When Government smiles over failures, like the recent 2G auction?

Telecom Lead India: The so called success story of the Telecom sector, in terms of regulation and execution, has been brought into complete disrepute ever since 2004 when the UPAI came to power. Of course they did not start the Nadir Shah like plunder and massacre of this sector immediately, but took time to settle down, settle they may have but the plunder continues.

The recent 2G auction failure is a continuum of the same. A bit of background would do no harm to the build up of a smile over failure? The plunder started in December 2005 by tweaking in the UASL guidelines to create a First Cum First Serve Policy (FCFS), without any cabinet approval, and issuing 22 licenses {Aircel (14), Idea (2) and Vodafone (6)}, without any guarantee of spectrum; Sounds innocuous and harmless, but with fathoms deep malafide and intrigue. These licenses were also in defiance of 2003 cabinet approved policy.

The ultimate wrought set in with the 2007 recommendations of sector regulation, which were completely flawed in terms of “No Auction of spectrum and No cap on participants/players”, looks good for competition/consumer, but did not address the what if scenario of demand exceeding supply (which is precisely what happened), and combination of technology licenses to favour perpetual bargain hunters in the shape and form of Reliance and by default Tatas (application of equality when it suits). This duo played havoc in 2003 as well in the name of Aam Admi. If this was not enough, an artificial cut off date was introduced in September 2007 to cap new entrants and justify the FCFS, when the bargain hunters got in and others got left out.  The plunder was for all to see, when license were sold in black at astronomical multiples.

All these actions of the then regulator, in symphony with the executive, were in complete defiance of the Cabinet approved policy of 2003, which suggested spectrum auction going forward on the model adopted in 2001. The combination of technology was in complete violation of the UASL license conditions of 10 percent cross equity in same areas of service and choice of technology before making an application for seeking spectrum. These two key conditions were given a go ahead by the then regulator in the name of government’s prerogative to make policy changes in the public or Aam Admi (The Mango Man) good. However, it was meant to benefit the biggest Aam Admi of the country- Reliance.

These two recommendations of the sector regulator in 2007 continue to haunt the industry no end, causing losses to the extent of Rs 176,000 crore by some estimates. These recommendations have lead to the arrest of scheming entrepreneurs, conniving bureaucrats and politicians leading to the land mark Supreme Judgement of 2nd February 2012. For any sensible and righteous person, this should have been a cue to get into the damage control mode, but not in this government.

Notwithstanding all this, the past couple of months have seen a lot of volatility in the telecom industry. The burning issue affecting the private mobile operators is the interpretation of the judgment passed by the Supreme Court in the 2G matter on 2nd February 2012 last year. The Supreme Court judgment clearly observed that all decisions taken during September-2007 to March-2008 in relation to issuance of the licenses and consequent allocation of spectrum are held to be arbitrary, rendering them illegal. A reading of Para 81 (i) of the judgment has led to a number of interpretations, the most plausible and convenient being that the judgment of the Supreme Court has cancelled only 122 unified access service licenses granted by the licensor in January, 2008. No doubt these are considered to be the raison d’ etre of the malaise, but there are some others who are even bigger beneficiaries of this largesse, but not accounted for, given the fact that the spectrum allocation/distribution for such beneficiaries took place post 10.1.2008 except one (Kolkata for Aircel).

In the public interest, equality and jurisprudence, the vacation of spectrum pursuant to the Supreme Court judgment is not only applicable for the 122 unified access service licenses issued on or after 10.1.2008 but must also be applicable to those 22 licensees, which though were issued letter of intent in 2006 (against the 2003 policy) but were recipients of licenses and spectrum post 10.1.2008 and the 34 combination of technology  license holders who also got spectrum post 10.1.2008 (against UASL policy until 2007 and the flawed TRAI Recommendations of 2007).

Recently, the regulator issued its recommendations on the auction of spectrum, as directed by the Supreme Court judgment by selectively picking up the various Paragraphs of the Judgement rather than taking a holistic view to arrest the rot set in by the 2007 recommendations and subsequent wrong doings. Where has the Regulator gone wrong yet again?

The Authority should have taken suo motu action as per Section 11 (a) (viii) Chapter III of the TRAI Act of 1997 as amended in 2010 to stop the proposed auction until the above issues are addressed, because of violation of efficient management of spectrum. In any case, all allocations in 2008 were provisional, conditional and subject to the outcome of various court cases.

It has abdicated its responsibility by not questioning the ambiguity in Para 81(i) of the Supreme Court judgment. This Para read with the two press releases of 10 January 2008, clearly implies the cancellation of all licenses and spectrum allocations to all those licensees holding pieces of paper even before 25 September 2007 and including combination of technology. A very simple reading of Para 81 (i) of the Supreme Court judgment clearly implies quashing of all spectrum distribution on or after 10.1.2008. That is precisely 177 licenses i.e. Aircel 14, Idea 2, Vodafone 6, Reliance 15 and Tatas 19. The regulator could have either questioned the government or honestly recommended the implications of the Supreme Court judgment by including all those beneficiaries since 2006. Such a restricted view taken by the regulator has in turn caused an additional loss of at least 40, 000 crore by its own estimates. It is indeed unfortunate that the regulator has failed to take into account any other licenses other than the 122 unified access service licenses, whereas it must be 178.

The second biggest flaw has been on the re-farming issue bowing down to a diktat or fiat from the powers to release 900MHz from the incumbents by forcibly evicting the incumbents to move into 1800 MHz spectrum vacated by all these 122 licensees only and not other 56 licenses, thus leaving just one 5 MHz slot for the affected parties, thereby either creating artificial scarcity or turning the auction into a farce by putting obnoxiously high reserve price. This will give the naysayers of auction a whip to flog auction way of price discovery a decent burial, a victory much savoured by the government.

Should the above have been allowed to walk? The answer is No. The upcoming auction created a balance of convenience in favor of licensees who secured the licenses at a throw way price and who are thus the real beneficiaries of this entire 2G episode (56 licensees). Had the auction been designed in a manner to follow principle of equality amongst similarly placed operators by including the spectrum of 22 licenses issued in 2006, which were in any case in violation of the cabinet approved 2003 policy being the fifth and sixth licenses in some circles, and the 44 licenses granted under the category of dual technology in 2007 against the UASL policy prevalent then in 2005 and until 2007, the auction would have been a roaring success.  It is time for the government to make these 56 licensees pay, either the auction determined price or the reserve price, whichever is the highest to bring in fair play and vindication of the honesty, ethics and purpose of this government.

This move would have been beneficial to the participants of the auction process as there would have been more spectrum available, with more participants, and also beneficial to the government as increased spectrum would translate into more revenues from the auction of spectrum to the tune of at least another Rs 40,000 crore.

Such an intelligent, legally correct and beneficial action/interpretation would have resulted in a success story the government unfortunately does not wish to hear. The smiles of I said so would have boomeranged on them. Thus is the cause of all these catastrophic failures of this auction, which Government cheers and Aam Admi (Mango Man) suffers, whither the fiduciary and jurisprudence of the Government? The government for this simple fix does need East India Company as was the case after Plunder of Nadir Shah?


By Brijendra K Syngal (former CMD VSNL) Views are Personal
[email protected]

  • Krishna B

    The great article! Although, coming very late as the blunders has been done…

  • Lalit

    The big mobile operators are hand in glove with the minister n bureaucrats in defrauding the nation by their actions.