Sold. Cancelled. Resold. Failed.
These four words describe the journey of the 122 licences which have gone through different stages involving the political blame-game.
NEWS:
The Government of India(GOI) has decided to slash the 2G base price by 30% in four unsold circles.The price cut for airwaves by the ministerial panel has sent out shock waves in the telecom industry.
BACKGROUND:
Stage 1:
Back in 2004-2007, the telecom sector was at its zenith. We saw fast expanding subscriber base and exponentially rising EBITDA(Earnings before Interest,Taxes,Depreciation and Amortisation). This was basically because of the monopoly as there were only 4-5 players in the sector.
Stage 2:
Now when Raja (The telecom master!) became the telecom minister, he tried to give a boost by giving away 122 new licences at throwaway prices. Result was that the sector saw the entry of many new companies. So, the tariffs plummeted (to the consumers' delight!) and the firms got lower profit margins. According to the data given by TRAI, the profits went down from 42% in 2007 to 34% in 2011. Then in 2010, the break-even point came when the government put up 3G for auction. As they say,"Spontaneous urge to action can lead to unanticipated outcomes!" So did this move of the GOI. The companies now faced high debt burden. This completely destroyed the financial viability of the telecom sector.
Stage 3:
In 2011, Raja was imprisoned for giving away the licences after the exposure by the CAG report on 2G scam. In 2012, the Supreme Court ordered the cancellation of all the licences. Big corporate turks like Telenor and Sistema were thrown out of the telecom circles.The 122 licences were now to be resold by an auction. The then TRAI chief J.S.Sarma suggested to sell off only 5 Mhz at an exorbitant reserve price. His strategy was also different (and also difficult)! His plan was to sell the high frequency bandwidths at higher prices whenever the license of the company would expire in future. In other words, he wanted to create an artificial scarcity. But the government diluted Sarma's recommendations (with negligible change though..) and lowered the price from Rs. 18,000 crore to Rs. 14,000 crore. As a result when the re-auction took place before diwali, there were very few takers. NOW THE IDEA.. The government has been doing all this to cut down its own deficit. All they want is a bigger bang for the buck!! It will eventually lead to immense consumer dissatisfaction. If the prices of the licences are high, the companies will jack up the tariffs for the customers. And the vicious cycle will start...
Seeing the high number of unsold licences, the government has made a quantum reduction in the prices. It is leading to a mixed response from the telecom players. The ones who have already bought the licences are wondering why they didn't get a commensurate cut? The ones who wish to buy now wonder why the decrease in price was only by 30% and not 40 or 50? As one of the members of the lobby groups for GSM operators said ," The GOI has opened yet another can of worms!"
MY OPINION:
Even though I understand the government's responsibilities and fundamental duties of balancing satisfaction and fiscal deficit. But knowing that Indian economy is facing a slowdown then it is probably a wrong move of trying to boost the government revenues. However, decreasing fiscal deficit may also give a new ray of hope by increasing the total output.Only time will tell...whether this change would be a stimulus for growth or a "built-in depressor"?
A possible suggestion in this case is to favour consolidation. The telecom players can form merged identities to decrease competition and ward off their debt burden. After all, as Charles Darwin believes "The fittest is the one who survives!!"
These four words describe the journey of the 122 licences which have gone through different stages involving the political blame-game.
NEWS:
The Government of India(GOI) has decided to slash the 2G base price by 30% in four unsold circles.The price cut for airwaves by the ministerial panel has sent out shock waves in the telecom industry.
BACKGROUND:
Stage 1:
Back in 2004-2007, the telecom sector was at its zenith. We saw fast expanding subscriber base and exponentially rising EBITDA(Earnings before Interest,Taxes,Depreciation and Amortisation). This was basically because of the monopoly as there were only 4-5 players in the sector.
Stage 2:
Now when Raja (The telecom master!) became the telecom minister, he tried to give a boost by giving away 122 new licences at throwaway prices. Result was that the sector saw the entry of many new companies. So, the tariffs plummeted (to the consumers' delight!) and the firms got lower profit margins. According to the data given by TRAI, the profits went down from 42% in 2007 to 34% in 2011. Then in 2010, the break-even point came when the government put up 3G for auction. As they say,"Spontaneous urge to action can lead to unanticipated outcomes!" So did this move of the GOI. The companies now faced high debt burden. This completely destroyed the financial viability of the telecom sector.
Stage 3:
In 2011, Raja was imprisoned for giving away the licences after the exposure by the CAG report on 2G scam. In 2012, the Supreme Court ordered the cancellation of all the licences. Big corporate turks like Telenor and Sistema were thrown out of the telecom circles.The 122 licences were now to be resold by an auction. The then TRAI chief J.S.Sarma suggested to sell off only 5 Mhz at an exorbitant reserve price. His strategy was also different (and also difficult)! His plan was to sell the high frequency bandwidths at higher prices whenever the license of the company would expire in future. In other words, he wanted to create an artificial scarcity. But the government diluted Sarma's recommendations (with negligible change though..) and lowered the price from Rs. 18,000 crore to Rs. 14,000 crore. As a result when the re-auction took place before diwali, there were very few takers. NOW THE IDEA.. The government has been doing all this to cut down its own deficit. All they want is a bigger bang for the buck!! It will eventually lead to immense consumer dissatisfaction. If the prices of the licences are high, the companies will jack up the tariffs for the customers. And the vicious cycle will start...
Seeing the high number of unsold licences, the government has made a quantum reduction in the prices. It is leading to a mixed response from the telecom players. The ones who have already bought the licences are wondering why they didn't get a commensurate cut? The ones who wish to buy now wonder why the decrease in price was only by 30% and not 40 or 50? As one of the members of the lobby groups for GSM operators said ," The GOI has opened yet another can of worms!"
MY OPINION:
Even though I understand the government's responsibilities and fundamental duties of balancing satisfaction and fiscal deficit. But knowing that Indian economy is facing a slowdown then it is probably a wrong move of trying to boost the government revenues. However, decreasing fiscal deficit may also give a new ray of hope by increasing the total output.Only time will tell...whether this change would be a stimulus for growth or a "built-in depressor"?
A possible suggestion in this case is to favour consolidation. The telecom players can form merged identities to decrease competition and ward off their debt burden. After all, as Charles Darwin believes "The fittest is the one who survives!!"
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