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BW Businessworld

Undeserved Punishment

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Courts of justice do not usually have much use for economics; as an economist, I should be happy that the Supreme Court has made use of it in the recent telecommunications judgment. When it cancelled the 121 telecom operator licences given by A. Raja, it said that the correct thing to do was to auction spectrum. However, put in those terms, the application of economics is so inadequate as to be mistaken. For the telecommunications industry has a characteristic that in economics is called network effects. My telephone is useless unless I can talk to others on it. My operator will give me connection to any client of his, but he cannot legally get me access to some other operator's client. Only the government can assure me that; and the terms on which it does so will determine the cost and convenience of my connection. That is precisely what the government's department of telecommunications had done in 1998. But most of the people who had a telephone were clients of the DoT, and the DoT imposed an interconnection charge of, if I remember correctly, Rs 24. That made everyone avoid private operators, which drove them bankrupt. That is my first problem with the judgment: it ignored the injustice done by the DoT, not just in 1998, but many times before and after.

The next problem follows from the first. The BJP-NDA government let the private operators suffer for some years. Then it bailed them out by forcing the DoT to reduce interconnection charges and doing some other things. The man who did it was Pramod Mahajan. He became obscenely rich as a result. His brother killed him because he did not get any of Pramod's wealth. The NDA government ignored all complaints. It was commonly believed at that time that Mahajan shared his loot with formations he belonged to. I have also heard that the bribes given by telecom operators then were the largest in Indian history. The Supreme Court has ignored those sensational allegations.

The third problem relates to the court's use of economics. As I said, telecommunications are subject to network economies. If there is an auction, the government must first specify the rules governing interconnection. The court, if it was going to venture into economics, should have gone into these rules as well. The DoT was forced to charge a pittance for interconnection; other operators followed. And there were scores of operators. Competition brought tariffs so low that Indians have had about the cheapest telecommunications services in the world. And those scores of licences were issued by Raja, as he has repeatedly said. The Supreme Court has not taken cognisance of his altruistic claims. Maybe he took bribes. For that, he must be punished. But on the same principles, should he not be rewarded for what he did right?

Now I come to my fourth and foremost problem with the judgment. The 121 operators gave telephone service to more than 80 million telephone users. Suddenly, the Supreme Court took away the licences of those operators, so it would be illegal for them to give service to their customers. Those of us who have cellphones — and by now it is a majority of our adults, if the statistics are to be believed — would be grievously inconvenienced if our cellphone suddenly stopped working. Nowadays, we do not even have fixed phones to fall back on. The ubiquity of personal cellphones killed off most of the public call offices, so they too are not available. So, in effect, the Supreme Court has visited dire punishment on the 80 million telephone users. For what crime? I can think of nothing they did wrong. In a just society, they would be able to go to court and seek redress. Suppose they did that, and went to the Supreme Court. If the court were to be just, it would punish whoever wantonly caused them this inconvenience, and ask him to pay restitution, which surely would run into hundreds of crores of rupees. Who should pay the damages? Who caused the damage? I really cannot think of any party other than the Supreme Court.

Now suppose the inconceivable happens and the Supreme Court compensates these poor cellphone users. Where would it get the money from? Surely not from the operators. They were not the culprits, they were the victims of Raja. Surely not from Raja, whose illegal gains are liable to be expropriated by the government. So it can be only the government. And where does it get its money from? From innocent taxpayers like me. Should I be punished for the consequences of the Supreme Court's judgment? I do not think I deserve to be. I would urge the Supreme Court to have second thoughts.
The author is Consultant Editor of Businessworld. ashok(dot)desai(at)gmail(dot)com

(This story was published in Businessworld Issue Dated 20-02-2012)