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A revolution on hold

by Sathya Narayanan on Saturday 22 May 2010, 3:27 PM | Category: Politics| View: 1320 views
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This is an article – or else I would term it as a discussion on a recent topic.


India is, today, one of the fastest growing nations in the area of telecommunication. For a country which was wallowing in the morass of licence raj, India has come a long way in the field of telecommunication. The development made in the phase between 1997 and 2004 has made India the largest growing telecom sector of the recent world.


After 34 days of hype and hoopla, the 183 rounds of special bidding by 9 players, the 3G auctions closed out on May 19 after raking a whopping Rs.67,719 Crore (comes to around $15 billion) for the Government of India! 


What was the 3G auction meant for? Was it a step to infuse a general purpose a general-purpose-technology for enriching the knowledge of the people? Or, was it meant to be taxation without representation? So, is this a benefit or a bane to the country? This is what this discussion is about…


The Government now expects a revenue of around Rs80,000 Crore with the BWA (Broadband Wireless Access) auction going to take place soon. This was far beyond everyone's expectations as the Telecom minister Mr. Raja predicted a revenue of around Rs.30,000 Crore. And more recently, Finance Minister Mr. Pranab Mukherjee predicted an amount of around Rs.36,000 Crore.


With the crude prices too, going down, it has become a double benefit at the right time for the Government. If the crude prices remain at the same level till the end of this year, then, the fiscal deficit of the Government would come down from 5.5% to less than 5%  within an year!


A similar 3G auction in the UK had raised $30 billion for the Government. So here, for a comparatively developed telecom market (in India) over the last 10 years, this is a surprise result. Or, is it? What does a cost-benefit analysis suggest?


A closer  examination of facts show ambivalent responses to the results are required. In India, the total mobile sector revenue last year was $20 billion. This 3G auction now has raised $15 billion, which means, it has accounted for 0.75% of the annual revenue. Assessing the UK scenario a decade ago, the entrants there had paid $30 billion with the revenue of $8 billion. So, the firms had paid 3.75 times the annual revenue. The disparity between UK and India in proportion of bid value to annual revenue is 3.7 times.


But, the Average Revenue Per Unit (ARPU) of UK from this has been $30 a month. In India, it amounts to be $4 per month. So this turns out to be 7.5 times in UK's favor! So, is this 3G spectrum deal good for Indian companies and consumers?


In terms of profits, clearly, the UK firms held an advantage over their Indian counterparts. But, the outcome of 3G auction in UK was disastrous. Because, the companies had no money after that to pay for the spectrum license and interest. They had gone nearly bankrupt! So, the 3G technology did not diffuse there for a decade!


A premier telecom company in UK sold out its wireless communication business totally for the sake of acquiring 3G spectrum license. A similar scenario may also happen in India


In that case, the companies may choose not to pay and walk away leaving their security deposits. The Government will suffer a huge loss then. A similar situation happened in India when mobile revolution started in India in mid 1990's and continued till late 1990's when the situation stabilized. In Japan and South Korea, extremely low prices led to complete diffusion of modern technology. So only the products from there today are cheap. These ideas are worth emulating.


So, there is a chance that India might lose a knowledge revolution through the 3G technology because of these reasons. 3G auction is a boon for Indian Government's exchequer, but what will it turn out to be, for the common man? Time will tell.        






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