Thursday, May 20, 2010

Why 3G Spectrum price tag is just not right.

Indian Govt. gets a whooping 68K crores from the auction of 3G spectrum. Check the news here. Looks like good news isn't it? Pranab da only planned for Rs. 35K cr. revenue in his budget. This difference alone would mean that he can bring down fiscal deficit by half a percentage point. Magical good news. Not really !! Here is why.

Not many of my age would forget what a luxury a telephone was in our days. My dad booked one with dot when we hardly needed one (or at least thats what we always believed). Telephone was not really a tool to communicate but something that businessmen would need. Our connection was given to us in four years time. Communicating with friends, relatives used to be time consuming and expensive.

Then came private telephony, pagers, mobile telephony service and then Internet (not necessarily in that order). The initial airtime charges for mobile telephone were in the range of 14-30 Rs. per minute. But soon companies understood the sheer scale of the business. Today talk time on mobile is virtually free compared to those days - and what has that done to our lives?

Look around yourself & you would find the way communication revolution has changed our lives (transformed is a better description). Today a cellphone has become a very cheap substitute for an office in lots of businesses. Any kind of home service business (libraries, groceries, hardware support, taxis etc.), brokers (from share mkts, to real estate to commodity traders), Milkman, housemaids, packed food services, information dissemination (ask me services for all businesses). None of these and many more need an office now. All they need is a phone number. Thats all. It has reduced the substantial advantage that businessmen with fixed assets had over startups.

It has given families confidence to let their children (including girls) to travel around the globe in pursuit of better education and superior professions without losing the family link or without feeling insecure. This single fact has probably contributed to the country's GDP more than what the country would have invested in the infrastructure to bring about this telecom revolution.

It has made information flow easier and hence speeded up buying decisions. It has reduced arbitrage opportunities and has made middleman less relevant and hence made them more honest and efficient. It has taken voice based services to locations where it is better value for money. All in all it has made transactions more transparent, easy, fast and cheap. It has provided more people jobs then could ever be imagined.

If you have read this post till now - you probably have understood where am I taking you. What telephony did to us in the last two decades is what high speed wireless internet over the phone can do to us in less then five years. Think if you could seamlessly book tickets, trade on the capital mkts., carry banking transactions, shop everything and anything, look for options/information, compare products, communicate - email and socialize from anywhere in the world at any time, at jet speed and at almost no cost - what would happen?

Economy will grow, per paisa productivity improves, people (yes aam aadmi) benefit. Sure all these would happen. But sadly the huge price Telcos are paying will make this happen slower then the pace at which I would love to see it happen. It would have been great if Govt. would have given away the spectrum free and would have imposed heavy penalty for non-usage or underusage of the spectrum. This would have speeded up the revolution.

Transaction and access costs will be higher then the reach of most people who could really use these services. Initially this might only benefit businesses that could can afford the additional cost or will be used by children of rich people to download heavy stuff (games, videos etc) from the web, or would be used by Investment bankers to make jazzy presentations from their handsets.

But we will not see a Sabjiwala bidding for the morning supplies of fresh vegetables on his phone or for that matter - I might still not be reading my daily newspaper and novels on my handset - not yet.

Well !! we could have done without that cut in the fiscal deficit this time.