CONFLICT OF INTERESTS AMONG STAKEHOLDERS IN 2G ALLOCATIONS

There is a clear conflict of interest among promoters, shareholders and other stakeholders of company. The conflict of public shareholders and stakeholders put them in very interesting position.

In the recent cases on 2G scam in India, the government often quoted the cost-effective services to end-user of these service and product as one reason of allocation of resources at such cheap prices. Ministers claim that at CAG suggested prices of the spectrum, call rates would be higher than present rates and become unaffordable to most of the users. Sometimes, it is also suggested that present information revolution may not be happened in India if spectrum allocation were happened according to CAG suggestions.

These spectrum are natural resources and you cannot put a price unless develop market is there. These natural resources are public property of India, hence all Indians jointly. Ideally, every Indian resident is going to use mobile services and in turn using the spectrum allocated to these mobile companies. If the cost of natural resource likes spectrum goes up, price of product like call rate shoots up. When call rates were high, there would be an exclusion of masses from this information revolution. This is a simple math not a magic formula to fool all stakeholders.

OK. Now do some magic about conflict of interest. In a typical case, an Indian citizen Deepak, who is also resident of India, is a shareholder of one of the most valuable mobile company. The company has the presence in telecom circle where Deepak normally live. In present case, he through central government is one of the suppliers of natural of natural recourse that is spectrum. He is a shareholder of the mobile company and expect handsome dividend as profit-sharing. Without any doubt, due to his natural affection with the company, where he is a shareholder, he is customer of services of his company.

Deepak will be affected by following figures:

A = Notional difference of the market price and allocation price of his share as citizen of India as per CAG reports, a notional loss to him.

B = Notional difference of the amount of dividend as shareholders. We may presume all citizens as shareholders in their service provider mobile company even with zero or no dividend share.

C = Notional difference of the Cost of services from his service provider.

If this is a zero sum game for all citizens of India, there was actually no loss or profit to anyone except for academic interests. But it is not a practical reality because different people have different patterns of investment and uses.

One point, which may be raised that irrespective of cost of spectrum shareholders of the mobile company would have his share in the profit of the company. I agree, but spectrum is single resource which affect whole product cycle, market strategy and profitability of the company. With the higher spectrum prices, these companies have to be more aggressive and efficient to serve its customer to cut cost of its services to customers. The companies as a profit-making organization have to charge all cost from customers.

The customer of any services supposed to pay fair price of any commodity or services. There should not be any hidden cost or any subsidiary in a fair market conditions. In present case, there is no fair market present. The huge benefit of under pricing or unfair subsidiary was given to the mobile telephone services. The subsidy was given to all industry majors, who regularly lobby against the subsidy to basic human need like food, water, education and shelter. Now, they are defending this under pricing in name of information revolution.  Further small customer is not in benefit as he pays more comparatively to bulk or business users.

The person who is not a shareholder or customer of any mobile telephony company has sold his share in spectrum on cheap prices. He lost his money which would have been spent for the development of his nation. In conflict of interests, his other counterpart is either getting benefit of cheap call rates or share of profit out of this open loot. Unfortunately, he is uneducated, marginalized, unorganized and socially depressed.

All of these mobile telephony companies govern themselves according to best principle of corporate governance and corporate social responsibilities. It is fashionable to them to talk about best interest of stakeholders not shareholders. Is it not duties of a responsible corporate citizen to ask their policy makers about interest of all stakeholders mainly all owners of precious natural recourses of a country? Whether their social responsibility satisfied by spending some percentage of their loot to philanthropy?