November 01, 2009

Prabir Purkayastha



THE telecom spectrum scam is now back in the news with CBI raiding the Department of Telecom (DoT), reportedly at the request of the Central Vigilance Commission (CVC). The CVC had earlier written to the Department of Telecom on this issue and had made clear that it was not satisfied at the explanation given by DoT. Why the minister concerned, who has self-admittedly been the key figure in this entire exercise, should be outside the investigations of the CBI is the key question. Is it merely an exercise to find some lowly scapegoats and thereby divert attention from the real figures?

If the minister continues to be in charge, he will obviously try and thwart the investigations. Even the prime minister has already given a clean chit to the minister, making CBI investigations even more difficult.

To recapitulate the spectrum swindle, the all India license and the spectrum for additional cellular operators (2G operators) was given away on a first-come-first-served basis at 2001 prices. TRAI, experts within and outside the government, had all stated then that there was no justification for using 2001 prices when there were barely 4 million mobile subscribers as against 300 million subscribers in 2007. Sitaram Yechury wrote to the prime minister on this issue (letter dated 29 February, 2008) cautioning the government that this was simply giving a huge largesse to new operators.

Soon after this sale, the parties who had secured the licenses sold it at about 6-7 times the price they had paid without doing any development at all. The difference between what the companies paid --   a total of Rs 9,000 crore -- and what the market price of these licenses were -- anything between Rs 60,000 to 100,000 crore -- is the scam, making it by far the biggest scam ever in this country.

Who were the companies that benefited from this award of licenses? There were nine corporate entities who secured 120 licenses, which benefited from this under-valuation of the license fees -- Unitech Builders, Venugopal Dhoot’s Videocon, Swan Telecom, Loop Telecom (reportedly owned by Ruias), S Tel, an unknown company owned by a shadowy entity Telecom Investments (Mauritius) Ltd and older players such as Shyam Telelink,, Idea Cellular, Spice and Tatas. Only a few of these were telecom companies or had any real interest in telecom.

The deals struck soon after between UAE’s telecom operator Etisalat and Swan Telecom, and that between Unitech and Talenor (of Norway), brought out the magnitude of the under-valuation.  Swan Telecom sold 45 per cent of its stake to Etisalat for $900 million, taking its book value to $ 2 billion (Rs 10,000 crore). This is without putting up any infrastructure, let alone actually starting operations. The Unitech-Talenor (of Norway) deal was no different: it sold 60 per cent of its stake to Talenor for Rs 6,120 crores while paying only Rs 1,651 crore as license fee. Thus, the new entrants secured licenses for Rs 1,651 that were being valued in excess of Rs 10,000 crore by the market within a few months of their securing the licenses!

A Raja, the minister concerned, has provided two defences to the charge that his actions led to a huge loss to the exchequer. One is the argument that he had no alternative as first-come-first-served was some kind of internal law that all telecom ministers had to obey and all his predecessors had also followed. He has not referred to any document or policy which suggests that all new licenses had to be given only on a first-come-first-served basis. As we will show below, both the TRAI and officials in the Department of Telecom had in fact suggested a bidding procedure for award of licenses. The second argument that Raja has advanced is that the license fee of Rs 1,651 crore was somehow written in stone by TRAI, a contention that TRAI has since denied.

ABSURD ARGUMENT

Let us look at this absurd first-come-first-served argument. The minister has referred to National Telecom Policy (NTP) 99 and the TRAI recommendations of 2003 to justify his first-come-first-served principle. The simple fact is that after NTP 99, there was an auction in 2001 for the 4th GSM license and therefore referring to NTP 99 for justifying this principle does not hold water. In fact, the DoT had referred this matter to TRAI and TRAI had recommended in June 23, 2000 that a multi-stage bidding process be followed with auctioning for the license fee, which is what was finally followed.  Secondly, the 2003 TRAI recommendations regarding first-come-first-served principle that Raja talks about, referred to those parties who had secured licenses and were awaiting spectrum and not to issuance of new licenses. What the minister is deliberately obfuscating here is that in India, we have bundled the spectrum with the license and not auctioned them separately. So giving spectrum on a first-come-first-served basis to parties that have already secured licenses is quite different from that of award of new licenses and spectrum on a first-come-first-served basis.

The then TRAI chairman Nripen Mishra had had rebutted the minister’s claim that TRAI had recommended first-come-first-served with 2001 pieces and clarified their recommendations had asked that new entrants be brought in through a multi stage bidding process. The  TRAI’s recommendations in “Review of License Terms and Conditions and Number of Access Providers” dated August 28, 2008, in para 2.73, had made clear:

The allocation of spectrum is after the payment of entry fee and the grant of license. The entry fee as it exists today is in fact price discovered through a market based mechanism applicable for the grant to the 4th cellular operator. In today’s dynamism and unprecedented growth of the telecom sector, the entry fee determined then is not the realistic price for obtaining a license.

On both counts then, Raja’s defence that he was merely following what TRAI had told him or earlier ministers had done bears no credibility.

But this is not all. There was a detailed note prepared in 2007 by the secretary telecom, DS Mathur, which had evaluated three options regarding award of licenses. It had considered first-come-first-served with 2001 license fee, and two different ways of auctioning the licenses/spectrum. The note also made clear that the first-come-first-served basis with an old license fee was not the best way of giving out licenses and made no reference to this so-called iron rule of giving licenses on a first-come-first-served basis that Raja keeps talking about. It is interesting to note that as long as DS Mathur was the secretary, no licenses were issued and only after his retirement in December 2007, were the new licenses issued.


NO TAKERS FOR MINISTER’S DEFENCE

Raja has also made another claim in his defence. This is that he broke the cartel of telecom operators. If this were so, then the consumer should have seen his telecom bills drop. This has not happened. What Raja has achieved is that he has enlarged the telecom cartel with his favourite companies.

The claim that he has broken the telecom cartel has also another problem. If his defence is that he was only following existing policy and TRAI recommendations, he cannot take credit for his actions – according to him, he had no other choice. So he is either responsible for taking a decision to break the telecom cartel, and therefore also directly responsible for the loss to the exchequer or he is responsible for merely following existing procedures. He cannot have it both ways.

The other element of the scam is the license terms and conditions. If there was indeed a genuine desire to keep license fees low and thereby benefit the ultimate customer, there should have been strict clauses locking-in share-holding and sale of licenses. Not only was this not done, the Merger and Acquisition Guidelines issued by DoT on 22 April, 2008 superseding its earlier guidelines, deliberately omitted all mention of acquisitions and only talked of mergers. The ministry seems to have gone out of its way to facilitate the immediate selling of these licenses for speculative gains. Without any lock-in measures, the gross undervaluation of the spectrum could only lead to windfall profits for the new licensees.

The first-come-first-served policy for award of licenses was further compounded by entirely arbitrary operation of even this principle. The cut off dates for submission of applications were announced with only a 72 hour notice; an entirely new date for capping the applicants were chosen without any basis; and the awards of licenses were made in a free-for-all melee, in which the parties depositing the cheques earlier were given preference. The media reports then talked of CEOs of companies, who were in the know of this capricious principle, coming to Sanchar Bhavan with bouncers to elbow out other competitors and jumping the queue. Never before have we seen such an unedifying spectacle in the award of licenses in the telecom sector. The entire exercise was one of playing favourites and not awarding licenses in an open and transparent manner.

Even after the scam had come to light, the UPA government had made no move to stop this open loot of the public exchequer. The CPI(M) had demanded a set of immediate measures by which licenses given at such low prices should be locked-in for a specified period. It had also asked that windfall tax should be levied on all such sale of licenses. On both these counts, the UPA government then took the position that this was a corporate issue and the government had no role to play, never mind the fact that they were the ones who had issued licenses at such ridiculously low prices.

It is time that the minister concerned and the government take note that their defence on the spectrum issue has no takers. Raja must go if this government is even half-way serious of addressing the issue of probity in public life.