Business Today

Licence to steal

Dollars are pouring in for telecom licences and scarce 2G spectrum, but the government isn’t gaining. A bunch of companies are. The Telecom Minister is to blame.

Puja Mehra | Print Edition: December 14, 2008

A little over a year ago, few had heard of A. Raja. A Dalit politician from Tamil Nadu, he was DMK supremo M. Karunanidhi’s nomination to the UPA council of ministers for the environment portfolio. Then last May, Karunanidhi dethroned the incumbent telecom minister and his nephew Dayandhi Maran and elevated Raja to Sanchar Bhawan as Communications and IT Minister.

War of words
PARA 2.73 Of Trai’s 2007 recommendations
“.......The entry fee as it exists today is a result of the price discovered through a market-based mechanism applicable…to the 4th cellular operator. In today’s unprecedented growth of the telecom sector, the entry fee determined then (2001) is also not the realistic price for obtaining a licence. Perhaps, it needs to be reassessed through a market mechanism....”
Misra’s interpretation: This section is self explanatory and is the one to follow.
Raja’s interpretation: TRAI did not give any recommendation on revision of the entry fee; it only mentioned that “Perhaps, it needs to be reassessed through a market mechanism”.

PARA 7.39 Of Trai’s 2003 recommendations
“…if the Government ensures availability of additional spectrum, then in the existing licencing regime they may introduce additional players through a multi-stage bidding process.
Misra’s interpretation: After 2003, only UASL licences were to be awarded, therefore Para 7.39 of the recommendation was applicable to all new service providers in a service area who want UAS licence.
Raja’s interpretation: Para 7.39 was for the licencing regime prevailing at the time of giving recommendations, i.e., cellular mobile licence and not relevant to the UAS licence.

Ever since, Raja has become a well-known figure in global telecom circles. Why? He is lording over the most precious resource in the fastest growing telecom market in the world. But then Raja did something to become unpopular among telecom biggies: He sold telecom licences in January without giving all in the fray enough time to apply.

Some of the global majors are now doing second-hand deals. And they are valuing the licences 7 to 8 times higher than what Raja had charged for them barely six months back. In October, Telenor of Norway, bought 60 per cent in the telecom business of real estate developer Unitech for Rs 6,100 crore. Unitech is one of the firms that bought a licence in January. A month before that, Etisalat of the UAE paid Rs 4,200 crore for a 45 per cent stake in Swan Telecom, another of the nine winners of the licences Raja had awarded. Raja sold 120 licences to nine applicants for Rs 9,000 crore, which is just a shade under the value of the Telenor and Etisalat deals put together. Scarcity of spectrum—radio waves for mobile services—for 2G telecom services, which comes bundled with new licences, is one reason for that premium. The upshot: What the licence winners have pocketed could have been the government’s had Raja chosen to value the licences and the spectrum that came along with them at the going market rates. The loss to the exchequer is estimated at Rs 50,000 crore.

Two days after Raja sold the licences, Nipendra Misra, Chairman, Telecom Regulatory Authority of India (TRAI), reminded Raja of its various recent recommendations calling for pricing new licences at market rates through a bidding process, which, if the government rejects, it must call for fresh recommendations. Instead, Raja relied on a 2003 guideline for pricing licences for new entrants laid out by then telecom minister Arun Shourie. Shourie had then prescribed a firstcome-first-served (FCFS) basis for giving out licences to existing and new entrants on the basis of the TRAI’s view he had obtained.

Telecom analysts argue that Raja should have explored a bidding process as the rising valuation of shrinking spectrum would inevitably mean choosing a few and leaving out the rest. Raja, however, bulldozed through recommendations and even the Prime Minister’s call for fairness. Raja refused to ask TRAI for recommendation on the pricing. TRAI does not come fully clean either; its missives to Raja ensured immunity for itself, but fell short of clearly stating that the sales were illegal.

Raja’s explanation of administrative hassles (see interview) isn’t a convincing reason for putting some applicants ahead of others by juggling cut-off dates and giving applicants barely a few hours to cough up Rs 1,651 crore, the sum needed to obtain a pan-India licence. This put applicants that had come ready with the cheques ahead. Thus, though Unitech had applied on 24 September, much later than Loop (a Ruia company), which had applied on September 6, it went on to receive spectrum in 13 circles. Loop had to make do with spectrum in seven circles. The post-facto pullback of the cut-off removed 373 applicants from the fray. Endresult: A Rs 50,000-crore scam

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