Authors: Robin Jeffrey
The all-out entry of Reliance, perhaps the best known company name in India, accelerated the rapidly growing awareness and popularity of the cell phone. Reliance used a sentiment attributed to Dhirubhai Ambani: ‘Make a phone call cheaper than a postcard and you will usher in a revolutionary transformation in the lives of millions of Indians’.
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The Reliance marketing slogans presented the mobile phone as something everyone could afford and needed to own, particularly the not-so-literate: ‘
Chitti likhane ka zamana gaya
’—gone are the days of writing letters. Another slogan took the old political standby of bread, clothing and shelter and added ‘mobile’—‘
Roti, kapda, makaan aur mobile
’.
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By 2010, Reliance was the undisputed leader in providing mobile telephones through CDMA with 53 per cent of CDMA subscribers, though with fewer than 10 per cent of GSM subscribers.
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The third of the biggest mobile-service
providers was Vodafone Essar, usually referred to as Vodafone. The ambiguity over the name highlighted the essence of the company: this was the new India, and foreign investors were welcome. The UK-based Vodafone became a two-thirds shareholder in 2007, but Essar had been in the mobile-phone business since 1994 when it got a licence for New Delhi in the allocation of licences for the four great cities (Mumbai, Chennai, Kolkata and New Delhi). Essar was ‘old India’ in that it was a family firm originating from Marwar and controlled by two brothers, Shashi Ruia and Ravi Ruia, rated No. 245 in the world on the
Forbes
magazine ‘rich list’.
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Formed in 1969, Essar had grown in the days of India’s controlled economy, but quickly adapted to the reduction of economic controls after 1991. It went from construction, shipping, oil-drilling and steel-making into a partnership in telecommunications with Hutchison Whampoa, the Hong Kong-based group, which sold to Vodafone in 2007. By 2010, Vodafone had about 17 per cent of the total mobile phone business in India.
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(See
Illus. 5
).
India’s two most famous business families of the twentieth century, the Tatas and the Birlas, could not ignore telecommunications and the mobile phone. Tata adopted CDMA technology, and like Reliance, benefited from the ability of being able to offer limited mobile service for cheap landline prices in the anarchic 1999–2002 period.
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It emerged as the second-ranked CDMA provider after Reliance. Overall, including GSM and CDMA technologies, Tata Telecommunications ranked with the government provider, BSNL, and the Aditya Birla group’s Idea, each commanding between 10 and 12 per cent of the mobile-phone market in 2010.
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Birla’s Idea had acquired licences in 1995, and through mergers (with Spice, a venture of another Marwari family, the Modis, in 2008) and partnerships (with Telekom International Malaysia), Idea could claim to be the third largest revenue earner in the mobile phone business.
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The list thus far looked like
a portrait gallery of established Indian capitalists: Tata, Birla, Ambani, Ruia, Mittal, all from western India and from the classic Marwari-Bania-Parsi backgrounds that typified Indian capitalism as it developed in the twentieth century. The odd company in a list of dominant players was Aircel, market leader in Tamil Nadu, in which the Reddy family, owners of Apollo Hospitals, were minority partners. Dr Pratap Reddy returned from the US and established what became India’s premier chain of private hospitals in 1983. In 2006, in partnership with Maxis Communications of Malaysia, they took over Aircel. One of Pratap Reddy’s four daughters explained the reasons:
We believe that telecom is one of the fastest-growing service sectors in India. Like the healthcare sector, telecom also helps us to reach out to the masses in a big way… We are testing the waters.
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Suneeta Reddy identified a key fact: this was technology for the masses. Potentially, the mobile phone could be as essential to an individual’s sense of well-being as health itself.
India’s great capitalists understood that telecommunications and the mobile phone were something big, even if no one knew where the technology was going or from where the profits would necessarily come. In retrospect, initial estimates of the potential of the mobile phone in India had been laughably modest. The companies that began to set up mobile networks in the four big metros in 1995 aimed to serve about 20,000 subscribers in Mumbai, 15,000 in New Delhi, 5,000 in Chennai and 3,000 in Kolkata. When Essar, which had won a New Delhi licence, rolled out a network to accommodate 100,000 subscribers, rivals laughed.
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The telephone needs of New Delhi and Mumbai had been provided since 1986 by MTNL, the government corporation created in the enthusiastic days of Rajiv Gandhi’s new government and his commitment to improve Indian technology. MTNL was intended to be the forerunner of telecoms cut free from monopoly control by a weary government. It was only in 2000, however, that the remainder of the government’s telephone investment that covered the rest of India was turned into the government-owned Bharat Sanchar Nigam Ltd (BSNL). Its 350,000 employees, according to one critic, were ‘not formally trained to be customer friendly, and the tag of an uncaring company stuck to BSNL …’
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The company boasted that it had the most extensive coverage in India: ‘Whether it is inaccessible areas of Siachen glacier and North-eastern region of the country, BSNL serves its customers …’
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Customers, however, did not share the sentiment. BSNL came to be known as
Bhaai Saahib, Nahin Lagega—
‘Brother, it won’t be connected’.
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BSNL’s share of mobile-phone subscribers fell from almost 20 per cent in 2006, when its widespread infrastructure gave it advantage, to just over 12 per cent by 2011, by which time private competitors had built towers, laid cable and advertised relentlessly.
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Act IV: Schools for Scandal
‘The present seems so nineteenth
century’, wrote the historian Richard White as he compared the frenzied enthusiasm for the Internet in 2011 with railway expansion 150 years ago. Both involved ‘public’ goods—land grants for railways, Radio Frequency allocation for telecommunications—vast sums of money and breath-taking corruption and political intrigue. At one point, an American railway president could marvel at the fact that he had ‘two Senators of the United States—one of them the acting Vice President’ ready to sell him their votes on a piece of railway legislation for $25,000.
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The twists and turns in India’s cell-phone story were not unique.
The scandals that originated in 2007 illustrated the way in which officials, corporations and politicians could benefit each other through collusion in the distribution of public property—in this case Radio Frequency.
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Like the American railroads of the nineteenth century, India’s telecom giants ‘thoroughly insinuated themselves into the modern state. Through their lobbies and friendships, they could be found in [the United States] Congress, the legislatures, the bureaucracies and the courts’.
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In similar ways, key players in the allocation of spectrum for second-generation telecommunications (2G) engineered improprieties in 2007 and 2008 that dwarfed the escapades of the 1994–5 auctions. The results would percolate through Indian politics and judicial systems for years. But by February 2011, the former Minister of Communications, A. Raja, had been arrested for corruption and held in jail, though not tried or convicted. Allegations about who knew what and when touched even the upright Prime Minister Manmohan Singh and tainted various politicians and television journalists. So blatant were the breaches of process and administrative rectitude that the Central Bureau of Intelligence (CBI), India’s national crime investigator, did something never done before: it raided a government ministry—the Ministry of Communications—to seize documents thought to provide evidence of corruption.
In 2007, with sales of mobile phones
skyrocketing and the industry flourishing, the government announced it would licence the use of additional spectrum, previously reserved for national interests. More spectrum meant wider Radio Frequency roadways which allowed more elaborate services—video, music and so on—and enabled more voice calls to be made simultaneously. In a booming mobile-phone market, additional spectrum was immensely valuable. However, it was neither auctioned to the highest bidders, nor allotted on the basis of an applicant’s proven competence. Rather, it was doled out on a spurious first-come-first-served basis. The price was unrealistically low: applicants paid the price that spectrum had fetched in 2001. This took no account of inflation between 2001 and 2007 or that in 2001 mobile telephony was in its infancy in India. But even more remarkable—comical had it not been so cynical and serious—was the deadline for payment and receipt of Letters of Intent (LIs) from the Department of Telecommunications. ‘After keeping … applicants on tenterhooks for almost three months’, on 10 January 2008, the Department ‘announced at 2.45 pm through a press release that LIs would be issued between 3.30 and 4.30 p.m. giving a window of only one hour’. Thomas K. Thomas, an experienced telecom journalist, described ‘total pandemonium’ with one company employing ‘a hired goon to ensure that it was … first to enter the gates’. One of the biggest winners was a real estate company called Unitech with little telecom experience; it gained licences for all twenty-two telecom circles or jurisdictions and soon sold more than 60 per cent to Telenor of Norway for four times what it had paid.
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By this process, spectrum was sold for bargain prices: a licence for the right to Radio Frequency covering the whole of India went for Rs. 1,651 crores (about US $300 million). The later inquiry by the Comptroller and Auditor General (CAG) estimated that an open auction could have raised a total sum of up to Rs 176,000 crores (i.e., 176,000 multiplied by 10 million) or close to US $40 billion.
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The CAG report emphasised the spectacular disregard for rules, procedure and fairness. At short notice, with insiders apparently informed in advance, 122 licences were issued on a single day.
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‘The entire process … lacked transparency and objectivity’. The CAG report continued: ‘Eighty five out of the 122 licenses issued in 2008 were found to be issued to Companies which did not satisfy the basic eligibility conditions set by the DoT’.
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None of the thirteen companies that had been awarded the eighty-five licences had the paid-up capital required to qualify for a licence—in short, they were not large enough to finance the enterprise they proposed to create, and their claim to have such capital was ‘false and fictitious’.
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Although the timing of receiving Letters of Intent was made known only hours in advance, ‘13 applications were … ready with Demand Drafts’ drawn earlier—evidence, in the view of the Auditor-General, that someone had been ‘selectively leaking’ the crucial date and time.
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A number of the lucky licensees, who had little or no experience in telecommunications, quickly sold chunks of their holdings and made substantial gains. The Auditor-General’s report estimated that if the spectrum had been auctioned, it would have brought the government about five times the revenue that in fact received.
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More remarkable, the impugned
Minister for Communications, A. Raja, and his department had disregarded written advice not only from the TRAI but from the Prime Minister himself. In January 2011, Kapil Sibal, the minister who replaced Raja, tried unsuccessfully to fend off the creation of a Joint Parliamentary Committee to probe the spectrum scandal. Sibal argued that the Prime Minister never actually differed with Raja over the policy for allocating spectrum. When Manmohan Singh wrote to the Communications Ministry about spectrum allocation in November 2007, the Prime Minister was, according to Sibal, only
forwarding a summary of the suggestions received and requested the Minister to consider all these aspects carefully. This has been wrongly interpreted in the CAG report as a direction to act in a particular manner on the issue of pricing. The only direction given by the Prime Minister was that the Ministry should act in a fair and transparent manner and keep the PM informed.
The Ministry replied with justifications for its actions, which, according to Sibal, the ‘Prime Minister accepted’.
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A less sympathetic interpretation was that Raja and his ministry had brushed off a prime ministerial letter, confident that they could get away with it. For a time they did, though Raja eventually found himself charged and in jail for more than a year after his arrest in February 2011.
In the long term, the scandal
and its consequences may have forced the consolidation of the telecommunications industry. In February 2012, the Supreme Court revoked all 122 licences issues under the flawed process of 2008. It said, in effect, ‘Start again. Re-auction the spectrum. Companies will surrender spectrum that was illegally acquired’.
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The decision threw such companies, particularly those that had built networks and enrolled customers, into grim uncertainty. The circumstances presented various choices. Foreign companies could quit India and advise others to avoid India as a place for investment; Indian companies, and foreign companies untouched by the Supreme Court judgement, could welcome a reduction in the number of competitors and a chance to bid anew in whatever auction process governments might devise. By world standards, the fifteen telecom companies India supported in 2011 were more than most countries could bear.