It is not just the Communist Party of India (Marxist) and the Bharatiya Janata Party gunning for Union Minister for Telecommunications Andimuthu Raja. Now his colleagues in the United Progressive Alliance (UPA), especially Railways Minister Lalu Prasad Yadav and Ram Vilas Paswan, Minister of Steel, and Chemicals & Fertilizers, have joined the fray.
At the meeting of the Cabinet Committee on Economic Affairs (CCEA) held on Wednesday, January 28, 2009, both Lalu Prasad and Paswan attacked Raja’s handling of the Telecom Ministry. They accused him of bringing “badnami” (bad name) to the UPA by allocating scarce 2G electromagnetic spectrum at a throwaway price prevailing in 2001, and thereby causing a potential loss to the exchequer of over Rs 60,000 crores. Both called for transparency in the proposed auction of spectrum for third generation mobile telecom services. They emphasized that Raja should avoid all controversy in the run up to the elections.
The two instances which have kicked up a national furore clearly illustrate this.
On January 10, 2008, the Department of Telecom (DoT) announced on its website that telecom licences would be awarded on a first-come first-served basis to those who deposited their applications along with the payment by that afternoon. There were violent scenes in Sanchar Bhavan when companies vied with each other to be the first to physically deposit the payment. Many companies hired hoodlums to prevent their competitors from standing in the queue, and the CEOs of some of the largest corporation were roughed up. Eventually, six licences were awarded — to Loop Telecom, Swan, Unitech, Datacom, Shyam Telecom, and STel.
One of the licencees, Swan Telecom, which had paid Rs 1,537 crores to acquire licences in 13 telecom circles, sold 45 per cent equity stake to the UAE-based Etisalat for Rs 4,100 crore (US$900 million), a cool profit of Rs 2,563 crores in nine months. Swan valued its enterprise value at over Rs 9,400 crores. Swan Telecom is promoted by the Dynamix Balwas Group of Mumbai, with interests in the real-estate and construction businesses. It also runs the Meridien hotels in Mumbai and Ahmedabad. It has absolutely no experience in telecom.
Another real estate major which also has absolutely no experience or expertise in telecom, Unitech, had paid Rs 1,651 crores as licence fees for 23 circles in January 2008, and sold a 60 per cent equity stake to Telenor of Norway for Rs 6,120 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 far more than the Rs 8,100 crore market cap of Unitech.
In January 2008, the exchequer realized about Rs 9,000 crores as licence fees from the new 2G allottees. But going by the Swan and Unitech deals, it could have obtained at least Rs 60,000 crores. Raja deprived the exchequer of at least Rs 51,000 crores.
Calling for Raja’s sacking, Sitaram Yechury, Politburo member of the Communist Party of India (Marxist), asserted: “The minister is under no obligation to continue with an old policy knowing fully well that it will cause such a huge revenue loss. There is no law or regulation that prevents Raja from reassessing the market value of spectrum and moving to auctions in 2008.”
Raja’s credibility has fallen so low that he is being opposed by his UPA colleagues even when his policies make sense. In the CCEA meeting on Wednesday, Sharad Pawar, Lalu Prasad Yadav, Ram Vilas Paswan, AR Antulay, HR Bharadwaj, and AK Antony were of the opinion that an unlimited number of players should be allowed entry, whereas, Raja, supported by DoT officials has been arguing that the shortage of spectrum places a constraint on the number of players which can be accommodated.
The Dravida Munnetra Kazhagam (DMK) has already been threatening to withdraw support from the UPA over the Sri Lankan Tamils issue. The UPA is worried that Raja’s shenanigans could lose them the next general election.
Strangely, the Cabinet Committee on Economic Affairs (CCEA) also seems to have abdicated its responsibility on taking a decision on the contentious auctions. Instead of taking a decision on an issue pending for over two years, the CCEA has referred the matter to a Group of Ministers. There is now no clarity on when the 3G spectrum auctions will actually take place. The Telecom Regulatory Authority of India (TRAI) had issued its recommendations in 2006. After over two years of bureaucratic wrangles, the government announced that the auctions would be held on January 16, 2009; it was postponed to January 30, 2009; and now it is unlikely that it would be held before the elections. In fact, some members of the CCEA felt that since the matter was controversial, it would be wise for the Prime Minister to recover so that his views could be sought. While India is dithering, over 60 countries have rolled out 3G services, and Scandinavia is about to introduce 4G. Bhutan has already introduced 3G.
The CCEA was meant to arbitrate between the DoT and the Finance Ministry over the reserve price for the auctions. The DoT had set the reserve price for a pan-India 3G licence at Rs 2,020 crores and that of a BWA licence to be half of that. It had hired NM Rothschild and Sons to conduct the auctions, issued an information Memorandum on December 12, 2008, and conducted a bidders conference on December 23, 2008.
But, the Finance Ministry, which wants to raise at least Rs 30,000 crores from the auctions, wrote to the DoT on January 1, 2009 that it wanted the reserve price for the 3G auction to be doubled to Rs 4,040 crores, and that of the BWA auction to be doubled to Rs 2,020 crores.
The CCEA meeting, chaired by External Affairs Minister Pranab Mukherjee, witnessed acrimonious scenes with Lalu Prasad Yadav and Ram Vilas Paswan attacking Telecom Minister Raja, and calling for more transparency in the running of the Telecom Ministry.
As a compromise between the DoT’s reserve price for 3G to be 2,020 crores and the Finance Ministry’s demand of Rs 4,040 crores, Raja proposed that the reserve prices for metros and ‘A’ circles could be doubled, that of ‘B’ circles raised by 50 per cent, and that of ‘C’ circles be left unchanged. But the CCEA could not come to any consensus, and suggested that Prime Minister Manmohan Singh be asked for his views since he held the additional charge of the Finance Ministry.
It appears that the big winner in the 3G auctions will be Bharti Airtel which is cash rich and less affected than the others by the global financial crisis. It has a golden opportunity to obtain pan-India 3G spectrum at values close to the reserve price. It is to be seen whether the relatively low price that it pays will be passed on to customers.
Idea Cellular of the Aditya Birla group, which already has over 10 MHz of 2G spectrum, could be another big winner. If Vodafone gets over its hesitation to bid at present and manages to sort out its two billion dollar dispute with the income tax department, it could emerge another big winner.