Reverse bill shock for India's 2G cellcos

Tony Poulos

Reverse bill shock for India's 2G cellcos

December 24, 2010

One thing that strikes any visitor to India is the fact that things never seem quite finished. Magnificent corporate buildings in new tech parks are all ready to go but quite often there is no power connection to the building or the roads to the buildings are not even close to completion with piles of rubble interspersed with massive potholes a tanker could disappear into. Even Delhi’s brand new, and long overdue, international terminal, supposedly completed for the recent Commonwealth Games stands like a glass oasis in desert of rubble.

Ask anybody in the country why this is so and you are met with a wiggle of the head and an upward glance. That’s just the way it is and nobody seems to question it. When you consider that India is trying to compete head on with its powerhouse Asian neighbor, China for international investments, you have to come away thinking it is a lost battle already. Infrastructure and efficiency abound in one and cannot be found in the other. Perhaps history and political systems have a lot to do with it?

Considering all this, one wonders why nobody questioned the incredible efficiency displayed by India’s now infamous telecommunications minister, Mr A. Raja, when he doled out 2G licenses to all and sundry. The license allocations were so smooth that nobody remembered to bill for them, let alone get paid. The whole sad affair is still under investigation but one thing is certain, it wasn’t the government that benefited.

The latest news is that very same government may be looking for reasonable compensation from the recipients of the licenses in question. Keeping in mind that the more recent and open 3G franchise auctions returned $15 billion to the government coffers, estimates of around $8 billion from 62 of the existing 2G licenses may not be too far-fetched. For some operators this case of ‘reverse bill shock’ combined with very low returns on investment, due to cut-throat pricing, will likely see some falter or be swallowed up by the bigger players.

For some licensees, that may have been the objective from day one, but hopefully at a more conducive time. It is a subtle, but not uncommon practice for favors to be done without benefit in the early days of a new player and for compensation to be collected at sale time when values are considerably higher and retirement is an option.

If that is the methodology being utilized in India there may be some very unhappy people that are not likely to see any of their expected ‘pension’. Sadly, the extent of corruption in high places may never come to light, but the fact that the first big case is telecommunications related is a real worry and may trigger other governments to take a closer look at their own license and spectrum allocations.

If this high-profile case forces the Indian government to start investigating other industries the authorities may discover what actually happened to street pavers meant for the Delhi terminal and if the missing concrete deliveries were not redirected for someone’s new swimming pool. Stranger things have happened!
 

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Tony Poulos
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