In recent months, the media has exposed serious misdemeanour in the ministry of communications.  This has taken the sheen off the success story that is India’s telecom sector. Ever since the government of India decided to induct private players in the sector, politicians and bureaucrats have taken several decisions that have seemed irrational and partisan to experts and analysts.  It is important therefore that the guilty are identified and punished.  However, pursuit of the guilty, even it were (unexpectedly) to be successful, will leave some more basic problems unaddressed.

It is not that tough action will stall the extraordinary growth of the sector or raise prices.  It is unlikely that consumers will see any impact on prices or quality of services, were some players to exit the sector. Any economic analysis of market shares in the sector will demonstrate that even after such an eventuality, competition in the sector will remain higher than anywhere else.  There should be no fears about investments either; serious investors, in particular, should welcome any action or process reduce the impact of rogues.

However, the only sustainable way of preventing mischief in the sector is to remove incentives for arbitrary or discretionary action by those in charge.  Unfortunately there remain several such perverse incentives for players in the market.  The current mess relating to 2G licences is a direct result of an illogical administrative approach to allocation and pricing of spectrum which has little relationship with the actual value of the resource. 

Such an approach is particularly unhelpful when the demand for spectrum far exceeds the amount available.  In such cases a well designed transparent auction is our only option. The few disadvantages of auctions- e.g. likely high bids which take away funds that would otherwise be invested in the rollout of networks - cannot be the reason to continue with other methods which lack objectivity as well as transparency.

The Telecom Regulatory Authority of India seems to broadly accept this in its recent recommendations to the government. But by suggesting that spectrum for GSM and CDMA spectrum – both are aggressive competitors in the mobile market- should be allocated and priced differently,  TRAI has combined a sensible approach with an outrageous anomaly.  Such recommendations cannot be the basis of any coherent approach to spectrum management. They cannot prevent potential mischief by those who will take the last call.

TRAI’s broadband recommendations have a similar problem. The TRAI has proposed the creation of a nationwide fibre infrastructure at the cost of over Rs60,000 crores or US$14billion. Opinions might differ over the objective as well as the estimated cost. However, it is the TRAI’s proposal to set up a government owned company to implement the programme that must concern us in the context of recent controversies. The record of similar bodies, in taking objective and transparent decisions is dismal. Delhi Metro, with its impressive leadership is a rare exception. Given our quality of governance, especially related to appointments to bodies with budgets of several thousand crore rupees,  it is unlikely that we will be able to prevent vigorous lobbying from vested interests. There seems little in the design of the recommendations or the proposed bodies to prevent subversion of the hugely important broadband agenda. Again, it will be a matter of time before new controversies arise.

There are other examples too where our insistence on going against the grain, has come back to haunt us. We need to remember that unless we address underlying arbitrariness in our regulatory processes, corruption will not go away.