Spectrum Auctions: 'Jhatka' or 'Halal'?

The choice is between sudden death and a slow one

Shyam Ponappa / February 3, 2011

Why do people advocate spectrum and licence auctions? Is it because they think auctions work? Is it the appeal of an ideology, like capitalism or socialism? Or is it because governments often collect large sums, and auctions seem fair (in a market-driven sense) and transparent? Theorists apparently cannot find better ways to allocate spectrum or licences, despite the alternative of technical and financial short-listing followed by a lottery. Yet, while desiring high government collections, people really want reasonably-priced good infrastructure, and continue to rail against government waste. Let’s review some so-called “successful” auctions and what followed.

1994: The US spectrum auction

Prior to 1994, the US used to allocate spectrum on demonstrated capacity and merit (“beauty contests”). The spectrum auction in 1994 netted record bids. The Federal Communications Commission chairman reportedly said: “Auctions have proven once again to be a success not only by awarding licences to those that value them most, but also by decreasing the national debt.” Then disaster struck, with a number of “successful” bidders declaring bankruptcy. As BusinessWeek put it in 2010 with the benefit of hindsight, “... over time, beauty contests have delivered fewer problems and higher value to society than have airwave auctions.”¹

1994: India telecom licences

In 1994, India auctioned telecom licences. Chaos followed owing to overbidding and default. Thereafter, the sector struggled from one contention to the next, with the government and operators deadlocked by 1998. The New Telecom Policy of 1999 provided a breakthrough, tossing aside the auction bids in favour of shared revenues. After the percentage share was reduced to reasonable levels, and “Calling Party Pays” halved tariffs in 2003, mobile services grew exponentially to over 725 million subscribers by 2010. Interestingly, the Telecom Regulatory Authority of India estimated that auction fee foregone till March 2007 was over Rs 19,000 crore, whereas actual revenue collections were double, at Rs 40,000 crore; by March 2010, the collections were 80,000 crore.

2000: The UK 3G auctions

The 3G auction in the UK was hailed as a spectacular success, reaping bids of about $35 billion.

2000: The France and Germany 3G auctions

Germany followed, netting $67 billion, and the finance minister quipped that the auction was for unexpected revenue to pay the national debt. France demanded a flat fee of $4.5 billion per licence.

The dotcom bubble burst in March 2000, followed by communications and technology companies a year later, and the bidders went into a tailspin. The collapse nearly bankrupted not only British Telecom owing to the enormous debt it incurred for the bids, but the entire industry worldwide. The economic slump that followed made it impossible for firms to pay off high debts, as their interest payments increased while their ratings fell.

A contrarian move in France is noteworthy for its prescience and insight. CEO Martin Bouygues (pronounced “Bweeg”) of the third mobile operator, Bouygues Telecom, refused the government’s demand of $4.5 billion as the fee for a 3G licence, making it the only mobile communications company in Europe with no investment in 3G. Mr Bouygues’ letter in May 2000 appeared on the front page of Le Monde, asking: “What should I tell my employees? … That we have a choice between a sudden death and a slow one?” While his opposition was ignored, by 2002, the French government dropped its asking price by more than 85 per cent to induce Bouygues to accept a 3G licence.

In terms of results, the auction “failures” – the Netherlands, Switzerland, Sweden, and “non-auction” countries like South Korea, Japan and Finland (until 2009) – have the best broadband services.²

Kapil Sibal’s appointment as India’s telecom minister has brought hope, with prospects of radical improvements in infrastructure, especially broadband, with a clean hand. Mr Sibal’s recent pronouncements on a new telecom policy, however, raise the spectre of another deadlock. Here are two examples: (a) “Adequate spectrum will be provided to all service providers.”

This is feasible not through slivers of spectrum for many operators, but only if there is a common carrier access, that is, all operators can access spectrum for a reasonable fee. There is no indication of what “adequate” means, nor of pooling or sharing spectrum.

Let’s hope the domain experts have been heard and not shouted down on “adequacy”. For instance, the Telecom Equipment Manufacturers’ Association had recommended that two blocks of 50 MHz each in the 698-806 MHz band be allocated to facilitate the development of wireless equipment and services. Large blocks of contiguous spectrum offer far more efficient capacity than many narrow bands. For local innovation, to get low costs, we have to think of adequacy in these terms, and not slivers of 4.4 MHz or 6.2 MHz.

(b) “Spectrum henceforth will be awarded only on a market-based mechanism.”

If the criterion for success is high bids and not delivered services, in effect, this means auctions, and the result is likely to be dismal. Those enamoured with auctions focus on the success of bids, ignoring the purpose of spectrum/licence allocation, which is service delivery resulting in consumer surplus (societal benefits).

If the operators choose to roll over and accept authoritarian decrees, a deadlock may develop again as it did in 1998 between the government and the public interest.

The government’s choices include:

• a genuine effort at developing comprehensive and integrated policies for reasonably priced services, while carrying along stakeholders;
• a cosmetic effort, letting stakeholders vent, and then issuing arbitrary decrees that leave a mess. For example, too many operators with fragmented spectrum; or
• attempting a political or populist fix, seeking to make the United Progressive Alliance look good, the Opposition look bad, bleeding all operators to avoid accusations of a sell-out, and still leave a mess.

The first alternative is in the public interest; the second and third are not. The issues that need comprehensive transformation are spectrum and network sharing for service delivery at least cost. The government and Mr Sibal have the opportunity to choose an approach resulting in excellent delivery including broadband at reasonable prices.

1 'Spectrum Auctions Hurt Mobile Consumers', Bengt Nordstrom, Businessweek, August 17, 2010: http://www.businessweek.com/globalbiz/content/aug2010/gb20100817_915227.htm

2 'Broadband quality ranking - by economic development', Pierre Verdi, October 27, 2010:

http://www.sbs.ox.ac.uk/newsandevents/releases/PublishingImages/3%20-%20Broadband%20quality%20ranking%20-%20by%20economic%20development.jpg

Organizing Ourselves: Cautionary Tales & Inspiring Possibilities

Shyam Ponappa / New Delhi October 04, 2007

Instances and inspiring possibilities of institution building.


Some time ago, a perceptive ‘re-reading’ of the Babur Nama by Sunil Sethi in these pages highlighted the similarity of India’s problems and needs in the 16th century and now: essentially, the lack of purposive organisation and infrastructure.* Having failed for five centuries barring exceptions, should we then give up on organising ourselves? Or can we possibly make the effort to learn from those of our institutions and others that work as purposive systems - achievement-oriented organisations — to try to effect a transformation, to define a pragmatic way forward? Collaboration in the common interest instead of following our penchant for argumentation, and indulging in a million mutinies. Especially for self-aggrandisement in the ultra short run (because in the long run, it is in everyone’s interests to co-operate).

Some of our institutions that work, by and large:

- The defence services: the Navy, Air Force, and Army.

- Companies serving external markets: our IT stars were early champions, now under a cloud until they reinvent themselves. Broadly, knowledge-based companies, and some engineering and textile companies.

- The Delhi Metro, Konkan Railways, some aspects of Indian Railways.

- Some areas of government.

- Some groups of professionals.


For most of the rest of us, while there are very many excellent individuals, alas, few are part of any organised system.

The Challenge

It is really up to us whether to go on in this chaotic, neo-feudal way with the specious excuse of being the largest democracy, or to buckle down to organising and functioning in our collective better interests.

The greatest impediment is our unwillingness to act in concert while carrying the baggage of sectarian inclinations, a sort of tribalism focused on the special interests of factions, the lesser loyalties of region, caste, clan, family. Our needs are exactly the opposite: aggregation of information, allowing cross-discipline analysis for problem definition — informed, correct diagnosis — and the synthesis of solutions that are workable, that can be and are executed on the ground, i.e. the organisation and prioritised management of initiatives — prime areas for nonpartisan, multidisciplinary thinking and action. The questions are whether and how issues of common interest can elicit coherent behaviour.

Opportunities For Covergent Action?

Are there compelling purposes that could help us break out of this rut? Persuade us to act more responsibly, be less mindful only of our rights while being oblivious of our coequal obligations.

Could the purpose of deploying India’s currency reserves profitably for everyone’s benefit enthuse us — especially our politicians — to start thinking and acting collaboratively? The incentive could be Rs 90,000 crore a year from $150 billion invested.

Or of organising waste collection and disposal, so we can live in better surroundings some years down? From waste collection through effective, humane systems, including organising and paying rag pickers, to managing sustainable disposal, removing this great blight.

These are the issues that deserve nonpartisan attention, where a sense of our obligations would help. Such issues need breakthroughs of nonpartisan, convergent action in the common interest, with “right knowledge” (expert inputs), not merely negotiation and/or accommodation of public opinion. Everything is not best left to public opinion. We need to distinguish between issues for public debate, and those that need resolution with expertise or competence. This is impossible without abjuring sectarian interests and populism. If we go with public opinion, we will opt for “free” power and water, and stay mired in shortages and with dreadful sanitation … Few major projects — hydroelectric projects, nuclear plants, or dredging projects — will come about.

Given the realities of the evolution of Indian politics, ultimately, these initiatives probably need to be structured to tie into a fair election funding process. Either that, or the tax and PDS systems must become good enough to channel excess receipts into a decent election funding system, which will need to be developed. Without such incentives and processes, it is unlikely that our predatory politics and heedless public behaviour will change, or that we can break out of our established interest groups.


The Risks of Business-As-Usual

Many seem to expect that because India is in the early stages of its political and economic development, things will improve with education and prosperity. For these sanguine business-as-usual-ists, there are two cautionary images. One is the highly evolved democratic processes mired in a hardliners’ deadlock, the predicament of America. The second is the unresolved, divergent paths taken by the French-speaking Walloons and the Flemish in Belgium. These educated, prosperous people have stayed apart, and not been able to get beyond their uncooperative mindsets to function as a nation.

Lessons Abound

There is also much to learn from other countries if we care to, although we tend to dismiss others’ experiences as irrelevant. Small nations especially, like Belgium, Dubai or Singapore, are often viewed simplistically. It is in our interest, however, to look to wherever we need to for our purposes. Take Singapore: a closer look reveals the complexity it has had to overcome and the distance it has travelled to achieve its position. Set adrift in 1965 with a hodge podge of migrants from southern China, southern India, Pakistan, Sri Lanka, and the archipelago, it had no homogeneous population, common language or culture. But it had plenty of examples of troubled and failing states as warnings. As venerable Singaporean leader Lee Kwan Yew puts it, “… we knew what to avoid — racial conflict, linguistic strife, religious conflict. We saw Ceylon …” Singapore’s secret is its practice of an unsentimental pragmatism that is “ideology free”.**

Many in India dismiss Singapore as a model because of its scale. But scale hasn’t stopped China from taking lessons. China’s officials have been interacting regularly and systematically with Singaporean counterparts, as they have with other countries such as Belgium and the Netherlands. Chinese ministers have meetings twice a year with Singaporean ministers to learn from them; every three months, fifty mayors of Chinese cities visit for courses in city management. Likewise, China is learning waste management from Flanders, as are Russia and Britain.

Our institutions must, of course, be tailored to our context. As a UN University report notes, successful institutional changes typically emerge as a mixture of country-specific innovation and chance developments, as well as deliberate learning.*** All we need do is select pivotal issues to galvanize nonpartisan thinking and collective action.


shyamponappa@gmail.com

* “On re-reading Babur Nama in 2007”, BS August 11, 2007: http://www.business-standard.com/search/storypage_new.php?leftnm=4&leftindx=4&subLeft=1&autono=294099

** “Lee Kuan Yew, founder of Singapore, changing with times”, Seth Mydans & Wayne Arnold, International Herald Tribune: http://www.nytimes.com/2007/08/29/world/asia/29iht-lee-excerpts.html

*** “Stranger than Fiction? Understanding Institutional Changes and Economic Development”, Ha-Joon Chang, UN University Policy Brief No. 6, 2007: http://www.wider.unu.edu/publications/policy-brief/pb06-07.pdf

Infrastructure: Rural & Urban

Shyam Ponappa / New Delhi October 05, 2006

Let’s begin with Integrated Area Planning - Spatial Planning.

Stop to think of what is really essential: enabling people to live well, be active and productive, by providing the necessary services and facilities... What assumes importance, after goal setting and prioritisation, is pragmatic planning and execution...

There is this view that development means that everyone gets to live in a city, that urbanisation is the ultimate desirable goal. There is also the opposite, railing against the resource-hungry, wasteful cities in India, where the 20 per cent in cars hog 75 per cent of the roads, while buses that transport 60 per cent of the population get only 7 per cent (Business Standard, September 26, 2006: “The future of the city”). There are those who argue that the Metro and urban rail projects are wasteful and unnecessary, because more buses deployed differently would be much more efficient. That big dams or connecting major river systems are anti-people. That nuclear power is bad, because there are alternative ways of getting energy from the sun, wind or tides.

The Essentials

Let us begin with dialogue, not adversarial debate, as Soka Gakai’s President Daisaku Icheda puts it. That is, give your own perspective while accepting with an open mind, the operating criteria being good faith and “right knowledge” in the way that Deming meant it. And if facts and logic indicate that your assumptions or understanding are wrong, allow the facts and logic to prevail.

Town vs Country? Town & Country

The fact is that cities are the engines of civilisation and growth. They enable the agglomeration of talent and resources that can result in synergy through economic and cultural activity and growth. Equally, haphazard development often leads to problems that overwhelm the benefits of efficiency and association. What we need is Smart Growth that fosters vitality in community centres, while transforming the economic structure of our rural working landscape. We have seen other countries do this successfully. Above all, it means providing the basic amenities that make communities viable: apart from law and order, it is infrastructure including sanitation and basic education, which we are unable to get done. Equally, we need to make our rural areas livable, so that all roads don’t lead to urbanisation. PURA (Provision of Urban Facilities in Rural Areas) is what many developed countries have, particularly in Europe.

Economic Viability vs Short-Term Profits

To knock either the Metro or the bus systems in New Delhi is to miss the point entirely. Infrastructure services must necessarily be sustainable, i.e., economically viable in the long term. Let us recognise, however, that for services like transportation, this may take several decades. To expect such services to be profitable in the short or medium term (5-6 years) is simply unrealistic. The essential need is to provide effective and, ultimately, efficient services to people in living and working spaces, starting with sanitation, basic health and education, whether for manufacturing, agriculture, or services.

Area Planning or Spatial Planning

Timothy Beatley’s “Green Urbanism: Learning From European Cities,” published seven years ago, is an in-depth survey of the innovative practices of a number of cities. While we cannot expect to flip a switch to have it all happen here, this is a compendium of so much in terms of process that we could initiate. Consider the National Spatial Strategy of the Netherlands, in its fifth avatar this year. Initiated by the Ministry of Housing, Spatial Planning & the Environment, a priority is “area development”, in which all parties involved take joint decisions. The ministry itself is an example of Dutch unitary organisation, like their Ministry of Transport, Public Works, and Water Management (Business Standard, October 6, 2005: “Thinking big: scale, ownership & results”). The ministry encourages provincial governments, local authorities, social organisations, local residents, and businesses to work together to come up with a vision, and then make it happen. The process has taken time to achieve results; the Dutch have been doing this for some 50 years before getting to their Fifth National Policy Document on Spatial Planning.*

Spatial Planning Example: The Randstad

The Randstad in the Netherlands is a group of towns and cities across some 50 km with a largely rural centre. It has excellent living, working, and leisure facilities with the requisite transport and communications. Its “Green Heart” has livestock, agriculture, floriculture, and leisure activities. It has several towns and many villages, giving it a different character from other urban agglomerations. And because it has four major cities—Amsterdam, Rotterdam, The Hague, and Utrecht -- it has no “centre”. The transformation of their subsistence use of land is an object lesson in development. It didn’t just happen.

I am not advocating blind replication here. But to paraphrase Gandhi, we can take ideas from many lands without losing our sense of who we are. We can—in fact, we must—learn from everywhere, and adapt as we apply to our context and particular condition.

Dickens’s words about the best and worst of times seem horribly apt, if you think of any of India's urban and rural locales: Cities and towns with exploding economic activity in a vast population on a scale, range, and form that defies description, but unorganised and chaotic. Traffic surging helter-skelter, scads of buildings—whole townships rising from among the green fields around Delhi, and all across the country. Within Delhi, demolitions or sealing as court orders on zoning take effect. The endless cycle of floods and drought with limited irrigation systems, the annual monsoon runoff, alarming groundwater losses because of unbridled pumping, and a precipitous decline in the water table. And the unending difficulties of inappropriate compensation for land acquisition. All the flurry epitomised in Ed Luce’s book, In Spite of the Gods.

Stop to think of what is really essential: enabling people to live well, be active and productive, by providing the necessary services and facilities. Then, if we consider the possibilities based on the real world manifest in real place/s, the need for many systems to coexist comes through. What assumes importance, after goal setting and prioritisation, is pragmatic planning and execution, driven by what is good for people (the public interest). Let’s hope that this week’s conference, 'Building Infrastructure: Challenges & Opportunities', begins to address our need for comprehensive, integrated spatial planning.

shyamponappa@gmail.com


* http://international.vrom.nl/pagina.html?id=7348

May 30, 2014
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