Corruption in Indian Telecom Industry

India has been rocked by numerous new corruption scandals and scams in the recent past. One of the biggest was the 2G Telecom Scam in which top ministers and leaders of the ruling party were involved. The 2G Scam resulted in cancellation of licenses of a number of companies which included foreign telecom giants like Telenor, Etilisat and others. While the guilty have managed to get bail in the cases as is the norm in India, thousands of job losses are happening as a result of the court rulings. Some of the companies have shut their operations while others are drastically reducing their operations.

The Telecom industry in India provides jobs to hundreds and thousands in low skill work like maintenance, distribution and marketing. Now investment and job creation in the telecom industry has gone into reverse, thanks to the corruption perpetrated by the politicians and bureaucrats in the country. Note the legal system in the country has failed time and again to put the big fish in jails despite massive public anger and media spotlight in these cases.

2G Telecom Scam

 The CBI will charge India’s top conglomerates, the Essar Group and Relaince ADAG with criminal conspirary and cheating in the multi billion dollar 2G Telecom Licenses Scandal. This Corruption Scam was brought directly under the control of the Supreme Court as the Government failed to move against powerful businessmen and politicians. Now the investigative agencies which have broken free from the ruling party’s interference have given the status of the investigation to the Court. The CBI has said that the 2 companies Loop and Swan Telecom were used as front companies by established telecom operators Essar and Reliance Communications to get more license. Note this defeated the entire exercise and there is ample circumstantial evidence to prove that the telecom minister Raja and his cronies connived with the companies to give precious spectrum for a song. Massive kickbacks were given through real estate companies like DB Realty whose top billionaire owners are cooling their heels in jail as well.

It remains to be seen whether the top corporate executives of India’s topmost conglomerates get prosecuted over these wrong doings. Essar and ADAG are amongst the top 10 conglomerates in India with wide ranging operations with billions of dollars in revenues nationally as well as internationally. The Supreme Court has been instrumental in bringing this case so far as the Government seems totally co-opted by corruption. It has been frequently castigated by the Supreme Court and has shamelessly defended corrupt bureaucrats and politicians. It remains to be seen how this 2G Telecom Case ends. If justice is done, then it may provide a new chapter to India’s corruption ridden story till now.


The largest Nordic mobile operator plans to cut its India workforce by scaling down GSM operations in four regions – Tamil Nadu, Kerala, Karnataka and Odisha – out of the 13 zones where it is commercially active in its bid to unlock and reallocate funds to more profitable regions, amid the continuing policy uncertainty on the sale of 2G airwaves.
“Uninor has around 400 direct employees across Odisha, Kerala, Karnataka and Tamil Nadu. As it gradually scales down in these circles, it will also evaluate possibilities of relocating some of the employees to other Uninor circles and also provide assistance in securing employment outside the company,” said Tor Odland, vice-president (group communications), in a written response to ET’s email query on the details of the India workforce reduction exercise.

But the Telenor spokesman confirmed that apart from impacting 400 direct Uninor employees, it would also hit 1,600 indirect employees, together “accounting for around 2,000 of (Uninor’s) 17,500-strong workforce”.   Telenor Group CEO Jon Fredrik Baksaas claimed the latest restructuring of its Indian unit would help it achieve cash-flow break-even before end-2013.


The company has gone down alarmingly in the last 2-3 years making it a classic B-School case study of how not to run a company. Nokia’s market capitalization has gone down by around 95% from a $100 billion to around 5-6 billion now. There are many reasons which have contributed to this downfall, the biggest of which was the advent of the iPhone which completely changed the mobile phone market on its head. The entry of another tech giant Google through its Android O/S further brought a paradigm change to the smartphone industry. Nokia, the market leader in all segments of the phone market suddenly found itself panting to keep up. It has made many blunders since then and tried numerous new strategies, management changes, job firings but all to no avail.

Like other technology companies, one of the reasons for Nokia’s decline is its focus on research rather than marketing. One of the reasons for the stunning success of Apple, the world’s biggest multinational corporation is its relentless focus on the consumer needs and marketing. Nokia failed on both accounts. The company spent $40 billion on R&D in the last 10 years compared to around $10 billion for Apple. Nokia managed to develop all the new features much earlier than its competitors but it failed to move the products from the lab to the market. One of the reasons is that as Nokia became big and sprawling, internal politics ate more of the management time than focusing on what consumers wanted. The company seemed to play catch up to all the new changes in the market like flip phones from Samsung and thin phones from Motorola rather than focusing on its core strengths. The story of Nokia is like that of many other empires which grow too big for their own good, losing out to external competitors.

More importantly its share in the lucrative high end smartphone market is falling faster. It looks with the hypercompetition in the smartphone market, Nokia has an extremely low chance of regaining its lost profits and margins. It is concentrating on the other segments of the mobile market to defends its units where it is also getting hammered by competition from Samsung, LG in the middle segment and local players at the lowest segment. The main problem is its very unsuccessful R&D which despite its long history in the mobile market and huge amount of dollars spent, has failed to compete against much  smaller rivals like HTC. Nokia forms a classic cases study of a Technology Company which failed due to failure of its R&D though Marketing also played a Role.

Nokia Fails in Indian Markets too

Nokia had lost a big chunk of marketshare in 2009 to local competitors like Micromax, Lava, Spice and MNCs like Samsung, LG and others. In 2010, this trend accelerated with Nokia losing an astounding 18% marketshare in the first 6 months of 2010. The company’s marketshare has been whittled down to just 36% from 54% earlier with local Indian mobile makers gobbling up a 33% marketshare. For Nokia, this was another resounding defeat as its Indian Fortress crumbles. Nokia is getting squeezed both on the high end as well as the low end. Local Indian companies are coming up with better features at lower price points and beating Nokia black and blue. Despite huge R&D, manufacturing strengths and an enviable distribution network, Nokia lost the pulse of the Indian customer. The smaller Indian companies like Micromax are receiving Private Equity money to expand faster given their huge success. Nokia clearly needs to change the whole culture and DNA of the company like IBM in the 1990s.


More than seven years before Apple Inc. rolled out the iPhone, the Nokia team showed a phone with a color touch screen set above a single button. The device was shown locating a restaurant, playing a racing game and ordering lipstick. In the late 1990s, Nokia secretly developed another alluring product: a tablet computer with a wireless connection and touch screen—all features today of the hot-selling Apple iPad.

The impact was evident in Nokia’s financial report for the first three months of the year. It swung to a loss of €929 million, or $1.1 billion, from a profit of €344 million a year earlier. It had revenue of €7.4 billion, down 29%, and it sold 82.7 million phones, down 24%. Nokia reports its second-quarter results Thursday and has already said losses in its mobile phone business will be worse than expected. Its shares currently trade at €1.37 a share, down 64% so far this year.

Instead of producing hit devices or software, the binge of spending has left the company with at least two abandoned operating systems and a pile of patents that analysts now say are worth around $6 billion, the bulk of the value of the entire company. Chief Executive Stephen Elop plans to start selling more of that family silver to keep the company going until it can turn around its fortunes.

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Solar Mobile Phones

India has the fastest growing market of mobile phones, with the second largest number of subscribers in the world. There are more mobile phones in India than toilets, and phones have reached the poorest sections of the society. The low call rate charges and the cheap price of phones has made it affordable to even people earning less than $2/day (incidentally majority of India around 80% have their incomes capped at that level). However the basic problem of electricity to charge the mobile phones, remains a major hurdle for a vast majority of the population. Even in villages and cities where the power grid is available, power cuts ranging to 20 hours a day is not uncommon. Therefore charging of phones is a big issue.

However solar power which is terrific at providing electricity to off grid communities can solve the above problem as well. Solar powered mobile phones are being introduced by some of the local Indian vendors. These vendors are very good at selling phones with features adapted to the needs of the local population. There are many cheap mobile phones in the Indian Market, with affordable call rates, but the major problem of electricity in rural areas, has disrupted their usage, due to non-availability of any option left for phone charging.

Some of the big Telecom companies that have taken the plunge into Solar Mobile Phone Market are:

Samsung – has come out with its solar mobile phone – Blue Earth, which is a touch phone with a full solar panel on its back, generating enough power to charge the phone. It is not very bulky & is made from recycled plastic bottles.

ZTE – the Chinese mobile manufacturer recently launched the Coral-200, a solar-powered phone. It will just cost 40$. The solar phone provides about 15 minutes of talk time for every hour of sunlight. It comes with a  very slim design.The solar-powered battery generates 3 minutes of talk time for every 10 minutes of sunlight. It is built right into the back cover. If there is enough sunlight, the battery will be able to power the phone for longer periods of time, reducing the dependance on the traditional charger.

Micromax – announced the launch of its solar powered mobile phone in the Indian market, X259 & X258. The X259 is a cheap $50 mobile phone, which can get charged by using solar energy. It has a 1000 mAh battery which ensures a good battery backup as well. It also has plenty of other useful features like a twin SIM, bluetooth etc. The X258 also comes with an inbuilt solar panel that can be used to recharge the device without any charger. It has a 2.4 inch wide colour display along with an alpha numeric keypad. It comes with multiple features like – a memory card (micro SD card) to help users store their favorite music, movies and more; a 1.3 megapixel camera; and integrated Bluetooth.

LG – POP from LG comes with embedded solar cells. It is a slick phone, with a battery cover that is a solar cell, letting users charge up the battery with sunlight. It provides 2.25 minutes of talk time or 180 minutes of standby for every 10 minutes of sunlight.

Sharp – along with Japanese network KDDI, has also launched a solar-powered waterproof mobile phone. The phone, gives one minute of talk time for every ten minutes of sun. The phone is designed to capture 80% of its charge from solar power alone.

You can also read about the leading Mobile Phone Companies in India.

Nokia  – which is the pioneer, in the telecom industry & revolutionized the mobile phone market in India is not planning to introduce a solar powered phone any time soon. It conducted various tests ranging from Kenya to deep within the Arctic Circle. These experiments were done to find out the viability of such kind of phones, but concluded negatively on these grounds:

  • device was hard to keep in direct sunlight
  • limited talk time
  • challenge to make the phone’s weather protection in such a way, so that it does not cover the solar charging panel
  • constantly needs light to stay charged, hence cannot be carried around, in a pocket or a purse
  • occasional calls only.

With a pioneer company like Nokia, not taking the dive in this area, what do you think will be the future of Solar powered mobile phones in India?

I am surprised at the similarities in the corruption scandals hitting the South Asian nations almost daily. Despite hundreds and millions of citizens living in grinding poverty and misery, the elite of the society can compete in their billions with the richest nations around the world. This is not due to their hard work or great intellect but massive endemic corruption. Globalization has just increased the magnitude of the loot and made billions for the people in power through pelf and plunder. Corruption has a direct impact on development and growth. It is not only the South Asian elite that is involved in corruption scandals, also involved are the big MNCs from the West who supposedly have high corporate governance standards. Note Wal-Mart was recently caught paying millions of dollars in bribes systematically to hundreds of state officials in Mexico.

Capital Deficiency in this region has led to massive Infrastructure bottlenecks leading to government funded projects. However infrastructure and construction companies are a source of massive corruption as there are massive kickbacks and bribes in government procurement contracts. Recently I was shocked to read that a major billion dollar loan from the IMF to Bangladesh to build a major river bridge was cancelled due to corruption. Montreal-based SNC-Lavalin, one of the world’s largest engineering and construction companies, has acknowledged making improper payments to agents to win contracts on two projects. An internal probe resulted in the resignation of its CEO and two other senior executives. Note this bridge over Bangladesh’s biggest river Padma would have led to huge developmental gains as millions of people in isolated districts could be connected to the urban centres.

World Bank cancels $1.2 billion Bangladesh loan

The World Bank has canceled a $1.2 billion loan for construction of a bridge in Bangladesh, saying it has credible evidence of corruption involving a Canadian engineering company. The global lending agency said it did not receive a satisfactory response from the Bangladesh government after it raised the issue of corruption last year. It said in a statement Friday that it has evidence pointing to “a high-level corruption conspiracy” among Bangladesh government officials, executives of Canadian engineering and construction giant SNC-Lavalin, and private individuals in connection with the planned 6.5-kilometer (4-mile) Padma Multipurpose Bridge Project.

However as usual corruption has put a spanner in the works with the loan getting cancelled and funding from other sources getting suspended. Democracy has failed to rein in corruption as institutions and systems remain weak. Despite indulging in blatant looting , politicians and bureaucrats along with their crony business partners fail to get punished. Even in India which has the most mature democracy, there is hardly a big leader or businessmen in jail. Despite flagrant corruption in 2G Telecom and Commonwealth scandals, the perpetrators are out in bail and forming laws in parliament. In other countries like Pakistan and Bangladesh where institutions are even weaker, there is absolutely no danger of getting punished, leading to even bigger more blatant violations.

Indian Government shamelessly defends Corrupt Officials, Black Money despite claims to the contrary

The Indian government has been rocked by a series of corruption scandals which have been documented in this blog. The scandals have not only touched the political sphere but also the stock markets. The scams have not stopped with new ones being reported almost on a daily basis but no convictions have happened. The corrupt and the guilty keep on going about their business as usual as the Indian ruling party thinks it can cure corruption with words. The Congress Party in its annual meeting had said that removing corruption would become its top priority with expeditious proceedings against public officials in graft cases. However the law has been criticized as having too many loopholes even before being passed. Even the actions of the government does not inspire much confidence. The Commonwealth Games which was a much publicized national corruption scandal has yet to see a single prosecution. The guilty officials have all managed to get bail with the Suresh Kalmadi, the scandal in chief, goes about his business as the powerful ruler of the Indian Olympic Committee. All that government has done, is remove him from the post of the Chairman of the Organizing Committee of the CG. Note this is already a dead body with the Games over a month ago. Note Kalmadi is a leading party member and despite his obvious corruption the government refuses to move against him.

India has for long lacked an agency to control the monopolistic and predatory practices of Indian companies . The old MTRP Act had become quite toothless after the 1991 reforms and the Indian industry had turned into the wild west. Monopolies and oligopolies could operate quite freely and there was nobody to investigate price fixing and cartelization. Industries like telecom, cement and others saw many such abuses. Most of the developed countries like USA and European Union have highly developed and advanced competition regulators which impose hundreds of millions in fines against domestic and international companies who indulge in anti-market practices. The  fines serve as a great deterrence where powerful corporates try to undermine the market forces through their sheer size. The landmark anti monopoly legal cases against Microsoft, LCD companies have proved to be very effective in punishing super powerful businesses who have shafted consumers through illegal practices.

However the situation is changing with the advent of a new authority Competition Commission of India. India’s anti monopoly watchdog Competition Commission of India (CCI) had started out a year ago tentatively by finding film producers a pittance of Rs 1 lakh. However with a year behind it, the watchdog has apparently gone to the other extreme by fining top cement companies in India 50% of their profits for the last 2 years instead of the expected 8% of their last 3 year’s revenues (regulation allows for a maximum penalty of 10%) . This comes to around Rs 6300 crores which is almost the whole profit made by the industry. Note there is a seemingly lack of balance about its orders going from one extreme to the other extreme. The order against DLF was a good one finding the right balance , however the cement companies one seems too high and will be overturned in all probability by the Appellate Council.

Not Rs3,500 crore, Rs6,300 crore!

Note India desperately needs someone to break the oligopolies and cartels created by numerous sectors such as yarn producers, cement players etc. But you have to find a balance between penalizing them and bankrupting them. However some good has come out with this huge penalty as the yarn producers have lowered their prices fearing a big fine against them.



I have always said that investing in Indian mutual funds is a dumb idea given the lack of regulation , under performance, high fees and front running and fraud conducted by mutual fund managers. It is best to invest in a good ETF with low fees such as the Nifty Bees ETF which was one of the first ETFs to track India’s benchmark Nifty 50 . However lack of sophistication amongst retail investors have not allowed these ETFs to gain popularity. Now there is one more reason to stay away from the chills of the Indian mutual industry as the stock market regulator SEBI has said that 50% of the MFs under perform the benchmark and some fund houses have underperformed over their entire history. It also cites the example of a fund trading circulatory with an investing bank flouting regulations. However lack of criminal cases against these white collar crimes emboldens the fund managers to keep indulging in frauds enriching themselves at the expense of the investors. Note insider trading is quite rampant in India and the fund managers are known to be active participants along with the promoters of the companies.

The Mutual Fund Companies in India  like other sectors such as Real Estate and Telecom too has come under the spotlight for some illegal activity. While you can’t call the industry corrupt because of some fraudulent activities it does raise questions on the industry ethics. Top Mutual Funds in the country like HDFC and L&T have been fined by the stock market regulator SEBI for front running. For those who don’t understand what the term means,front running is an illegal activity whereby a fund manager or fund official makes personal gains by making trades on his account before doing a trade for the fund. This causes losses for the fund investor and is akin to stealing. However like other corrupt practices in the stock market industry, SEBI lets them go with small fines which don’t deter more such frauds. It is also not unknown that some fund managers connive with company promoters and market operators to rig and do  circular trading. Not only is this a problem,another massive problem with the industry is its underper formance as compared to the benchmarks. While earlier mutual funds were known to outperform the benchmarks like the Nifty, a recent Crisil study has dispelled this myth. Given these disadvantages of mutual fund ,it is time to invest in Indian ETFs though not a lot of variety exists in the Indian stock market yet.


He said over 50% of the schemes of nine fund houses have underperformed their benchmark indices and there were nine other fund houses where up to 50% of the schemes were underperformed by their respective benchmark indices.“Some AMCs’ (asset management companies) schemes have underperformed since inception. Sebi will engage with them and ask what measures they are taking to address the issue. We will perhaps review their performance on a half-yearly or annual basis,” Sinha said at industry lobby Confederation of Indian Industry’s annual mutual fund summit.Moreover, Sebi was concerned about fund houses flouting regulations on several fronts in recent months. “One scheme even had a single entity investing at least 25% of the assets under management (AUM) in the scheme. Then we found that a mutual fund was investing money in the fixed deposit of a large bank, which itself is an investor in the fund,” Sinha said. Rules stipulate that a single investor can only invest up to 25% of the AUM in a mutual fund scheme.