15 November 2012, 02:45 PM IST
Failure is a stepping stone to success. The failure of the latest round of spectrum auctions can lead on to huge success in telecom and in politics, even if short-term fiscal targets have to live with disappointment.
This column has consistently argued that social welfare, economic growth and government revenue stand to gain the most from keeping spectrum costs low. Jacking up spectrum costs, whether through auctions, administered prices, presumptuous government auditors, misguided judicial activism or other acts of self-consecrated gods, only serves to kill the goose that lays eggs of gold.
Telecom brings into play network economics: the value of being on the network increases for every person on the network when more and more people join the network. Ownership of a hammer, in contrast, does not yield higher utility when more and more people start owning hammers. If G Bell alone has a telephone, its utility would be zero. When May Belle also gets a phone, both would find the phone decidedly more useful. Utility keeps rising as more and more people own phones, for every person with a phone connection. This is what makes telecom spread special. It boosts efficiency and productivity and makes economies grow faster. When an economy grows faster, its tax base grows faster, making for larger tax collections. Telecom spread also makes possible computer networks that collect and process tax information, raising tax collection efficiency. The right way to maximise revenue from telecom is to focus on the spread of telecom and boost tax collections from faster growth and more efficient tax administration. For that, upfront spectrum costs have to be kept low.
This was the policy of the government, till it went in for auctioning a thin sliver of 3G spectrum with no forward visibility as to future spectrum availability. Telecom companies scrambled for this spectrum on offer and bid up a huge price. The CAG made this inflated 3G spectrum price the base for its assertion that the government's policy of giving spectrum on a first-come-first-served (FCFS) basis resulted in loss of 1,76,000 crore to the exchequer.
But this was flawed on three counts. It is not the CAG's job to sit in judgement over policy. That is the job of the government and of Parliament that holds the government to account. Further, revenue from telecom should conceptually have included the addition to tax collections contributed by faster GDP growth and computer networks that telecom spread enabled. This was beyond the simplistic understanding of the CAG. Further — and this should have been obvious even to the simple-minded — it made no sense to apply the inflated 3G spectrum price of 2010 to earlier vintage 2G spectrum. Yet, given the high level of venality in politics, the public gave ready credence to the CAG's loss estimates. None swallowed this gob of confusion and hysteria more eagerly than the Supreme Court, which cancelled 122 licences and ordered that fresh licences be issued only through auctions, as per the advice of the sector regulator, Trai. Convinced that if he recommended anything that fell short of maximising revenue from spectrum sales, he stood a good chance of falling foul of the law, the Trai chairman recommended hugely inflated floor prices. The government moderated these down somewhat, but the auction has revealed that there are few takers for spectrum at these exorbitant prices.
What should follow now? The government should build on the clarification by a larger bench of the Supreme Court that revenue maximisation and auctions need not guide the government so long as it transparently pursues the common good . It must find the courage to ignore ill-informed hysteria when it comes to forging policy and junk high entry costs. New technology -- Dynamic Spectrum Access Network (Dyspan) -- permits dispensing with allocating each telco its own dedicated spectrum. All available spectrum can be pooled and shared by all licensees. This is what populous India needs. High-speed data networks need to replace inefficient analogue networks. Aadhaar-based money transfers open up the possibility of mass mobile banking over ubiquitous data networks, offering financial inclusion and, for banks and telcos, new revenue streams. The huge emancipatory potential of mass access to high-speed broadband must be pursued, vigorously. The biggest scam allegation now stands debunked. Raja's little trick was to manipulate the FCFS policy to create his own priority list of licensees, not to cheat the state of funds.
This drives home the point that modern business is complex and many plausible scam charges turn out to be only too facile. The public at large will become more circumspect about scam charges. Politics will cease to be scam-centric (bad news for Kejriwal). With this confidence, ministers must shed fear of Opposition flak and lead their babus to take bold decisions that will drive up investment and boost growth.
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