Covering developments on policy responses, policy implementation and policy distortions on a quarterly basis. Comments are welcome. VolumePP 13,oo No. 1 licyWatchlicyWatch January-March 2012 Catch the Signal of Change s India a banana republic or a dirigisme economy? Neither. Firstly, we Iare not a small country with a single export item, and we are neither a state-controlled economy. However, there is a preponderance of both elements in our governance system. In a colloquial sense, we are no better than a banana republic, where public interest is given the short shrift and crony I N S I D E T H I S I S S U E capitalism rules. The state does control a large TRAI to set up part of our economy, and has Complaint Centre .................3 failed in allocating them in a fair Panel to Resolve manner to the best possible bidder, whether it is minerals or oil or Power Woes .........................6 www.bollyguide.com spectrum. And private interest 100% FDI in Single overrides public interest, coupled Brand Retail ....................... 10 with unjust enrichment of the Malnutrition a polity, babus and businesses. National Shame ............... 12 The doctrine of public interest Coal gate ......................... 14 has been reinforced again and again in all recent Supreme Court judgments. The latest one on cancellation of 122 mobile telephony 2G licences has been Vocational Education the most daring and forward-looking. This order will have an impact on Framework ........................ 18 other sectors as well as the whole governance system. The apex court is doing what the government should have done.The government has been behaving in a cavalier fashion, for obvious reasons. There has been no check H I G H L I G H TS on what it has been doing - or not - at all levels in our government system. Spectrum Auctions - In the case of the cancellation of the 122 licences, the court has asked the Jhatka Or Halal? government to use the auction route and settle the matter within four months, Shyam Ponappa ............ 2 rather than do it at their leisure. The government may ask for more time from the court, since they cannot do it so swiftly. Profiting from CSR This is rather odd, that if the 122 licences could be awarded within a Shubhashis record time on a first-come-first-served basis, why it would be so difficult to Gangopadhyay................13 conduct auctions within the time period. The limited time period is to ensure that serious parties, rather than rent-seekers, can bid. The Mother of All Reforms To deal with this awkward situation, it has also been suggested that a Arun Maira ..................15 hybrid model be adopted, wherein bidders can offer a bid with a one-time payment and a periodic payment for usage linked with earnings and spectrum- Taking Politics out of usage charges. The Ashok Chawla Committee on Allocation of Natural Statutory Appointments Resources, in its May 2011 report, has also recommended the delinking of Nripendra Misra & spectrum with licences, though not precisely recommending this method. Nidhi Sen ........................23 Reverting to the issue of spectrum auctions, the apex court has directed that Telecom Regulatory Authority of India (TRAI) should formulate recommendations for grant of licences and allocation of spectrum through an auction process. Nothing prevents TRAI to suggest the aforementioned hybrid model, with safeguards, as the most pragmatic one. A counter-argument would be that The reformer has enemies in all those who such a system is not being followed anywhere. profit by the old order and only lukewarm But as the noted jurist Lord Denning said, If we never do anything defenders in all those who would profit by which has not been done before, we shall never get anywhere. The law will the new. Machiavelli in The Prince stand still while the world goes on and that will be bad for both. Published by Consumer Unity & Trust Society (CUTS), D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, India Phone: 91.141.228 2821, Fax: 91.141.228 2485 Email: [email protected], Website: www.cuts-ccier.org Printed by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302 001, India. I N F R A S T R U C T U R E I N F E A T U R E Spectrum Auctions - Jhatka Or Halal? Shyam Ponappa* hy do people advocate A contrarian move in France is spectrum and licence noteworthy for its prescience auctions?W Is it because they and insight. CEO Martin think auctions work? Is it the Bouygues of the third mobile appeal of an ideology, like operator, Bouygues Telecom, capitalism or socialism? Or is it refused the governments because governments often demand of US$4.5bn as the fee collect large sums, and for a 3G licence, making it the auctions seem fair and only mobile communications transparent? Yet, while desiring company in Europe with no high government collections, Satish Cartoons investment in 3G. While his people really want reasonably- opposition was ignored, by priced good infrastructure, and 2002, the French government continue to rail against dropped its asking price by government waste. Lets review The choice is between more than 85 per cent to induce some so-called successful sudden death and a slow one Bouygues to accept a 3G auctions and what followed. licence. 1994: The US spectrum auction Prior to 1994, the US In terms of results, the auction failures the Netherlands, used to allocate spectrum on demonstrated capacity and Switzerland, Sweden, and non-auction countries like merit. The spectrum auction in 1994 netted record bids. South Korea, Japan and Finland (until 2009) have the The Federal Communications Commission chairman best broadband services. reportedly said: Auctions have proven once again to be a success not only by awarding licences to those that Kapil Sibals appointment as Indias telecom minister has value those most, but also by decreasing the national brought hope, with prospects of radical improvements in debt. Then disaster struck, with a number of successful infrastructure, especially broadband, with a clean hand. bidders declaring bankruptcy. Sibals recent pronouncements on a new telecom policy, however, raise the spectre of another deadlock. Here are 1994: India telecom licences In 1994, India auctioned two examples: telecom licences. Chaos followed owing to overbidding (a) Adequate spectrum will be provided to all service and default. Thereafter, the sector struggled from one providers: This is feasible not through slivers of spectrum contention to the next, with the government and operators for many operators, but only if there is a common carrier deadlocked by 1998. The New Telecom Policy of 1999 access, that is, all operators can access spectrum for a provided a breakthrough, tossing aside the auction bids reasonable fee. There is no indication of what adequate in favour of shared revenues. Interestingly, the TRAI means, nor of pooling or sharing spectrum. Lets hope the estimated that auction fee foregone till March 2007 was domain experts have been heard and not shouted down over 19,000 crore, whereas actual revenue collections M on adequacy. were double, at M40,000 crore; by March 2010, the collections were 80,000 crore. (b) Spectrum henceforth will be awarded only on a market- based mechanism: If the criterion for success is high bids 2000: The UK 3G auctions The 3G auction in the UK and not delivered services, in effect, this means auctions, was hailed as a spectacular success, reaping bids of about and the result is likely to be dismal. Those enamoured with US$35bn. auctions focus on the success of bids, ignoring the purpose 2000: The France and Germany 3G auctions Germany of spectrum/licence allocation, which is service delivery followed, netting US$67bn, and the finance minister resulting in consumer surplus (societal benefits). If the quipped that the auction was for unexpected revenue to operators choose to roll over and accept authoritarian pay the national debt. France demanded a flat fee of decrees, the conflict will be between government and the US$4.5bn per licence. The dotcom bubble burst in March public interest. 2000, followed by communications and technology The issues that need comprehensive transformation are companies a year later, and the bidders went into a tailspin. spectrum and network sharing for service delivery at least The collapse nearly bankrupted not only British Telecom cost. The government and Sibal have the opportunity to owing to the enormous debt it incurred for the bids, but choose an approach resulting in excellent delivery the entire industry worldwide. including broadband at reasonable prices. * Distinguished Fellow, Investment Banking, Centre for Internet & Society, Bangalore. Abridged from an article that appeared in the Business Standard, on February 03, 2012 2 January-February 2012 PolicyWatch I N F R A S T R U C T U R E N E W S B R I E F S COMMUNICATION Under the existing system, DoT (EGoM) decided to earmark the 700 gives subsidy to the operators for Mhz band for offering fourth Setting Up of Telecom Fund rolling out infrastructure in rural areas. generation (4G) mobile services. In line with the governments According to the proposal mooted by Telecom Minister, Kapil Sibal said efforts to boost the domestic the Planning Commission, mobile that this will make more spectrum manufacturing of telecom equipment, users in rural areas would get a available for broadband players such the working group on the telecom subsidy of 20 percent on bills of less as Reliance Industries for offering sector for the 12th Five-Year Plan has than M300 a month. In addition, a one- high speed video and data services. recommended setting up of a M10,000 time subsidy of M250 could also be He added that the issue relating to crore Telecom Promotion Fund to given at the time of new connections vacating airwaves between 1700 Mhz provide soft loans to Indian in rural areas.