When governments don't look back, in anger history returns

I had hosted a roundtable dialog in April 2001 that included Neil Montefiore, then-CEO of MobileOne (M1). In the midst of the discussion, Neil's phone buzzed and he immediately picked it up to check the text message that had just come in.
Written by Eileen Yu, Senior Contributing Editor

I had hosted a roundtable dialog in April 2001 that included Neil Montefiore, then-CEO of MobileOne (M1). In the midst of the discussion, Neil's phone buzzed and he immediately picked it up to check the text message that had just come in.

He then spent the next few minutes punching in his reply, while the other executives at the roundtable carried on with the discussion. I smiled and thought to myself, he's in the middle of a high-level dialog and the guy can't catch a break from work.

When he was finally done, Neil put his mobile down and looked up ruefully. He offered his apologies but grinned widely when he explained why he had to attend to the message so urgently. It was right there and then that everyone in the room that day became among the first in Singapore to find out M1 had just secured its bid for one of the country's three 3G licenses.

We had all been closely following the developments of the 3G auction and were relieved that the exercise had finally come to fruition, ending months of intense debate and speculation.

This walk down memory lane was set off this week as I trailed India's own 3G journey.

After several delays, the Indian government finally set Dec. 7 as the date for its 3G auction, ending the tussle over--among other issues--what the reserve price should be. The country's Department of Telecommunications had recommended US$406.6 million, but the finance ministry almost doubled the figure and eventually tagged a pan-India 3G license at US$722 million.

In an article I ran this week, analysts debated over whether auctions remain the best model for distribution spectrum today, and if so, what should the "realistic" reserve price be.

Singapore faced similar issues, but operators bidding for the 3G licenses back then in 2001 were fortunate. Similar auctions had been held in Europe the year before and operators there each paid amounts spiraling in the billions for their licenses. But, some carriers were unable to shoulder the heavy fee, turned to borrowing to pay off the amount and ended up with bad debt. To top it off, the money-making machine 3G services were touted to be never quite came through for the operators.

The backlash soon followed and questions emerged over whether carriers had paid too much for their licenses. These issues were still fresh in the minds of most industry players when Singapore prepped for its own auction.

So, the relevant stakeholders were able to look back at Europe's experience and draw attention to major faultlines we needed to avoid. More importantly, the Singapore government would have to make a stronger case if it wanted to command a higher reserve price.

In addition, Singapore is a small market. There were only a handful of serious bidders capable of building viable 3G networks, and in fact, only three of the targeted four licenses were awarded because there were only three bidders. This market reality probably gave the players sufficient clout for the government to react and listen with care when the operators voiced their concerns.

This may not be the case for India. But, I do wonder if the Indian government took some time to look back and review the lessons their counterparts in other regions picked up, before deciding on how it should run its own auction, including the US$722 million reserve price.

In an e-mail response to my queries, Ovum's principal analyst Amit Gupta said spectrum is a limited natural asset that, in principle, is owned collectively by a country's citizens. Auction, he said, is just a mechanism to distribute this asset to those that can make better use of it. "The government collects money on behalf of people in the country, who are selling their stake to operators. The government in turn uses that money, in theory at least, for the betterment of all the people in the country."

Gupta is right to a certain extent, but where's the guarantee that the citizens who sold their stake of the spectrum will get to enjoy their share of the auction funds? Is the Indian government or any government that runs spectrum auctions, for that matter, willing to commit to that promise?

I think when money is concerned it can become too easy to lose sight of the big picture, and forget what history has taught us.

Europe's 3G debacle demonstrated that lofty license fees can have a negative impact not only the business health of local carriers, but also the rollout of the country's communications network. Ultimately, the country's population, the very same people who supposedly sold their share of the spectrum, will be the ones most adversely affected.

If China, which is most closely related to India in size and market potential, is able to award 3G licenses at no cost, there is no reason why India shouldn't follow suit. If it's looking at spectrum as an important fund-raising exercise, as the analysts in my article suggest, there are other ways to do that.

It may be late to the 3G game, but the delay has afforded India a great opportunity to assess what its regional and global counterparts had experienced and lift some important lessons.

The question is though, has it done so?

Following Enron's bankruptcy in 2001, many underscored the need for better corporate governance and governments and businesses alike scurried to reevaluate their internal processes. But, seven years later, Lehman Brothers suffered the same fate and filed for Chapter 11 protection. In both cases, market analysts attributed the company's downfall to lapses in proper checks and safeguards.

Also during the 1997 Asian Financial Crisis, which forced the International Monetary Fund to step in with a US$40 billion rescue plan, industry watchers put some of the blame on Asia's lender-borrower policies. Lo and behold, 10 years later, the United States followed in kind and triggered a global recession with its subprime mortgage financial crisis.

20th century American philosopher and cultural critic, George Santayana, said: "Those who cannot learn from history are doomed to repeat it."

Let's hope India isn't heading in that direction.

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