The 2G story: late by a decade

The 2G story: late by a decade

One of the benefits of serving as a policymaker in India is that a person usually has to merely do the obvious to look good. To be sure, it takes more than courage to do the obvious, especially in businesses such as telecom where assorted fat cat businessmen and lobbyists have become used to having their way. In most cases, and especially in telecom, the answer lies in strong regulation and the use of free market principles to price both licences and air waves. And this, at least going by reports in various newspapers including this one, is what the current telecom minister appears to be laying the ground for.

Given the intense activity in the telecom space, not just in terms of growth, but also in terms of court cases, regulatory pronouncements, investigations, and frauds, most people can be forgiven for ignoring a fundamental fact: The first time spectrum was priced in this country was during the third-generation auctions last year. Until then, telcos had to pay a sort of entry fee, sign a revenue share agreement, and were given what is now called start-up spectrum. Old telcos were given 6.2MHz of this and the new ones 4.4MHz for so-called second-generation, or 2G, mobile telephony. Most old telcos have far more spectrum and this was handed out to them, not on the basis of any formula or policy, but ad hoc, and as and when the telcos approached the telecom department seeking more spectrum.

If the government decides to price this additional spectrum, as well as new spectrum that will be given to operators then it will merely be doing something that should have been done around a decade ago, when it first became evident that the country’s mobile telephony market was set to boom. To be sure, this was the second big regulatory failure of the government. The first was the move to allow companies with fixed telephony licences to offer mobile telephony services. The third was the decision to allow companies that were allowed to offer mobile services on the CDMA technology platform to offer services on the GSM platform as well. And the fourth is well known as the 2G scam. Pricing spectrum will definitely level the playing field in telecom to some extent (but not a lot). It will also put some more money in the hands of the government. Which, given the current government’s fiscal profligacy, may not be such a good thing.

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