What does our current telecom muddle have in common with the US railroad industry? Much like the Indian phone industry in the past two decades, American railroads expanded at an astonishing rate in the 19th century, especially after the Civil War. Like our current telecom barons, American railroad construction was also undertaken by private companies and by its very nature it necessarily involved large land grants and intimate dealings with government for permissions and subsidies.
The penetration of the American hinterland with the railways changed America forever just as the rise of the easily available and cheap cellphone connection in India has had a profound social impact on the daily life of the nation.
There was one more thing in common. By the late 1880s, even though millions were benefitting from the American railways, there was such a clamour against the ‘robber barons’ who were seen to be profiteering from their collusion with government that the US Congress was forced to legislate the industry with a bill.
Though this new bill was intended to reign in corporate interests, the rail barons actually supported it.
As Charles Adams, the president of Union Pacific Railroad, explained to a Congressman, “What is desired is something having a good sound, but quite harmless, which will impress the popular mind with the idea that a great deal is being done, when in reality, very little is intended to be done.”
The Americans got their Act and created an Interstate Commerce Commission, much as we got our Telecom Regulatory Authority of India (TRAI) to act as a regulator, along with other checks and balances.
This is where the parallels get even more interesting. The economist John Kay has pointed out that the US Commission established to reign in the cartels was first chaired by a lawyer who, before he took the job, had gained substantial experience acting on behalf of railroad companies as his clients.
Not surprisingly, the US Supreme Court soon found problems with a rate-fixing agreement between railroads and deemed it illegal.
Those who were to police the regulations had seemingly come to view it through the prism of those who could benefit from it.
Judging by what we know so far, this is exactly how A Raja and his cronies saw their reign in telecom.
Except that they went a step further, turning manipulation into a fine art and that too, so brazenly. This is precisely why the Indian Supreme Court, like its American counterpart a century ago, is so angry at what happened in the telecom ministry.
So what do we make of the prime minister’s defence of his government with the TV editors last week? Did it adequately answer the tough questions on how things went wrong on his watch? Apart from wringing his hands at the compulsions of coalition politics, the PM has first and foremost clarified that his government as a whole, endorsed the policy framework for the sale of 2G spectrum.
Echoing Kapil Sibal, the PM has emphatically questioned the losses calculated by CAG by equating the decision on low pricing of spectrum (at 2001 prices in 2008) to other subsidies given for public good.
Raja may have gone astray, in this version, but that was a regrettable problem of implementation, not of policy failure.
This is fair enough but the problem with this line of argumentation is that it is too little too late. It also sweeps too much under the carpet.
On the dubious first-come-first-served policy, which included controversially changing the deadline for submitting applications at short notice to 11 January 2008, the PM argues that this did not come up for discussion with him and was not brought before his cabinet.
This is a weak defence. So what if it did not come up in the cabinet? The stink coming out of the telecom ministry’s arbitrary decisions was bad enough for everyone to know what was going on and widely reported at the time in the press.
Manmohan Singh himself wrote to Raja in November 2007, forwarding various complaints and asking him to look into the possibility of an auction.
If he suspected something then why just meekly trust Raja’s subsequent reply that his dealings were transparent? The matter should not have ended there, with a mere exchange of letters and an acceptance of Raja’s word.
In any case, the TRAI never endorsed the decision not to go for an auction, as the PM implies. The TRAI had, in fact, recommended multi-stage auctions as far back as 2003. It even pointed out in 2007 that marking entry fees at 2001 prices was incorrect and these should be reassessed with market mechanisms.
One has to feel sorry for Manmohan Singh. Defending the indefensible is never easy, as the American regulators learnt a century ago.
Eventually they evolved a system that became difficult to manipulate. That should be our cue.