Mihir Sharma’s book Restart (2014) has a good chapter on this. The answer it seems was, no.
It’s not in the national interest to charge maximal prices for natural resources, and this is followed by many countries even today — China and the US included — and such rights are given away for a nominal or modest price, and always with a view to ensuring wide market participation.
Even European spectrum auctions have a clear aim of ensuring a sustainable market of 4 or more effective competitors.
This has been historic practice in India also. For instance, the British colonial government gave India’s other big industrial group — the Tatas — rights to coal and iron mining in the late 1800s for free to set up India’s first steel plant. Even the BJP’s own Vajpayee government did this.
The CAG’s “notional loss theory”, he argues, is rubbish. And looking at the events in India’s once vibrant Mobile Telecom industry, which has has now been reduced to an effective duopoly, one can argue Sharma was right.
"[...] the strange way India’s mobile spectrum was auctioned off in 2008. A last-minute rule change in the auction declared that licenses would be granted on a first-come, first-served basis to anyone with completed paperwork and $355 million in cash. [...] a haphazard process that netted only $2.7 billion in licensing fees and may have left $39 billion on the table, according to outside auditors."
This is billed by the FastCompany article as corruption, and is apparently being investigated as such, but it's not necessarily the case that the country would have been better off if the government had collected that extra $39 billion. A proper auction will end up selling spectrum to those rentiers who expect to get the most profits from the spectrum out of the public, and (likely) can convince banks etc. to borrow enough to buy it. That in turn will set a cost floor, and winners of the auction aren't able to reduce prices below the cost of the capital. But by selling the spectrum cheaply, telecommunication benefits have potential to be spread more widely, because the cost floor is lower.
> In case people aren't aware, the Indian mobile sector was one of the cheapest and most pioneering markets of its time.
Not sure in what way you mean pioneering but it was definitely not the cheapest! Everything cost money. Text messages, phone calls, data, roaming between states, out-of-state phone calls. Everything. All this in addition to the cost of the cell phone itself - no bundled offers with phone like AT&T did with Apple in the US.
Furthermore, you could get away with a connection from private companies like Airtel and Vodafone if you lived in a big city. Rural coverage by these players was notoriously bad. The only substitute available was the one provided by the government itself - BSNL - which got a reputation of having the "best coverage".
All that changed dramatically when Reliance came up with a Rs.500 phone which included a connection with free unlimited calls between two Reliance phones. That was the beginning of true mass adoption of cell phones in India.
> People created the 0 cost phone call - farmers and mobile users could give a missed call to a number they heard on the radio, and then they would get a call back.
This is not an example of a model working well. This is an example of a workaround to mitigate high call costs.
It wasn't affordable earlier. In fact internet/data plans were fairly expensive before the 4G days. It's a lot saner now.
>>Companies collapsed and merged and now the duopoly is jacking up prices so much that poor people have to pay 100rs just to keep card active
Please stop spreading lies, I still freshly remember the earlier days of paying some 500 rupees for a recharge and getting barely 150 minutes of talk time and that too with some 25 days of validity. And yeah the SMS, and other services were charged like 1 rupee per SMS.
One of the big wins Ambani claims to have achieved is how Jio exposed scammy pricing practices were in the telecom sector before.
> Many competitors have raised a lot of questions about how Jio did not follow the rules (there are a lot to link) the basic one being a rule about giving free plans for more than three months (which was not allowed by TRAI - Indian telecom regulatory authority - previously). but nothing happened, and people were happy with free internet.
These competitors are the same companies who had 'cartelized' the telecom industry[0] and had refused to bring down data prices in order to ensure their profits. I wonder why questions weren't raised against TRAI back then. Once Jio entered the scene, they did bring down the prices.
TLDR : that 4G spectrum auction was for Data-only. Reliance bid through a benami company, won all zones across the country, and then got the rules modified to data+voice.
So they didn't cartelize, and only recently after the insane noise over the 3g auction which fizzled out, did we lose that market.
We've now essentially cartelized (all remaining firms raised rates in tandem), and the few players left are also teetering with Vodafone considering leaving.
This means that we will likely see Jio, and Airtel left, with BSNL constantly being denuded.
Their profits are terrible, and the debt burden because of arrears means they need a rescue, or the future situation will become - impressively - even worse.
For anyone interested in this topic (and Indian government in general) I highly recommend Dr. Arun Shourie's book "Governance and the sclerosis that has set in". It gives a detailed look at the telecom mess and the kind of mentality that causes it.
Dr. Shourie was a cabinet minister in early 2001 and was single handedly responsible for Telecom reforms that made even these auctions possible. He wrote the entire book on this experience.
Few points:
1. India had several telecom "circles" based on the political borders of the states and handful of players (I think 6 or so). All 6 of them had lawsuites against each other and with government so around 50+ lawsuites over petty things. Dr. Shourie worked hard to clear every single of those lawsuites without having to wait for the courts to resolve it.
2. Indian regulations requires the cell towers to not extend their range beyond the political boundary. People who wrote the rules refused to acknowledge the fact that you can't stop radio waves based on political borders.
3. You had to apply different licenses based on how you will use the spectrum. For example for voice you had to apply one license and for SMS another license, for data another license. Also, a separate license for inter-circle communication. Which means if you want to allow your Mumbai customers to be able to send SMS to Delhi customers you required a separate license for the two circles and separate license for Mumbai to Bangalore communication. Also, separate licenses for ISD, international communication.
4. Indian government also insisted that they get to control how telecom company will roll out their towers. So if you erect a tower in Mumbai you must also erect a tower in some village even if you don't have any customers there. If you fail to do so, you will be fined.
5. Indian government also wanted (and actually did) to ban services like Skype because they would enable voice over data thus making a separate voice license pointless. For many years VoIP was illegal in India.
The body responsible for these hair-brained regulations was a technical body called DoT.
Not only Dr. Shourie worked hard to resolve most of these regulations and replace them with something sensible, he insisted that if telecom companies are not interested in even bidding for some circles we should give them the spectrum for free. No telecom company was even interested in applying for spectrum in many parts of India (something unthinkable today) which were then given on first come first serve basis.
Later when telecom revolution happened and spectrum value exploded through the roof, some people wanted to investigate Shourie for corruption for giving this obviously valuable spectrum for free. Even the supreme court of India had trouble understanding why the spectrum that sells for billions today was not worth anything 20 years ago.
Having known Dr. Shourie personally, he is one of the smartest and competent individual Indian government was thankful to have working for them.
This is a bizarre article in the flavor of NY Times India coverage which cannot look at India except through the lens of cow, caste and curry. After all how could a third world entrepreneur build the biggest data network in the world for the cheapest price? Not once but twice!
One instance of how the article is riddled with errors:
"From 1980 to 1985, the number of equity investors in India rose from 1m to 5m, and by 1985 1 million of them owned shares of Reliance. Since equity investors are likely to be middle class and above, this gave Reliance a broader political constituency: instead of buying individual regulators with bribes, they nudged the electorate with dividends."
As per [1] 240 million people cast votes in the 1985 election. So with 0.25% of the total vote scattered across hundreds of constituencies Reliance was able to swing the electorate which is fractured across die-hard political affiliations, economic interests, religions and caste hierarchies. Sure whatever.
Perhaps it is hard for the author to admit that Mukesh Ambani, the current CEO of Relaince/Jio and son of the founder, is a unparalleled operational genius. He singlehandedly led the team that rolled out the biggest refinery in the world in Gujurat in 1999 [2] where "biggest in the world" and India never went together for anything manufactured.
He also rolled out Reliance Communications in the 1990s which was then the cheapest mobile provider by an order of magnitude [3]. That business went to his brother Anil in the family split in 2006 and Anil ran it into the ground. When their fraternal non-complete expired Mukesh built out Jio which again dropped data pricing by an order of magnitude and made voice free. Jio now has the cheapest data in the world [4]. This bankrupted all his competitors who were centi-billion market cap companies and forced them to drop prices and merge. It also bought hundreds of millions of extremely poor Indians to feature phone ownership for the first time. They had the opportunity to what he did but could not. They also wielded the same power with the bureaucracy that he did but were not able to leverage it.
I certainly would like 12GB of data $1.23. Heck, even 10x that is a bargain. But instead of pondering what he did the author spins dark tales of subterfuge, mafia, corruption and bribes.
Those are not the competitive days, those are pretty much classic examples of the chilling effect on our market after the SC forcing a re-auction.
An auction exposes market pricing information which was hidden before.
In case people aren't aware, the Indian mobile sector was one of the cheapest and most pioneering markets of its time.
People created the 0 cost phone call - farmers and mobile users could give a missed call to a number they heard on the radio, and then they would get a call back.
Stuff that was in sharp contrast to the mobile plans and service packs around the world.
While people argue about data, they forget how hard it is to set up the infrastructure and the massive boost forward simple phone calls were for people.
That was the era I am talking about, not post the SC verdict.
Any form of monopoly is bad. However, it's important to note that prior to Jio's entry in the market, the data prices were unaffordable for majority of the population. Post Jio's entry, the same incumbent network providers had to slash their prices.
Low prices enabled millions of Indians to get connected to the Internet. Interest of millions of Indians will be always given precedence over interests of a bunch of companies that want to keep data prices high to ensure their profits. Please share citations for your other accusations.
Regarding telcos dues, AFAIK those companies have been avoiding the dues for decades and they must be held accountable some day isn't it? I can't comment on whether or not TRI should have intervened when JIO started offering free services - if it was allowed as per the regulation intervening by TRI could have given a message that it was acting for protecting existing players and if it wasn't allowed by regulations, Telcos would have gone to court.
Regarding the on-going talks of selling asset, since court has already ordered Reliance to reveal assets, they just can't do away with whatever is the liability set. Indian court system is not a joke.
My original point was that Reliance or Mukesh do not rule India; yes they are clever and do lobbying as any other capitalist does but they don't control the nation or gov.
>>All else being equal, the cellular equipment will cost the same
I'm not sure where I read this. But I remember reading several years back, Airtel doesn't buy telecom equipment, it actually leases it, and pays for it as it goes. Which is why the prices were so low even for a new tech rollout like 4G.
Not sure if Jio has the same model.
>>Telecom infrastructure is like any other infrastructure—vastly more expensive to build in the west
Apart from land acquisition costs. India doesn't buy TBMs(Tunnel Boring Machines), from what I know. TBM's are a very capital expensive investment. But pace of building things is very slow in India compared to any such project in the west.
Having said that India does do frugal engineering well.
>The auction irregularity conducted by the alleged Shell company which was bought by JIO and highlighted by CAG was done in 2010
CAG highlighted irregularity with so many other things with the auction and top ruling party-alliance members were booked for scam, why didn't BJP take further action on this report then?
Meanwhile, Airtel/Vodafone (Competitors to Jio) have been asked to pay $ 12.3 Billion AGR dues after supreme court order. This wouldn't have happened if the ruling BJP Govt. had respected the order of TDSAT (Telecom Disputes Settlement and Appellate Tribunal) which stayed the payments in 2015 in favor of said telecom companies.
This kind of blatant favoritism for Reliance, Adani etc. leading to total destruct ion of competitive business environment in India did not happen before.
> Within a span of four years, Reliance pumped in over $33 billion from its other businesses to expand Jio’s market.
> Jio was able to achieve these cheap rates by acquiring the only firm that won a pan-India 4G license, leveraging the superiority and cost-efficiency of 4G compared to older cellular standards, and because of the unparalleled size and resources of its parent company. [emphasis mine]
> A sizable portion of the investments will go toward paying off the existing debts accumulated by Reliance to fund this extravagant project and its other businesses,
Reading between the lines in this article, it sounds like Reliance is simply buying market share by running Jio at a big loss, and temporarily making up the difference with huge investment rounds. I feel like we've seen this show a lot lately and it doesn't always work out.
I’m sorry, but the facts are that india has (had) a remarkable telecom sector at inception.
The reason why I say this is because it’s VERY easy for the market structure to get flubbed and become only 2 or 3 firms which “compete”. (See america- invented the Internet, didn’t get the market right.)
India has some of the lowest, if not the lowest ARPUs in the world. The Indian telecom sector invented the 0 cost phone call (you give a missed call to a phone number, people call you back with offers)
Market structure is so important - you see it how the nascent Value added services market was destroyed by Indian telcos.
Back in the day one new area of innovation was VAS- but telcos were able to dictate the profit spread to VAS firms once they realized VAS was profitable. This killed the industry.
Telecoms tend towards rent seeking behavior (American telecoms say “this is the best service we can provide”, until google fibre turns up and magically those fibre installations get executed)
Data prices being high ignores the cost of calls and of infra issues the telcos were facing.
The spectrum auctions and the subsequent Supreme Court verdict destroyed our market - and there just isn’t the kind of market and economic acumen+Political power mix which will fix the market.
> They'll drop it as soon as something cheaper comes around.
My bet - nothing cheaper comes along. Because Reliance's biggest competitive advantage is close links with the government, regardless of the party in power. A hypothetical competitor would find it difficult to get spectrum allocated, have trouble with land usage rights, tax issues like Vodafone had.
There is a reason foreign companies set up joint ventures with Reliance, Tata, Birla etc. Ostensibly it's because these companies "understand" the Indian market. In reality, it's because they have spent decades "lobbying" political parties and will continue doing so for several decades more. A company like Sky wouldn't know how to get started with political lobbying, wouldn't be comfortable with outright bribery, can't make a long term commitment to staying in India. So they set up Tata Sky - they supply the tech, Tata supplies the connections.
Reliance Jio has already inked a pact with Anil Ambani-owned Reliance Communications for airwaves sharing while the latter has acquired the Russsian telco Sistema that offers services under the MTS brand.
The deal allowed Reliance Communications to get access to MTS spectrum in the 850 Mhz band that can be used to offer 4G services.
Mihir Sharma’s book Restart (2014) has a good chapter on this. The answer it seems was, no.
It’s not in the national interest to charge maximal prices for natural resources, and this is followed by many countries even today — China and the US included — and such rights are given away for a nominal or modest price, and always with a view to ensuring wide market participation.
Even European spectrum auctions have a clear aim of ensuring a sustainable market of 4 or more effective competitors.
This has been historic practice in India also. For instance, the British colonial government gave India’s other big industrial group — the Tatas — rights to coal and iron mining in the late 1800s for free to set up India’s first steel plant. Even the BJP’s own Vajpayee government did this.
The CAG’s “notional loss theory”, he argues, is rubbish. And looking at the events in India’s once vibrant Mobile Telecom industry, which has has now been reduced to an effective duopoly, one can argue Sharma was right.
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