Saturday, 12 March 2011

The Myths of 2G Spectrum and the Reality - My View

Referring to my previous post and an email I saw from a colleague.. forced me to write this post up... The entire post is made up of those thoughts on how I analysed the whole 2G spectrum thing and one reason I write this post in this blog is also due to the fact that as Leadership and as Authentic leaders many of the leaders have to sit in chairs of victims just because the myths become allegations and truth is un-revealed.

For those of my friends who are not in India and do not know about this can just click here and find relevant material to read... so here is how I see the whole 2G spectrum scam, before I do that I think it is also important for people to first understand the core of economics... I am glad today that a few of those lectures I attended in my Commerce graduation help me understand this better...

What is a Spectrum?
Well I am sure as a good googler you would have done a search and gone to the wikipedia definition of Spectrum here... I just want to put it in a sporty kid language... to me Spectrum is how various waves transmit the intensity... or just say these are various types of waves that carry signal... more generally this is how our data [Voice, data etc] will be carried faster [Internet, telephone, satellite signals etc]... a deeper but more precise way to see spectrum is watch the rainbow colors that are omitted when you expose your eye to see sunlight through a diamond... In this case where we are dealing, it is all about technology and physics, so it is a natural and a scarce resource.... the logic of advanced technology and demand / supply rules make it scarce.
What is demand / Supply?
I am sure you know this.. if supply is less and demand more... you know what happens.... You shell a lot of money out, don't you?
However if the demand is less and the supply is less.... it is called scarcity of a resource... something that becomes important when an advanced technology comes in and improvises the supply...

Why demand/supply is important here to discuss?
Well going the laws of (fr)economics, spectrum would have had no such issue if the resources would have less demand in future.. but with Technology it appears that the spectrum is going to be one elastic resource that will have ability to generate more and more supply as technology enhances [Nothing like petroleum, which can have less supply some time in future]

How does Spectrum licences happen?
At least from an Indian standpoint a spectrum is allocated based on various approaches..

  • 1. First come first server [Whoever is following a set of criteria and comes first to approach wins the license]
  • 2. Auction [A regular tender process, whoever bids more gets its]
  • 3. Specific criteria driven [If you have X and Y as initial basic criteria then you can get it ]

In case of 2G spectrum license allocation it appears that the first come first serve was used.. means whoever approached first got the license.. the same method A. Raja's predecessor has applied...

So then what is the scam here that opposition parties and media is hyping about?
Well in this case of 2G spectrum license allocation, it is said that though A. Raja applied the same method as his predecessors he did not apply it in as in format.. he did some changes[some conditions changed] that would benefit only a few telecoms companies... How much this makes sense? Well it could... if somebody asks for X money to make sure that the Y conditions are put so XYZ companies get the license...

Does this mean Raja has not taken any money?
As far as I have followed up the news and details... NO.. there is no allegations so far that Raja or anyone else has taken out of these licenses... There are speculations that there is some money stashed in for changing the dates and criteria...

So where does the 1.76 lakh crore figure come from?
Well when the government decided to release the 3G spectrum licenses they realized the potential money an auction could have got for the 2G spectrum also... all the hype the media and some of the opposition is making is about this figure and not actually any corruption figure.. of course the conversations between Nira Radia and others that have been released over Internet and media just adds different flavors to the issue, but it still doesn't mean that there has been X money taken by Y...

So if government loss 1.76 lakh crore, it means people lost that money or it was people's money?
Hell NO... A lot of if's and but's here... but here is my simple understanding on this...

Option A
If an auction was held for a 2G spectrum:
say auction costs the telecom company at 100 Rs
The Infrastructure costs them 50 Rs
The 100 Rs would earn the telecom company Rs 30 in 5 yrs
means total costs for telecom company is 180 Rs.. now to cover this 180 Rs I am sure the 2G services will cost say 2 Rs per customer... of course this would include some profits for the telecom company..

Option B
If given on the first come first serve
say auction costs the telecom company at 50 Rs
The Infrastructure costs them 50 Rs
The 50 Rs would earn the telecom company Rs 15 in 5 yrs
means total costs for telecom company is 115 Rs.. now to cover this 115 Rs I am sure the 2G services will cost say 1 Rs per customer... of course this would include some profits for the telecom company..

So who earns more? customer? who pays more if auctions are costlier.. customer?

What is the real issue?
I believe the leaked conversations, media hype, a bit of uncontrolled developments, lack of understanding, speculations, a berg of corruption of course and a lot of miscommunication and transparency issues...

  • Spectrum licenses should have been first analysed.. not by A. Raja but also by the previous governments and should have made sure that we take foot steps or analysed steps other countries used in this process...
  • There should have been a clear picture of what , how and where the licenses were granted to whom and why.
  • There should be a clear statement from government that the cheaper the spectrum , the cheaper it is expected to cost people.

  • The corrupt and the ones in radar as expected needs to be bought to papers...
I hope I tried to be as much detailed as I could... I am sure there are different views on this... but I understand... a lot of times leaders and managers make decisions based on circumstances... it is easier to blame it afterwards... but nobody wants to make the decision in the first place, and if some do.. people want to blame it on their frustrations....

So if Dhoni puts Nehra to bowl first is no different to me then Raja putting the license granting method... the resource waste that has happened in this process may be linked to people's money... but believe me in case of 2G spectrum... it would have cost the people a fortune if there was a big auction fight for the licenses....

P.S

This is my personal view on the whole spectrum thing and I dont endorse anyone to be innocent or accused, all this matter is in court of law and it will take it due course to punish the one's responsible.

I also maybe wrong in my analysis, but what I have analysed is based on the facts that are available to me over so many internet sources and news and the little economic understanding.