The 1.7lakh crore scam and lost business opportunities


Just as when I had typed the title of this blog,  my Google reader informed me about Atanu’s new post on the same topic. He has explained which in my opinion did not require such a long explanation, but then he is an economist and we are lay people.

To summarize the scam which is estimated by media to be somewhere around 1.7 lakh crore does not mean Raja has stolen 1.7lakh crore rupees and stashed somewhere in Chennai/Swiss-bank,under the bed etc. If the spectrum was auctioned with the highest bidder getting the max spectrum then probably government would have earned 1.7lakh more than what it was earned it now.

Media has managed to misguide the people on this issue quite nicely. I suspect that this might be done by the congress party or some telecom giant. People are now blaming Mr. Raja for causing the government a loss of Rs. 1.7lakh crore.

In my opinion people are actually benefited by this instead. Clearly if government had to obtained Rs. 1.7lakh crore it would have burnt it over schemes which wouldn’t have reached public. But this astronomical amount of money wouldn’t come from thin air. The telecom companies had to pay for it. That too only for 20 years.

Now that they have paid such huge amount they have to recover it in 20 years from their customers. Imagine the effects it would have had on call rates and over all communication business in India.Communication infrastructure is very important for knowledge and information based industries. That is an area where many new types of business are supposed to come up. But if our telecom companies had the liability of Rs 1.7lakh cores I think that will slow down most of the things unnecessarily.

Having said all this, I by no means intend to call Mr. Raja a paragon of virtue. How did he allocate spectrum is no known to me. It is likely that he took bribes from some telecom companies and favored them without thinking over the consequences. The amount of bribes I supposed is no where close to 1.7 Lakh crores.

In my opinion, what the ministry should have done is something like below.

Let all the bidders tell what more things they will do with the additional spectrum besides continuing the existing services.

The focus should be such that these new additional services can help more businesses come up dependent on the telecom company as service provider. Such models exist in Japan where carrier lets other companies provide services over their network and shares 10% revenue with this third party.

The most crucial service for this to happen in my opinion is the data service. If users can access unlimited internet on their mobile devices at 3G speeds for something like Rs 100 a month, that in my opinion can open a pandora’s box for many entrepreneurs. The opportunities are virtually unlimited. From online payments to tele-medicine and from business applications to entertainment many start-ups could make a fortune.

But I don’t think Mr. Raja who is in the shoes of Dr. Shourie and Pramod Mahajan had any thoughts over this matter.

The results are evident. No telecom operator will concentrate on provide data services. They will try hard to keep any third-party service provider/ app developers at bay.

Imagine this.

1. Tata Docomo provides internet facility on their device at 2 Mbps unlimited somewhere between Rs. 100 – Rs 300.

2. It creates an API which works with a unique developer key. [The process of getting this developer key might involve identity verification].

3. This API lets the application fetch user’s personal information such as balance etc.

4. Developers can build application and put them up for sale on Tata Docomo application store. The applications can be as cheap as Rs. 5 deducted immediately from user’s balance. Tata Keeps Rs 4 and the developer gets Rs. 1 per download.

5. What kind of applications can come up on such a platform ? One can look at the success of iPhone App-store and figure out the answer.

We will have to wait for few more years to see if our telecom companies find innovative ways to make fortune for themselves or they continue with their strategy to milk a few customers dry.

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