2G allotments set off a spiral of bad policies that cost India much more than Rs 1.76 lakh crore

The 2G verdict on Thursday, in which a Delhi court acquitted all the accused of corruption charges in connection with the sale of telecom spectrum licences in 2008, is just the latest instalment in a long-running serial. I remember the day it started. I was at the Patiala House courts in Delhi, getting an affidavit prepared by one of the typists, when I received a phone call from a journalist working the telecom beat.

She was near incoherent as she explained that 100-odd 2G telecom licences had been handed out within the space of an hour. Nobody outside a small charmed circle even knew that it was going to happen. But captains of industry had queued up at the Telecom Ministry with all the required bank guarantees and tonnes of paperwork. Now, preparing and submitting my two-page affidavit (on Rs 100 stamp paper) took me about four hours. That helped put the “efficiency” of the telecom licensing process into perspective.

The Congress-led United Progressive Alliance won the 2009 general elections but the repercussions from that day have continued. 2G became a catchword for anti-corruption campaigners after the Comptroller and Auditor General made his (absurd) calculation of a notional loss of Rs 1.76 lakh crore to the exchequer from the 2G spectrum sale. (The Central Bureau of Investigation reckoned it was Rs 30,000 crores). Along with Coalgate – another political scandal involving the alleged irregular allocation of coal blocks at an estimated loss of Rs 1.86 lakh crore to the exchequer – 2G was largely responsible for the perception that the United Progressive Alliance was hopelessly, terminally corrupt and it played a big part in bringing the current regime to power.

Delays, policy disasters

In moral terms, the telecom sector has never really recovered from the way the 2G licenses were allotted. It destroyed all faith in the telecom policymaking process. Policymakers have subsequently compounded the problem as they scrambled into damage-control mode.

The 2G licences were granted for a song, under “pass-through” terms that meant anybody who was lucky enough to get a licence could instantly monetise it by selling it on. Merger and acquisition norms have since been hardened with layers of complicated regulation to prevent such pass-throughs. This has increased the barrier for takeovers, which makes it more difficult to bail out an ailing operator.

Also, to avoid accusations of corruption, subsequent spectrum auctions have been long delayed and have gone to the other extreme in that these were launched at very high reserve prices. The 3G and 4G auctions as well as the subsequent 2G auctions have led to a “winners’ curse” situation – anybody who has bid for and received a currently valid telecom licence has paid too much for it.

Rollouts of 3G/4G were both delayed by several years. India fell far behind the curve in terms of mobile broadband coverage. In addition, policy in other aspects remained difficult to understand. Policymakers are supposed to provide a level playing field. Yet, when Reliance Jio Infocomm entered the arena, it was allowed to offer free services for six months. That led to additional stress for other operators.

Telecom industry struggling

There have been concrete losses. One part of the fallout is the devastation inside the telecom industry. There were roughly a dozen private telecom service providers with significant subscriber bases in 2009. Now there are five, and there will soon be only three left in the game.

Of these, Reliance Jio Infocomm came into the picture only in 2016 and it is supported by its parent’s deep pockets. So long as the price of crude and natural gas does not spike and the refining margins for petrol, diesel and kerosene remain good, Jio will do fine. Bharti Airtel continues to go it alone, with its financials looking worse and worse. Vodafone India-Idea Cellular are in the process of a merger that has been forced by financial stress. Reliance Communications is bankrupt and in the process of shutting down. Interest payable on its debt exceeds its entire revenue. Only one operator, Airtel, made a profit in the last quarter.

All surviving operators are struggling to just continue operations and service the debt they took on to get their current licences. Lenders are contemplating a massive pile of potentially non-performing assets – loans for which the principal or interest payment is overdue for 90 days – amounting to nearly Rs 8 lakh crore (this includes spectrum payments owing to the government) and wondering nervously if operators will continue to scrape up enough revenue to service their debts. There have been huge layoffs across the telecom industry and there will be more.

Call drops, slow data transfer

Related to this is the pathetic quality of mobile coverage. Financially stressed operators have refused to invest in the rollout of high-quality networks. Dropped calls, glacially slow data transfer, dead spots with no coverage – all this has become normal. “Network busy” has become a Hinglish phrase, often used to describe somebody who is distracted or inattentive.

Poor network quality and delayed rollout of 3G/4G has meant an opportunity loss with a concomitant cost. Consider that India got 3G services several years after it became technically feasible precisely because of the 2G mess. Consider the data-dependent services that 3G enabled, once it did get going. Consider the fact that India got 4G late as well, and 4G enables even better data-based services.

Consider the number of new businesses – e-commerce, location-based ride-hire services, entertainment, internet of things, remote education – that have ramped up on the basis of 3G/4G availability. Consider the fact that India has become the biggest data consumer in the world within a year of 4G rollouts.

Have you ever wondered what sort of revenue and employment opportunities were lost because of those long years of delay? Those opportunity costs are impossible to compute. But they would be higher than Vinod Rai’s Rs 1.76 lakh crore “notional loss”. By allowing that figure to be put in the public domain and triggering the policy disasters that followed, successive governments have lost even more revenue than Rai could contemplate.

The industry will continue to limp along. Litigation will continue – in fact, this verdict is likely to spark off more litigation from those whose licences were cancelled. India Inc will heave a sigh of relief. The Dravida Munnetra Kazhagam, whose leaders A Raja (the former telecom minister) and Kanimozhi were acquitted in the 2G case on Thursday, will flex its political muscles again. And you, the consumer, will continue to hear “network busy” far more often than you can stomach.