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An estimated 12-minute read

The game with 2 G: Will someone please mop-up the mess

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This blog is a personal opinion/thought & purely an attempt to present a true picture of the situation only if one is ready to open up his/her mind. Anyone not capable of doing so, will be reading at his/her own risk.

Also, I know that Algebra is not the favourite subject of many people, but, the so-called “2G scam” last year had all our attention & now the events are unfolding in such a way, that one may safely conclude, that may'be the said scam was "all air, no fact hype" - of sorts. (I've tried to simplify it, but yeah it takes time to calculate 7 lakh crores – the alleged recommended Base price for the auction!).

The Thought

In one line this blog reads: If the said spectrum is licensed (for 20 years) at a price of 7 lakh crores and only newbies (new telecom companies) won the bids, it would take them more than 1014-15 years to recover this initial investment, unless they come up with some mind-boggling solutions, which are accepted & lapped-up by the existing mobile users.


Competition Law Angle & the so-called Scam

Call that in 5 words as “appreciable adverse effect on competition”, w.r.t. new entrants in the Telecom business

or in more elaborate & specific terms, calling it as “creation of barriers to new entrants in the market”, “foreclosure of competition by hindering entry into the market” or “driving existing competitors out of the market.”

Or one may also call it assisting in the abuse of dominant position, allegedly and quite shamefully, openly accepted in recent recommendations, more elaborately explained as by assisting in utilization of “economic power of the enterprises including commercial advantages over competitors”, “market share & the size and quality of resources of the existing enterprises”, “entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale”, “monopoly or dominant position whether acquired as a result of any statute or by virtue of Government allotments or otherwise”.....

And all this when we have not even considered the risk of the term "RE-FARMING" in context to the present 7 lakh crore auction, meaning, a possible future escalation to the existing auction money....

Also, on a complete reading, a reader inspired by the blog, may also question the validity of the deprivation of liberty, of the Corporates accused in the said 2G scam, in the first place and secondly, the prohibition of their Bail applications to High Courts, by excluding the jurisdiction bestowed upon HC’s by our Constitution, which was completely contrary to previous antecedents.


Few Basics need to be studied for the complexities that may develop in the blog below:

- What is spectrum? Spectrum may be described as Frequency Bands over which “Communications” may be transported, there are few other sub-concepts like central/mid gap/barrier, interference, etc.

- What are circles/networks? For convenience in grant of licenses, the whole country is divided in state-wide zones (also metro-wise zones for Mumbai, etc.), these zones are called as circles/networks.

- Can such a license be transferred? Quite complicated to answer, please refer to, “In re Spice Telecommunications” decision by Delhi High Court.

- What is CDMA, GSM, etc.? For the time being consider them to simply mean technology platforms through which mobile services are provided.

Starting with the Blog

One of my prominent areas of interest in law being TMT (Technology, Media & Telecom) laws, I lapped up to the many newspapers in various languages that come to my house, reporting on "Recommendations" by TRAI to increase the base pricing of 2G Auctions to an astronomical figure of allegedly Rs.7 lakh crores. I closed my eyes for a moment, gave it a deep thought and started laughing on that thought.

That thought was as simple as this:

Consider that a new player/telecom operator or even, one of the newer players/telecom operators whose licenses have been cancelled - intends to bid for the license, constructing the pyramid upside-down in terms of business to test the viability of his bidding. i.e. lets think for a while he takes the license (not the entire licenses, but some part of it) at an amount 'x' after intense bidding (Why intense? the answer needs a bit of explanation & can wait till later). So, what next? The Telecom business at the end of the day being a business, he will want to recover this huge 'x' investment. And any time period for doing so, beyond the 20 years of license is a strict impossibility for his business.

(Ignore the initial infrastructure setting costs, marketing of the new brand to consumers, etc. for the sake of brevity & convenience)

A simple calculation to that effect - considering an average customer spends about Rs. 1000/- per month (not a constant figure mind you! Especially when huge masses of consumers do not actually spend Rs. 1000/- per month and that too, using the services of new telecom operators), including the calling, sms, internet and other value added services activated on his phone, either with or without his knowledge :) . So how many loyal customers can such a new player reasonably expect, provided that there are already established players in the market?

This means serious trouble for him, since he has spent 'x' amount already + other costs ignored by us, but only a few customers and that too, from select metro circles or other circles like Maharashtra & Goa fetch him Rs. 12,000/- annually. This amount needs to be reduced to its 1/12, to take into consideration the above fact as well, to compensate for mobile phone saturation in urban & semi-urban areas & all the consumers (majority of consumers in Indian market), who either out of ignorance or otherwise, do not have a usage of Rs. 1000/- per month & do not use internet and other value added services, translating in a rapid drop of the usage costs. And to top it all, it was observed in the last few years, that people generally use multiple SIM cards to use different offers from different operators. The worst affected due such use, being the new Telecom players.

So, to compensate all the above facts, a realistic figure comes to about Rs.1000/- per year or even lower per customer - our 'average' customer. So, for the new entrants to the market, whose licenses have been cancelled, would need at least 69,00,000 (69 lakhs) average customers or the alleged existing figure of 69,000,000 subscribers of the telecom players whose licenses have been cancelled – who in no sense use upto our assumed 1000/- per year usage as explained in the paras above, but in all contribute (690 lakhs or 69 million) to earn the total of approximately Rs. 6,900,000,000/- (690 Crores). The reason for above approximation being, finding customers who actively use the services ‘to the extent of Rs. 1,000/- per year on an average’ is an almost impossible task and there is no magic trick to do so.

This approximation is further re-enforced, especially, if one considers the already existing players and their grip over the market.

All this sh*t for 690 Crore rupees, now consider the recovery of the original 'x' investment. So, ASSUMING the new licenses are successfully bid for by mainly 20 players - calculating on behalf of 20 such new players on an average. The Calculation may be stated as:

The said 20 'x' is claimed by TRAI to be 7 lakh crores (Quite an unbelievable amount - keep reading to know about this)

VERY IMPORTANT : Assuming 20 players & an amount of 7 lakh crores allegedly, as '20x' is for technical convenience, few of the reasons for which are -

a) The TRAI recommendations have a maximum cap of 50% & 25% for single technology and multiple technology platforms for a specific spectrum, e.g. 800 MHZ or 1800 MHz, so we cannot assume one player taking it all. (I'm still clueless how they come up with these figures & %'s, the international standard for what % can be considered to grant a dominant position or one that may cause 'appreciable adverse effect on competition' in a market being much lower, especially, when they have, in fact, referred to statistics from European countries in the recommendations)

b) Also, the consultations that TRAI has been into with the stakeholders reveals that many stakeholders feel that the urban and to some extent semi-urban markets have become saturated due easy availability of mobile services for the past decade or more and that rural markets possess comparatively more opportunity for penetration. (So, unlike earlier one can expect the competition for rural India Service areas to be equally interesting to the urban & semi-urban service area bids.)

c) Even for the saturated urban markets, existing players will try to consolidate their market lead (strategically, it will entirely be an existing telecom company's own fault, if it allows any other existing operator or a new operator gain prominence), whereas those players who though exist in the pan India market, but are non-existent in some urban markets, may also bid highly.

c) Add to this, the fact that for now, it is recommended that we'l be having only 2 single stage auctions in quick succession, meaning that the bids can be expected to be very aggressive & Telecom operators unable to get the desired spectrum in the first single stage auction will be more aggressive in the second single stage auction.) The expectation that despite the long term problems, there will be bids by Telecom operators to the tune of 7 lakh crores approximately or even more is relatively real. These are answers to the question - Why is an intense bidding expected, despite the high costs.

d) Lastly, we need to keep the figure of new players as high as 20, since the amount of money set as 'base price per Mhz' for various telecom circles is such that it definitely needs huge investment and for this blog we are assuming the players to be just eligible/new in the telecom sector. Not all new players will have the finances, enough to have a pan-India presence or even if they somehow manage to do so, to put up a fight to the existing telecom operators who will be paying dirt cheap license fee to the government, for the spectra they already milch/use, till the time of the renewal of their licenses, at least.

20 such players with a total of 69,000,000 customers (69 million is reportedly, the existing number of customers of the so-called ‘tarnished’ new entrants), and keeping in mind the above pattern of comparatively lower usage of the products of these new players, dividing this number by 10.

We get a number of our 'average' customers to 6,900,000 (6.9 million) for getting an amount of Rs.6,900,000,000.

7 lakh crores would need 7,00,000/690 or even simply 70000/69 = a cool 1014.5 years + a few more years for the recovery related to basic infrastructure, et al... All this for a 20 year license, which will be renewable, but subject to the risk/monster of
"THE" brilliant idea of “Re-farming” devised by the recent recommendations.

QUESTION – What happened to the grandness of Equality?

Further one needs to ask on viewing such an astronomical figure, which is apparently, a strangely sudden realization: What exactly was the cost of this "scarce & so-expensive spectrum license" to the very early players, who today are established and are having many more than our 6,900,000 lakh 'average' customers?

An equally cool exception to the above situation of 1014-15 years is..... hold your breath...... if all the customers of these new entrants/telecom operators (who have paid a total of 7 lakh crores or more - remember it is an AUCTION this time, hence for some circles/networks, there may be bidding of more than the base price) agree to pay 100 times the existing rates, quite simply 1000x100 = Rs. 1,00,000/- (Rupees One lakh per year only), the recovery period may come down to 10.15 years + the few more years for other costs which we have ignored above.

To counter the facts admitted by TRAI in its recent recommendations, that 80-85 % of the 900 MHz is granted to the earlier players is capable much more "efficient and economical" to use, than the 1800 MHz now being auctioned for an alleged 7 lakh crores, a price much higher than ever before, they also recommend something termed as "RE-FARMING", it seems, in order for it to appear to be "just & equitable" :D - these chaps/blokes are suggesting 3 options and nothing more than those 3 options, for charging the existing telecom players (market leaders) today’s prices and shifting them to some other spectrum band like 1800 MHz, to vacate and re-allocate the more efficient & economical 900 MHz through new bidding – all this is, of course, is from the date of renewal of their licenses or some similar date. This "RE-FARMING" will save these chaps/blokes from the question that we had raised above, of the JUSTICE in charging the recent Bidders this unbelievable 7 lakh crores when the previous telecom players had it comparatively dirt cheap and in a technologically better frequency band.

The truth is .... that the current price suggested for the new bid is a priority task, even if postponed, whereas the genius idea of 'RE-FARMING' is a distinctly different suggestion and depends completely on 2 things:

a)      on the government's will;

b)      even if allowed so, by the government, allegedly only at the time of renewal of licenses of the existing telecom players.

So, there is a high probability of the said brilliant solution of "Re-farming" never coming to reality or if allowed, it will take place only at a later stage and the only thing happening right now, is the present Auction of Rs.7 lakh crores.

But, hey! Even if “Re-farming” is introduced at any stage, that would translate to mean that all the Telecom players, old & new, will pass the cost of such heavy investments to the customers. Which is dangerous &


Questions that need to be answered

The joke being, the state exchequer which had apparently lost 1.76 lakhs in the earlier 'so-called scam' licenses, would be richer a few times, but there may (less likely, but hey can't guarantee anything isn't it?) be riots all over India if these Telecom operators declare that each call would now cost Re. 1 per second or more simply, A FREAKING Rs.60 PER MINUTE and similar increase of tariffs for other services.

That would also mean (more practically) "Dis-appearance" of majority of India's poorer mobile users, meaning a further escalation of prices to correct the losses due to a loss in customer base. And considering these facts, what happens to 3G and the proposed 4G allotments? With mobile sets becoming a luxury for the ultra-rich once again would anyone even think of using 3G or 4G?

In short, these calculations in lakh crores sound cool in the beginning, every one stands up and shouts at the top of their voices, hailing the recommendations without understanding its long-term effects and the effects on Competition in the Telecom Sector in India, which is ironical, because India is primarily an agricultural country, yet the author of this blog never witnessed similar actions on a public and judicial levels for agriculture based issues like farmer suicides, irrigation problems, etc.

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