Shades of a scandal
VENKITESH RAMAKRISHNAN
in New Delhi
| The nation suffers a huge loss in spectrum allocation, and the political class by and large chooses to wink at the deals. |
Communications Minister A. Raja says neither the CVC nor TRAI had raised any objection to spectrum allocation to 2G telecom service providers on a "first come first served" basis.
THE controversy over spectrum allocation for 2G GSM services is getting curiouser and curiouser, and it seems the Ministry of Communications & Information Technology and the man who runs it, A. Raja, have decided to make regular contributions to it. Recent developments in Parliament have underscored this. On December 15, 2008, responding to a question raised by members Sri Prakash Goyal and Aaron Rashid in the Lok Sabha, Raja said that neither the Central Vigilance Commission (CVC) nor the Telecom Regulatory Authority of India (TRAI) had raised any objection to spectrum allocation to 2G telecom service providers on a “first come first served” basis.
The Communist Party of India (Marxist), which has been at the forefront of protests against issues related to spectrum allocation, alleged that the Minister was trying to “mislead Parliament, obfuscate matters and conceal the truth”.
CVC queries
A perusal of CVC documents seems to bear out the charge. On November 15, exactly a month before Raja held forth in the Lok Sabha about the absence of objections, the CVC had written to the Secretary of the Department of Telecom (DoT) expressing dissatisfaction over an earlier response of the department to its queries on the policy on spectrum allocation. The CVC’s correspondence listed five points vis-a-vis spectrum allocation. These included questions on whether the DoT had carried out an assessment before allotting additional spectrum to various operators and on the results of such assessments if they had been carried out. It also noted that there were reports about spectrum allocation exceeding what service providers were eligible for and asked how the department planned to address such anomalies.
The CVC also referred to media reports that some spectrum licensees were selling their equity at high values and observed: “This is a highly unethical practice and necessary action in this regard is essential.” The CVC pointed out that Swan Telecom was reported to have sold 45 per cent equity at Rs.4,050 crore to Etisalat while a pan-India licence costs only about Rs.1,650 crore. This happened, the CVC noted, even though companies like Swan Telecom had made hardly any progress in operationalising mobile telephony, the purpose for which these companies had been allotted spectrum.
TRAI reminders
Raja’s claim on TRAI not raising any objections does not seem true either. TRAI documents show that the authority had repeatedly reminded DoT about the legal provisions relating to implementation of its recommendations. In a letter to DoT on January 14, 2008, TRAI Chairman Nripendra Mishra pointed out that the authority’s recommendations could not be implemented in bits and pieces or by ignoring inter-linkages between various recommendations. This was clearly a reference to two recommendations: the first came before the Letters of Intent (LoIs) on spectrum allocation were issued, while the second came after 120 LoIs were issued on January 10, 2008, but before licences were signed.
TRAI had time and again held that its recommendations of October 2003 clearly stated that new licences must be allocated through a multi-stage auction process. In fact, the whole controversy on spectrum allocation hinges on a violation of this TRAI guideline. DoT under Raja violated this recommendation by allocating new licences to 2G telecom service providers on a “first come first served” basis.
The controversy is likely to come up when Parliament meets again. Meanwhile, policymakers and observers of the telecom sector are trying to ascertain the losses that the spectrum allocations will cause the exchequer. The country may already have lost close to Rs.60,000 crore, according to some projections, on account of the policy adopted by Raja and his colleagues in DoT.
Calculation of loss
This calculation is based on the sales made by two spectrum licencee firms, Swan Telecom and Unitech Wireless Ltd. Swan Telecom was allocated spectrum licences in 14 circles for Rs.1,537.01 crore, while Unitech got licences in 22 circles at Rs.1,651 crore. Swan and Unitech sold 45 per cent and 60 per cent stakes, respectively, to foreign players at valuations of around $2 billion. On the basis of this transaction, it is estimated that the market value of the licences that the companies possess would be to the tune of Rs.9,990.565 crore and Rs.10,731.5 crore, respectively. Neither company has any network, subscribers, knowledge or proven track record in the telecom business. So, they reaped huge profits – almost 700 per cent – by just holding a piece of paper called “spectrum licence”.
Partners in profit
They are not alone in reaping such astounding profits. Seven other companies – Datacom Solutions, S Tel, Shyam Telelink, Loop Telecom, Spice, Idea Cellular Ltd and Tata Teleservices – have got licences for various circles. The total amount involved in the allocation of these spectrum licences to these nine companies is Rs.10,772.68 crore. If the transaction made by Swan and Unitech with Etisalat and Telenor is taken as the basis, the cumulative market value of these licences would be Rs.70,022.42 crore. If DoT had not allocated these licences at throwaway prices, fixed in 2001, all this money should have come to the government.
Left position
Sitaram Yechury, leader of the CPI(M) in the Rajya Sabha, wrote to the Prime Minister as early as February 29, 2008, on the impropriety of issuing new licences under 2G spectrum at throwaway prices on a “first come first served” basis. He mentioned that the market price of the spectrum allocation in question was six to seven times the 2001 prices, which were fixed through a multistage auction at a time when there were only four million subscribers in India as against 300 million subscribers now. The CPI(M) demanded that new licences be allocated on the basis of a fresh public auction. The party alleges that DoT manipulated norms to allocate licences to favoured private players and facilitate private auctions of spectrum at a later date.
The CPI(M) also alleges that DoT adopted unfair methods to eliminate competition while granting licences to a favoured few. The cut-off date for receiving applications, which was announced on September 24, 2007, as October 1, 2007, was arbitrarily changed to September 25, 2007, on January 10, 2008. The move excluded a large number of applicants. This was done though TRAI recommendations made it clear that there should be no cap on the number of service providers in any service area.
Sitaram Yechury, CPI(M) leader and Rajya Sabha member, wrote to the Prime Minister in February on the impropriety of allocating spectrum at 2001 prices.
An internal note of DoT, which has been obtained and made public by the CPI(M), reveals that there was indeed a suggestion for a fresh auction to revise the 2001 prices. The note, on the processing of pending applications for licences under 2G spectrums, signed by the then Secretary, Telecom, D.S. Mathur, and Member, Finance, Manju Madhavan, suggested an auction for new licences, in keeping with the TRAI recommendation.
This note, which was presented to Raja, stated: “Existing criteria of entry fee was based on the entry fee paid by the fourth cellular operator, which was decided based on 3 stage informed ascending financial bidding at that time [2001]. The Indian telecom sector has witnessed tremendous growth due to the continued liberalisation and has emerged as the fastest growing telecom network in the world. Therefore, the bidding/auction process will establish the entry fee based on current market perception.” As is evident, this note was not given any importance.
Discriminatory guidelines
There are also allegations that the merger guidelines announced by DoT in April 2008 are discriminatory. A three-year lock-in period from the effective date of the licences was laid down in case of mergers but acquisitions were left outside the purview of these guidelines. This was what helped Swan and Unitech sell their stakes at a huge premium.
There are complaints that the losses caused to the national exchequer by DoT have been amplified also by undervaluation of crossover licences for existing CDMA operators. DoT has refused to charge the market value of surplus spectrum from existing GSM operators, too. According to CPI(M)’s Central Committee member Nilotpal Basu, the losses in these two sectors – CDMA conversion and allocation of surplus spectrum to existing GSM operators – should add up to approximately Rs.40,000 crore. “So, in total, the telecom scam presided over by the Minister of Communications would be worth nearly one lakh crore,” he said. He remarked that while Raja continued to mislead Parliament and the public, the Prime Minister and the rest of his colleagues maintained a disturbing silence that amounted to criminal complicity.
The leadership of Raja’s party, the Dravida Munnetra Kazhagam (DMK), is aggressively supporting him. The value accorded by the DMK leadership, particularly its first family headed by Tamil Nadu Chief Minister M. Karunanidhi, to issues relating to spectrum allocation for 2G GSM services has been evident in the past few months. The DMK and its first family have repeatedly defended Raja’s actions over spectrum allocation. Unusually, Karunanidhi himself addressed a media conference on November 25 to assert that Raja had not deviated from the telecom policy and his actions had the approval of the entire Union Cabinet, including the Prime Minister. Raja, he said, was only following the policy formulated by his predecessors such as Arun Shourie and Dayanidhi Maran.
A few days before Karunanidhi’s intervention, Raja introduced a “family feud” element into the debate by accusing Sun TV and the Tamil daily Dinakaran, owned by the family of Karunanidhi’s nephew and former Minister Murasoli Maran, of trying to tarnish him through unfounded reports on spectrum allocation. He claimed that the TV channel and the daily were castigating him only to spite the DMK leadership. However, the Marans and the DMK made up, and almost on cue, all allegations and counter-allegations on the subject stopped.
The principal opposition party, the Bharatiya Janata Party (BJP), has failed to take up the issue with its customary aggressiveness. The Samajwadi Party (S.P.) and its leader, Amar Singh, had raised some questions when the party was in the Opposition but backed off after the party sided with the government in the vote of confidence over the nuclear deal. Many of the beneficiary firms are considered to be close to the leaderships of the BJP and the S.P., and a number of telecom observers are of the view that this could well have played a role in blunting their concern.http://www.hinduonnet.com/fline/fl2601/stories/20090116260112800.htm
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