Minister at pre-budget meeting

Raja did not confirm to TRAI recommendations

Ravi Visvesvaraya Prasad | New Delhi | 26 October 2009 |


Repeated denials by Telecom Minister Andimuthu Raja that he has not done anything wrong in allocating 2G spectrum to six new licencees in January 2008 – at prices prevailing in June 2001 – just do not hold water.

Raja’s claim that he had conformed to the recommendations dated August 28, 2007 issued by the Telecom Regulatory Authority of India (TRAI) are not wholly correct. Section 2.73 of the TRAI’s August 2007 recommendations states: “In today’s dynamism and unprecedented growth of 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…”

While it is true that TRAI’s recommendation is vaguely worded and does not explicitly recommend auctioning of the spectrum, it certainly indicates that the spectrum could not be allocated in January 2008 at the same price that it was allotted in June 2001. This also contradicts Raja’s public statement that nowhere did the TRAI explicitly state that the price discovered in the 2001 auction should not be adhered to in future.

Raja has also argued that his decision to allot licences on a “First Come First Served” (FCFS) basis rather than holding auctions was based on the new National Telecom Policy of 1999.

This claim of Raja’s is specious. A decision of the Union Cabinet of 31 October 2003, when it introduced Unified Access Service Licences (USAL), had stated that all future licences should be auctioned. The Vajpayee Cabinet had accepted TRAI’s recommendations on UASL. In section 7.39 of its recommendations on UASL, TRAI had recommended: “As the existing players have to improve efficiency and utilization of spectrum and if the government ensures availability of additional spectrum, then in the existing licensing regime, they may introduce additional players through a multi-stage bidding process as was followed for the fourth cellular operator.” This was accepted in toto by the Vajpayee Cabinet.

Indeed, a judgement of the High Court of Delhi in 1993 had ruled that the “First Come First Served” (FCFS) was arbitrary, unjust, and unfair. Justice DP Wadhwa had ruled on 21 September 1993 in “Home Communication Versus Union Of India and Others” regarding the allotment of time slots on satellite channels of Doordarshan: “The basis of first come first served for allotment of time slots on satellite channels is arbitrary. It is unreasonable, unjust and unfair.”

In view of the Congress party’s defence of Raja, it is indeed ironic that it is one of his Cabinet colleagues, Kapil Sibal who had argued then against the FCFS principle in the High Court of Delhi. According to the judgement of Justice Wadhwa: “Mr Kapil Sibal, appearing on behalf of the Hindustan Times, said such a principle was wholly inapplicable to the concept of public broadcasting where the general public had no right not to view the programme. Sibal said that the present scheme was unworkable, and perhaps, auction could have been a better method. Sibal said that the FCFS method as envisaged will result in black marketing of time slots by unscrupulous licensees which will be at the cost of the public revenue as well as sufferings of the viewers. Mr Sibal said that the present policy was unconstitutional because it treated unequal equally, was against public policy, ignored merit, and did not formulate any eligibility criteria; and had no rational nexus with the objects sought to be achieved, i.e. to meet the challenge of foreign channels beaming their programmes in the country, and the scheme tended to create monopoly in the hands of a few. The policy as it stands promotes trafficking in licenses, and would be arbitrary, unjust, and unfair.” (Extract from the judgement)

And it is just the trafficking in licences which had been argued by Kapil Sibal in 1993 which has been done by his Cabinet colleague Andimuthu Raja. Swan Telecom, promoted by real estate developers in Mumbai and Ahmedabad, with absolutely no experience or expertise in telecom, was the fastest in depositing the licence fees of Rs 1,537 crores for the 13 circles it got LoIs for. Anil Ambani’s Reliance Communications held a 10 per cent stake in Swan earlier, but it later said that it had sold its stake in Swan. The scam broke in public in October 2008 when Swan Telecom sold 45 per cent equity stake to the UAE-based Etisalat for Rs 4,100 crore (US$900 million), a whopping profit of Rs 2,563 crore for doing absolutely nothing other than grabbing a licence by inside information and brute force. The controversy further intensified in early November 2008 when another real estate major, Unitech, which too had absolutely no experience and expertise in telecom, and which was facing severe financial problems in its real estate business, sold a 60 per cent equity stake to Telenor of Norway for Rs 6,120 crores. Unitech had paid Rs 1,651 crores as licence fees for 23 circles in January 2008, and so has earned a huge profit of Rs 4,469 crores. Unitech’s eight telecom subsidiaries will issue fresh equity to Telenor. The Rs 1,200-crore debt that Unitech had taken to buy the licences will now be transferred to the telecom venture. The Telenor-Unitech deal pegs the market value of the telecom venture at Rs 11,620 crores, which is much more than the Rs 8,100 crore market capitalization of Unitech.

Raja then alleged that an “undeclared cartel’’ – implying the Cellular Operators Association of India – was behind the criticism against the FCFS basis of spectrum allocation. He further indicated that the existing GSM players did not want fresh competition to come in. He released a list of existing GSM operators, who were allotted spectrum on a FCFS basis as late as 2007, at the 2001 price.

This is true, but not wholly true, as it hides important facts. Spectrum allocation to old GSM operators (licensed before 2001) is governed by a contract they signed with the DoT on 29 March 2006. This contract was a settlement supervised by the Supreme Court, whereby the old GSM operators and the government withdrew all litigation and monetary claims against each other. Moreover, the old GSM operators had lost several of their contractually guaranteed privileges when the Vajpayee government introduced Unified Access Services Licencing and regularized Wireless in Local Loop to full mobility in 2003, both as policy decisions. The old (pre 2001) GSM operators sued the Vajpayee government, which went all the way up to the Supreme Court. The Supreme Court worked out a settlement by which up to 12.4 MHz of spectrum was to be allotted to old GSM operators on a revenue-sharing basis subject to their achieving certain levels of subscribers.

But this settlement does not apply to new licencees. The Vajpayee Cabinet’s decisions of October and November 2003, as well as all subsequent recommendations of TRAI, make it clear that all new telecom licences should be allotted only by auction. Auctions were also suggested for issue of spectrum to old GSM licences beyond 12.4 MHz. Raja is pulling wool over the nation’s eyes by falsely passing off contracts which govern pre-2003 GSM operators as pertaining to the new licences which he issued in January 2008. This is totally wrong, and contradicts the numerous recommendations issued by TRAI.

Moreover, former finance secretary (and currently Governor of the Reserve Bank of India) Duvuri Subbarao had written to the then secretary of the Department of Telecommunications, Dinesh S Mathur, on 22 November 2007: “The purpose of this letter is to confirm if proper procedure has been followed with regards to financial diligence. In particular, it is not clear how the rate of Rs 1,600 crore, determined as far back as 2001, has been applied for a license given in 2007 without any indexation…In view of the financial implications, the ministry of finance should have been consulted in the matter before you finalized the decision.” Subbarao went on to instruct DoT to “kindly review the matter and revert to us as early as possible with responses to the above issues. Meanwhile, all further action to implement the above licenses may please be stayed.”

Raja also ignored a memorandum sent to him by then Telecom Secretary DS Mathur and then member finance of the Telecom Commission Manju Madhavan dated 25 October 2007 which 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 (year 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.”

Raja has also misled Parliament. In reply to a question in Parliament (Lok Sabha Starred Question # 232, of 15 December 2008), *232. SHRI SURENDRA PRAKASH GOYAL / SHRI JM AARON RASHID: Will the Minister of Communications and Information Technology be pleased to state:

(a) whether the Government has given spectrum under the Unified Access Service Licence (UASL) to some companies on “first come first served” basis;

(b)  if so, the details thereof;

(c) whether the Central Vigilance Commission and the Telecom Regulatory Authority of India have objected to the grant of spectrum under “first come first served” basis; and

(d) if so, the details in this regard?

Raja replied:

(a) & (b) Yes sir. Allotment of Initial Spectrum to all service providers holding Unified Access Service Licence (UASL) are made on “First Come First Served” basis. Details of spectrum allotted to 2G Telecom Service Providers are placed as annex.

(c) & (d) Neither Central Vigilance Commission (CVC) nor the Telecom Regulatory Authority of India (TRAI) has objected to the principle of “First Come First Served”. However the information on the clarification required by Central Vigilance Commission regarding the principle of First Come First Served basis for the issue of licence and allocation of spectrum has been provided.

Raja has hidden crucial facts about how his non-application of mind has deprived the exchequer of over Rs 51,000 crores in revenues.

On 15 November 2008, the CVC had written to the Department of Telecommunications expressing its dissatisfaction over an earlier response of the DoT to its queries on the policy for allocation of spectrum, and asked it “not to lose sight of the malfeasance and moral indifference in pursuing with the decision (to allocate spectrum),”

Central Vigilance Commissioner KS Ramasubban wrote to telecom secretary Siddartha Behura stating: “They (Swan and Unitech) have hardly made any progress in operationalising the licences. Swan is reported to have sold its 45 per cent equity for $900 million (Rs 4,050 crore) to Etisalat, while a pan-India licence costs Rs 1,650 crore. This is a highly unethical practice and necessary action in this regard is essential…”

Ramasubban added: “The commission should therefore be apprised of the action the DoT has taken/proposes to take against such licensees. Any delay or reluctance / delay in initiating corrective action (if at all) will only send a wrong signal, besides leading to loss to the national exchequer…”

The CVC also accused TRAI for not intervening in the issue and of not providing correct advice to the DoT. The CVC wrote to TRAI: “The commission observes that TRAI as regulator has failed in its functions as required under the TRAI Act, 1997. It needs to be ascertained from TRAI as to why it failed to intervene and give advice to the government on the issue of efficient management of spectrum…Had TRAI given suo moto advice on this critical issue (which was expected of them), the government would have become wiser in the process of allocation of spectrum from 6.2 MHz to 10 MHz and beyond. This would have enabled the government to realise a higher / reasonable price for spectrum beyond 6.2 MHz…”

In its reply to the CVC, the DoT laid the blame solely on TRAI. The DoT stated: “In the context of auction of 2G spectrum, TRAI had observed that any differential treatment to a new entrant vis-a-vis incumbent will go against principle of level playing field…In the 2G (existing mobile services) band allocation through auction may not be possible as the service providers were allocated spectrum at different times of their licences and the amount of spectrum with them varies in quantity… Therefore, TRAI felt that to decide the cutoff after which the spectrum should be auctioned will be difficult and might raise the issue of level playing field…”

The CVC retorted that it was not satisfied with DoT’s reply, and added: “The department may follow an auction process for allocation of balance 2G spectrum even though the available spectrum is of meagre quantity”.

Several other irregularities in Raja’s handling of the telecom sector have been discovered during audits. Several telecom operators, including BSNL, have been accused of inflating the number of subscribers they have, in order to acquire scarce spectrum. Moreover, several telecom operators, including BSNL, have been accused of passing off local loop revenues as long distance revenues in order to save hundreds of crores in licence fees.

Raja’s non-application of mind, arbitrary decisions, and turning a blind eye to irregularities committed by private sector operators have deprived the exchequer of at least Rs 51,000 crores.