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A very wrong number

Could there not have been a more transparent, equitable way of allotting mobile spectrum? Paranjoy Guha Thakurta examines...

india Updated: Mar 10, 2008 23:23 IST

The way in which the Department of Telecommunications has been allotting electromagnetic spectrum, a scarce, finite and hence extremely precious national resource, is getting murkier by the day. Rules have been bent, regulatory recommendations selectively interpreted, lobbies engaged in legal battles, goons hired to throw out rivals and the choicest epithets hurled by senior officials against each another. The Prime Minister has been a silent spectator as a member of his Council of Ministers representing a constituent party of the UPA has cocked a snook at all those who have been arguing for transparency.

At one level, the ‘revolutionary’ success of private players providing telecom services is being held up as a shining example of what deregulation can do to a once-moribund industry. There were two phones for every 10,000 Indians in 1947. In 1997, four years after the government gave up its monopoly over the sector, there were two phones for every 100 individuals At the end of last year, there were two phones for every ten citizens of India. Bravo!

But there’s another side to the story. The deliberately opaque manner in which the DoT has gone about allotting spectrum — or radio frequencies used for cellular mobile services — has opened up a Pandora’s Box of corruption, nepotism and crony capitalism. The issues at stake have been obfuscated in technical jargon. Attempts to criticise the beneficiaries of the process have met with intimidatory legal notices. The full story of the Indian telecom tangle will fill up a book. Nevertheless, a few facts need highlighting.

Communications Minister Andimuthu Raja of the DMK, who replaced Dayanidhi Maran in May, has stubbornly refused to accept suggestions made by a host of telecom experts — including his own bureaucrats — that public auction of spectrum is not only the most transparent manner of allocating spectrum but also the least controversial and legally sustainable. The Minister has, apparently at the behest of a lobby, opted for a convoluted ‘first come first served’ (FCFS) system of granting licences and allotting spectrum that is considered inefficient, unfair and may not withstand legal scrutiny.

On December 12, a farce was played out after Manmohan Singh stated at a conference that spectrum was precious, that this limited resource should be used optimally, that the policy regime should be fair, transparent, equitable and forward-looking while ensuring that the government’s revenue potential was realised. “In the final analysis, the key issues are correct pricing, fair allocation rules and a pro-competitive stance,’’ he added.

Speaking to journalists on the sidelines of the same conference, Raja completely ruled out auction of spectrum for GSM — general system of mobile communications, a technology that rivals the code division multiple access (CDMA) technology — operators, ostensibly to maintain a level playing field between existing players and new entrants. “We cannot adopt the auctioning route for existing 2G (second generation) spectrum due to legal barriers,” the Minister claimed.

A month later, an official communication from DoT Secretary Siddhartha Behura to the Finance Secretary acknowledged for the first time that there were no legal hurdles to the auction of 2G spectrum, only practical difficulties. By then, much of the damage had already been done. Behura has claimed that licence conditions preclude auction of spectrum. But even if this be true for old licence holders, it can’t for those who have been recently issued licences. On October 19, the DoT had changed its policy by issuing a press note. In no time at all, Reliance Communications (RComm) was ready with a demand draft of Rs 1,651 crore. That day, it was conferred the status of a GSM licensee by virtue of the original licence it had been holding (it had earlier been using CDMA technology). RComm was able to jump the queue ahead of 46 corporate entities/groups (including two reportedly controlled by RComm itself) that had bunged in 575 applications with the DoT, none of whom had at that time received letters of intent despite some of them (such as ByCell and Idea) having had to wait for around two years while others (like Spice) had been in the queue for a year-and-a-half. In the queue were all kinds of firms, including realtors and retailers, none of which had any experience in telecom.

The entry fee of Rs 1,651 crore paid by RComm was worth three to four times the amount as it was based on a price determined by an auction that took place six years ago when the market was a fraction of its present size. Tata Telecom became the next beneficiary of this flawed system. The DoT ignored bidders who had voluntarily offered many times the amount that was paid by RComm and Tata. On these two licences alone, the total loss to the exchequer was not less than Rs 6,000 crore. This was the amount the government could have earned had it not opted for the FCFS system of granting licences and spectrum and instead gone in for an open auction. RComm then upped the ante accusing GSM operators (led by Bharti and Vodafone) of hoarding spectrum worth Rs 20,000 crore.

The story did not end here. The GSM and CDMA lobbies started blaming each other and issues got complicated by a slew of lawsuits. After November 11, 2003, the DoT had never made any reference seeking the recommendations of the Telecom Regulatory Authority of India (Trai) on spectrum allocation for new service providers. On August 28, Trai confirmed that the DoT has made no reference on spectrum allocation to it: “Having come to the conclusion that there should not be any limit to the number of access providers, the Authority is of the opinion that in order to have an actual free market, there is an urgent need to have a predictable and transparent road map for any new entrant wishing to enter the sector. There is a need to have a simple licensing regime and a transparent and efficient spectrum management system; otherwise the free market will only be a myth.”

A war of words broke out between the Trai and DoT. On January 14, Trai Chairman Nripendra Mishra (former Secretary, DoT) wrote to DoT Secretary Behura accusing his department of misinforming the courts on subscriber-linked spectrum allocation norms, selectively quoting Trai’s recommendations out of context and demanded more transparency. Behura told Mishra that “it does not seem desirable for the regulator and the government to engage in any correspondence at this stage on matters which are sub-judice”. The Trai hit back: “There is no provision in the Trai Act that allows DoT to write such letters to us. The DoT Secretary… is clearly ill-advised. His enthusiasm to settle scores has clearly overtaken his legal wisdom...”

A few days earlier, on January 10, Sanchar Bhavan was witness to an unedifying spectacle. At 2.45 pm, DoT posted an announcement on its website saying letters of intent would be issued between 3.30 pm and 4.30 pm and that application fees (worth many thousand crores) would have to be paid immediately by demand draft with supporting documentation. Minister Raja announced that spectrum would be allotted to those who deposited their fees first by even a fraction of a second. In the mad melee, well-heeled CEOs, were manhandled by hired bouncers and DoT staffers were bashed up before the cops turned up, late as usual.

Could there not have been a more transparent, equitable way of allotting scarce national wealth? The PM surely understands the compulsions of coalition politics better than most others. As for Raja, his legacy is unlikely to be forgotten in a hurry.

Paranjoy Guha Thakurta is Editor, Realpolitik. He is an educator and journalist based in New Delhi.