Telecom and Real Estate : A strange case of similarities

Telecom and Real Estate : A strange case of similarities

 

 

अति रूपेण वै सीता चातिगर्वेण रावणः।

अतिदानाद् बलिर्बद्धो ह्यति सर्वत्र वर्जयेत्।।

 

 

Extreme beauty of Sita, 

Extreme haughtiness of Ravana, 

Extreme charity of Bali 

were the cause of their troubles. 

Therefore, extreme is prohibited everywhere.

 

 ~ Chanakya Neeti (Chapter 3, Shloka 13  )

 

 

The summary of the above i.e. Ati Sarvatra Varjayet  (extreme is prohibited everywhere), has brought two sectors with no commonalities – Telecom and Real Estate – on the same table. The differences among these are, of course, very obvious. The former, being technology driven, represents the modern and experiences things moving at the speed of light  Real Estate represents the old and is slow in reacting to events. If Telecom costs are about a small monthly charge and Real Estate purchase is about biggest expenditure in one’s life. Differences are so much palpable that according to a few analysts the two are set at cross purposes. The more the connectivity increases, the less valuable becomes real estate. 

 

 

Now comes our story about the strange and stark similarities that had started fifteen years ago. 

 

Telecom : In the heydays of, the operators were making huge profits. As a result, telecom sector expanded exponentially and was entering its next phase of growth. The Regulator obviously wanted a fair share of this growth. And rightly justified in public interest. The issue that remained unanswered was what share was a fair share?

 

Amidst this answered question, two other phenomena happened simultaneously:

 

1.     Reports on untransparent dealings in telecom sector 

 

2.     Rising powers of media and social media

 

 

The former was against public interest and the latter was the amplifier for anything against public interest. The problem lay not with the amplification but with the magnitude of amplification. The impact of the high magnitude amplification was that decisions even remotely providing private gains were perceived as against public interest. Sanity and balanced view had no existence in a lop-sided system driven largely by popular voice. Ultimately, a stage of extreme focus on public interest was reached and as a nation we forgot Shloka 13 from Chapter 3 of Chanakya Neeti. 

 

In the process, operators started closing or selling their operation. This phenomenon was then reported as “industry consolidation” which in simple language meant that an era of “limited options for customers” was imminent.  

 

We now have a situation where the country runs the risk of having a duopoly in mobile business. In a basic industry like Telecom, the dangers of such a duopoly are more than palpable. 

 

 

Real Estate :   Heydays/ bumper profits for developers / large scale expansion / unethical practices by developers / increase in govt share ( GST/FSI premium/Development charges) / over-regulation /developers closing operations / limited options in a basic industry.

 

Compared to Telecom, Real Estate is slow in this sequence. So in the current phase, 25-40% developers across different Indian cities have closed shops which is being reported as “industry consolidation”. We are still far away from the experiencing the pernicious effects of ‘limited options for consumers’.

 

Some may argue that unlike Telecom, consolidation in Real Estate is good for consumers as it leads to increased share of organised players and organised players are better regulated and are more transparent. This is true but what is also true is that India, as a country, needs extremely larger number of housing units. And organised developers will only be able to undertake limited number of projects. Real Estate business has natural limitations when it comes to scalability and geographical expansion.

 

The visible gains from increasing share of the organised players will subsist for a few years. But once the current inventory overhang is over, the negative impacts of reduced number of developers will come to prominence. The first set of these impacts are visible through the struggle of small and medium sized old tenanted buildings in Mumbai. Tenant societies are finding it difficult to identify developers to undertake redevelopment. A few are unable even to get developers to write an Expression of Interest. India needs developers for developing swanky homes and hi-rises on Mill lands in Parel but it also need developers to redevelop the chawls and slums around these mills. 

 

 

The solution for meeting the national target of housing lies only in having a large number of developers. This does not mean that we should have laxed regulation. What is required is in keeping away ourselves from extreme focus on Regulation, extreme focus on Government’s Revenues and extreme focus on Public Interest. As a nation, we should not only work towards sharing and forwarding Chankya Neeti but also towards practising it.  A balanced view will make unorganised players see value in becoming organised. 

 

There will be good people and there will be bad people but let us not tag every bad as evil.

 

 

-       Deepesh Salgia