"Underpricing should have a clear purpose... but if the intention is to make money, it is questionable."
Mahesh Uppal, telecom expert
"Why should spectrum be given at rates set by the government... this provides scope for corruption."
S. Gurumurthy, convener, SJM
"Our apprehensions have been established. The two deals have uncovered the current market price"
Nilotpal Basu, CPI (M)
"If auction route was taken, not many would go for pan-India rights and government may have got less revenue."
Prashant Singhal, Ernst & Young
"If anyone has a problem over how spectrum was allotted, they can go to the telecom tribunal."
Manish Tewari, Cong spokesman
In the Indian telecom sector, there’s a scam for every season. Here’s another, with the usual mix of politics and money, bureaucracy and business, lawyers and lobbyists, sniff the cynics. We’ve been there before, and there’ll be more to come, is the refrain. But despite all the letter-writing, jargon and vested interests, this one smells different. For one, it’s tantalisingly close to next year’s general elections and, as any political party that can spell Bofors will affirm, controversies sound good on election eve. It helps if the numbers are large: how does a Rs 60,000-crore loss to the exchequer sound?
In his defence: Raja gives his reasons for not going for auctions, but many telecom experts are not convinced
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The scam is, not surprisingly, all about spectrum, the right to use a particular frequency of electromagnetic waves, needed by telecom companies to capture new customers and service existing ones in India’s booming mobile telephony market. Wars over spectrum have been on for some time, and have deeply divided the telecom sector. Who has prerogative over new frequencies being allotted—existing players or new ones? Should a resource as precious as this be auctioned to get the "right price"? Alternatively, what are the just norms to allocate spectrum?
The questions aren’t new. But answers are not forthcoming. And they lie at the root of the current episode, which began with telecommunications minister A. Raja’s November 2007 announcement for issuing telecom licences on a first-come-first-served basis. Raja (who lords it over a ministry vested by the UPA to key ally DMK) based this move on regulator Telecom Regulatory Authority of India’s (TRAI) recommendations lifting the cap on the number of players in telecom circles.
This opened the door for several companies from diverse non-telecom backgrounds, like real estate and consumer durables, to jump into the fray and collect pan-India licences and spectrum for Rs 1,651 crore, a price set way back in 2001. So, in January 2008, after an unseemly scramble, the telecom ministry awarded 120 licences to nine companies. The main beneficiaries included a clutch of "new telecom czars" like Swan Telecom, Unitech, Parsvanath, and Videocon, along with existing players like Idea and Shyam Telelink, besides others. All told, the government earned around Rs 9,000 crore.
The issue attained fever pitch late last month when Unitech Telecom—a division of real estate giant Unitech—sold a 60 per cent stake to the Norway-based Telenor for Rs 6,120 crore. A little earlier, another new licencee, Swan Telecom, hawked a 45 per cent stake to uae-based Etisalat for Rs 40,000 crore. The sellers had not a single subscriber and no infrastructure in place—but made a hefty killing, if that adequately describes a 600 per cent return on investment in eight months. Clearly, there’s a huge disconnect between the government sale price for new licences and market reality. According to current valuations, the notional loss to the exchequer—based on the enterprise values of the new licencees—is a staggering Rs 55,000-Rs 60,000 crore.
Not surprisingly, everybody is now finding fault with the way things were done. Says CPI(M)’s Nilotpal Basu: "Now our apprehensions have been established. The two deals have discovered the current market price for the licences." Adds Swadeshi Jagaran Manch convenor S. Gurumurthy: "Why should spectrum be given on a government-determined rate when the government itself talks about a market-determined rate for everything else? This provides scope for corruption."
It’s obvious that the government-set price for a pan-India licence along with 4.4 MHz of start-up spectrum is incorrect. Argues telecom analyst Mahesh Uppal: "The regulator and others have been saying that the price is low and should be around Rs 6,000 crore. If something of commercial value is under-priced, one has to ensure that its purpose is clear. But if the intention of the people concerned is to make money, then it becomes questionable." Rajeev Chandrashekhar, a former telecom entrepreneur who is presently a Rajya Sabha member, agrees. He says, "The current process is wrong, no doubt about it. All licences should be auctioned."
Clearly, Raja is at the heart of the mess. With the Congress keeping a low profile, and the DMK backing him, Raja is taking the high moral ground. On November 7, he hurriedly called a press conference and said he would resign if found wrong. In an interview to Outlook, Raja clarified that everything he did was within the National Telecom Policy of 1999 and TRAI recommendations, which did not favour auction for 2G spectrum at any point. He had also made this point clear in a letter to Chandrashekhar, in November 2007: "... the existing operators have got spectrum in the past ‘free of cost’ and it may not be tenable under the law to auction the 2G spectrum..."
How sound is Raja’s argument? TRAI did talk of removing the cap on the number of players in a circle to bring in competition. But there is lack of clarity over TRAI’s policy for future spectrum allocation, as it said the auction route could be considered for this. This left it wide open for interpretation. TRAI clearly recommended the first-come-first-served route in 2004, but there were very new players at that time. "Frankly, Raja is just continuing with that," says Chandrashekhar.
Interestingly, the TRAI chairman has gone public about revising the licence fees. "The need to take a relook at the fee cannot be asserted enough. At today’s prices, the Rs 1,651 crore should easily be around Rs 6,000-10,000 crore," Nripendra Mishra told Outlook in December 2007. So Raja did follow established policy—but seems to have forgotten that the government always has the option of revising policy.
To add to Raja’s problems, a PIL was filed earlier this month, seeking quashing of the allotment procedure. Last week, the Delhi High Court sought a response from the Centre within three weeks. The matter will be heard on December 10.
Then, of course, there’s the politics. The Left has been first off the blocks, alleging a Rs 60,000-crore loss to the exchequer. After being strangely quiet, the BJP finally made measured noises, seeking a CBI probe. "When such sales (Swan’s & Unitech’s) happen, what more evidence do you need that money has exchanged hands?" says BJP spokesperson Prakash Javadekar. Finally, Samajwadi Party MP Amar Singh weighed in, taking potshots against the hoarding of spectrum by existing telecom players.
What’s the way out for the upa government? Well, it’s now considering a three-year lock-in period for new licencees to prevent any further sale. Will this work? Doubtful, because with Swan and Unitech having already sold stakes, others might move the courts for discrimination. Adds Gurumurthy: "The government can correct the situation. But it will not do it because it will amount to returning the other money that has been paid."
Apart from the auction route for the next round of 3G licences, the government is also considering a one-time fee for existing players—like Airtel, Vodafone and Idea—who have excess spectrum. It is also thinking of raising the annual spectrum usage charge for these companies. These are piecemeal solutions for a complex mess. Telecom has always been the favoured milch cow. It’s time somebody rectifies matters before it completely gets out of hand. This could be that time.