves ,they may get to share MTNL’s 3G network in Delhi & Mumbai 

•   Airtel, Vodafone Essar and Idea Cellular are in last lap of finalising their alliance 

•   RCOM is in talks with three operators for a 3G roaming alliance 

•   Tata Teles is eyeing a 3G roaming deal with state-owned BSNL

Revenue sharing, interconnect, roaming agreements need a facelift now. Revenue models will witness new streams of business giving roaming services through competitors’ networks working as allies. TRAI has already come up with guideline papers clearing the roaming issues in providing 3G services.

We may also see birth of Mobile virtual network operators (MVNOs) and would not be surprised to see them enjoying pan India presence using networks of different mobile operators present in different circles.

India is soon set to evolve from simple connectivity providers to those offering value-added solutions.

Organisations and industry can jointly help with Social Responsibility by delivering services to both rural and urban with applications that will make a difference to everyday life of people across the country.

Do laws in India make it easy for Government to spy on its own citizens?

This has been a moral debate in India. I've seen many articles and debates on this and there has been no clear conclusion whether it is appropriate to do this or not. Many people think that phone tapping is a violation of basic citizen rights but it is a way to know before-hand about any criminal activities being planned on a certain country.

Phone Tapping by the Government need not be made much Fuss, since it does prevent lot of criminal acts on our soil as well as catch hold of traitors of the country. At last, what we all need is a safe and secure place, with honest leaders ruling us. 

So, why not use this medium of phone tapping to identify culprits and punish them?

An Honest person, who lives for the country, need not be afraid of phone tapping, as it is just an act of protection to the citizens. But, if you are a wrong-doer, yes, there is a lot of room to be scared of. This is what I feel and most of the intellects do agree to it.

The Indian laws do provide for phone tapping of suspicious citizens against whom there is prima facie evidence of indulging in corrupt and nefarious activities endangering the national security.

Unfortunately, these provisions are being put to abuse at the behest of some selfish political elements at the helm of affairs. In the present scenario of our democratic set up, phone tapping is an indispensable evil in the interest of justice and nation.

I don't think the current laws are lax that the Govt. can use the phone tapping on Opposition.

A recent statement by the Department of Telecom stated about the power of interception of telegraph messages in the interest of the sovereignty and integrity of India.

The acts of persons, companies, including Public Sector Undertakings, private vendors and private detective agencies establishing, maintaining or operating unauthorized communications network, including wireless network for unauthorized monitoring, intercepting and surveillance of communications violate the Indian Telegraph Act, 1885 and Indian Wireless Telegraphy Act, 1933 and persons or companies involved in such types of acts are liable to punishment as per provision of Indian Telegraph Act, 1885 and Indian Wireless Telegraphy Act, 1933.

While phone tapping is very essential we should also disallow the Govt. to use this as a tool against its political opponents.

Probably, what we need is a constitutionally constituted regulatory body, on the lines of N.C.C., N.W.C., N.H.R.C., etc., which would accord permission to tap a person or a group, after satisfying itself of the need, prima facie and also monitor the tapping progress and would be able to revoke the permission once it is satisfied that no such need exists anymore.

Let there be sincere and honest approach in resorting to such a lethal weapon.