Licence to steal

A little over a year ago, few had heard of A. Raja. A Dalit politician from Tamil Nadu, he was DMK supremo M. Karunanidhi’s nomination to the UPA council of ministers for the environment portfolio. Then last May, Karunanidhi dethroned the incumbent telecom minister and his nephew Dayandhi Maran and elevated Raja to Sanchar Bhawan as Communications and IT Minister.

War of words
PARA 2.73 Of Trai’s 2007 recommendations
“.......The entry fee as it exists today is a result of the price discovered through a market-based mechanism applicable…to the 4th cellular operator. In today’s unprecedented growth of the 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....”
Misra’s interpretation: This section is self explanatory and is the one to follow.
Raja’s interpretation: TRAI did not give any recommendation on revision of the entry fee; it only mentioned that “Perhaps, it needs to be reassessed through a market mechanism”.

PARA 7.39 Of Trai’s 2003 recommendations
“…if the Government ensures availability of additional spectrum, then in the existing licencing regime they may introduce additional players through a multi-stage bidding process.
Misra’s interpretation: After 2003, only UASL licences were to be awarded, therefore Para 7.39 of the recommendation was applicable to all new service providers in a service area who want UAS licence.
Raja’s interpretation: Para 7.39 was for the licencing regime prevailing at the time of giving recommendations, i.e., cellular mobile licence and not relevant to the UAS licence.

Ever since, Raja has become a well-known figure in global telecom circles. Why? He is lording over the most precious resource in the fastest growing telecom market in the world. But then Raja did something to become unpopular among telecom biggies: He sold telecom licences in January without giving all in the fray enough time to apply.

Some of the global majors are now doing second-hand deals. And they are valuing the licences 7 to 8 times higher than what Raja had charged for them barely six months back. In October, Telenor of Norway, bought 60 per cent in the telecom business of real estate developer Unitech for Rs 6,100 crore. Unitech is one of the firms that bought a licence in January. A month before that, Etisalat of the UAE paid Rs 4,200 crore for a 45 per cent stake in Swan Telecom, another of the nine winners of the licences Raja had awarded. Raja sold 120 licences to nine applicants for Rs 9,000 crore, which is just a shade under the value of the Telenor and Etisalat deals put together. Scarcity of spectrum—radio waves for mobile services—for 2G telecom services, which comes bundled with new licences, is one reason for that premium. The upshot: What the licence winners have pocketed could have been the government’s had Raja chosen to value the licences and the spectrum that came along with them at the going market rates. The loss to the exchequer is estimated at Rs 50,000 crore.

Two days after Raja sold the licences, Nipendra Misra, Chairman, Telecom Regulatory Authority of India (TRAI), reminded Raja of its various recent recommendations calling for pricing new licences at market rates through a bidding process, which, if the government rejects, it must call for fresh recommendations. Instead, Raja relied on a 2003 guideline for pricing licences for new entrants laid out by then telecom minister Arun Shourie. Shourie had then prescribed a firstcome-first-served (FCFS) basis for giving out licences to existing and new entrants on the basis of the TRAI’s view he had obtained.

Telecom analysts argue that Raja should have explored a bidding process as the rising valuation of shrinking spectrum would inevitably mean choosing a few and leaving out the rest. Raja, however, bulldozed through recommendations and even the Prime Minister’s call for fairness. Raja refused to ask TRAI for recommendation on the pricing. TRAI does not come fully clean either; its missives to Raja ensured immunity for itself, but fell short of clearly stating that the sales were illegal.

Raja’s explanation of administrative hassles (see interview) isn’t a convincing reason for putting some applicants ahead of others by juggling cut-off dates and giving applicants barely a few hours to cough up Rs 1,651 crore, the sum needed to obtain a pan-India licence. This put applicants that had come ready with the cheques ahead. Thus, though Unitech had applied on 24 September, much later than Loop (a Ruia company), which had applied on September 6, it went on to receive spectrum in 13 circles. Loop had to make do with spectrum in seven circles. The post-facto pullback of the cut-off removed 373 applicants from the fray. Endresult: A Rs 50,000-crore scam

Crooked connection
Telecom Minister Raja misinterpreted binding recommendations, misled applicants, juggled deadlines and jigged the queue to sell precious spectrum for a song to a few companies. Here’s how.

MAY 16, 2007: Raja takes charge of the telecom ministry; applications for new licences begin to pour in.

AUG. 24-SEPT. 24: Non-telecom companies such as Parsvnath Developers, Videocon Group’s Datacom Solutions, Ruias-owned Shippingstop Dot Com and Unitechpromoted Aska Projects apply for licences.

AUG. 28: TRAI recommends no caps on service providers and market-determined pricing of licences.

SEPT. 25: Raja announces Oct. 1, 2007 as cut-off date for accepting new applications for licences since spectrum available for giving out with licences is limited.

SEPT. 25-OCT. 1: 373 applications pour in from companies such as Shyam Telelink and Indiabulls-promoted Selene Infrastructure, JSW Power Trading Company; AT&T is the only foreign applicant.

NOV. 2: Prime Minister Manmohan Singh writes two letters to Raja on receiving complaints from Anil Ambani and other corporate honchos on the valuations for licences.

NOV. 22: Then Finance Secretary D. Subbarao writes to then Telecom Secretary D.S. Mathur to confirm if Raja followed proper procedure in valuing the licences and spectrum; calls for a review of the valuation and a stay on the licences for the time being.

DEC. 12: Singh calls for correct pricing, fair allocation rules and a pro-competitive stance in spectrum allocation at the Telecom India Summit. He says the revenue potential to the government should not be lost sight of.

JAN. 10, 2008: Raja arbitrarily disqualifies companies that applied after 25 September 2007; asks the rest to collect the Letters of Intent (LoI) from Sanchar Bhawan at 3:30 p.m. LoIs allow 15 days for paying the licence fees. Then, Raja issues a second press note saying licences to be based on whoever of the LoI winners meets the LoI conditions first.

 Jan. 10, 3:30 P.M.: Applicants collect LoIs and rush to line up outside Sanchar Bhawan for paying the licence fee (Rs 1,651 crore for a pan-India licence). Brawls and fistcuffs break out. Nine applicants bag LoIs for 120 circles—real estate giant Unitech, Datacom, BPL, Shyam, Idea, STel, Spice, Swan and Tata Teleservices.

JAN. 14: TRAI Chairman Nipendra Misra writes to the government absolving itself of the responsibility for Raja’s manner of giving licences.

MARCH: Finance Ministry values the spectrum at Rs 31,453 crore; pegs the loss to the exchequer at Rs 22,466 crore.

SEPT. 23: Swan says it has inducted UAE’s largest telecom operator Etilsalat as a 45 per cent-strategic partner, which invests Rs 4,200 crore.

OCT. 30: Unitech seals a deal with the Norwegian Telenor for 60 per cent stake valued at Rs 6,100 crore.

Nipendra Misra “TRAI Never Suggested a First-Come-First-Served Policy” Under attack for failing to unambiguously recommend auctions for granting new telecom licences, TRAI Chairman Nipendra Misra clears his position. Excerpts: Is the government correct in charging the 2001 entry fee for the new licences it gave out this year? There is no question of charging the 2001 entry fee in perpetuity for all UAS (united access services) licences. It has to be discovered through a market mechanism from time to time, as Para 2.73 of TRAI’s 2007 recommendations states. What about granting new licences on a first-come-firstserved basis? In January 2008, I had drawn the Government’s attention to TRAI’s 2003 recommendations still being valid for granting new licences. Para 7.39 clearly recommends market-determined entry fee for new licences through multistage bidding and issuance of new licences subject to availability of adequate spectrum for existing service providers. At no stage TRAI recommended a first-come-first-served (FCFS) policy for new licences. Did DoT seek your opinion on revising the entry fee? Para 7.39 was specific. It was reiterated in the 2007 recommendations, although the telecom department had not sought any fresh advice on the subject. So, have the licences been granted illegally? I cannot speak against the minister or the government. Vodafone’s acquisition of Hutch’s stake puts in perspective the changed scenario since 2001. Market value of spectrum and licences has changed. What should have ideally been done? DoT should’ve looked at how to capture the changed market value. The licences could have been unbundled from spectrum, as it’s done in the US. In India, every UAS licence comes with a fixed amount of 2G spectrum. Based on the spectrum availability, the number of licences to be given out could have been decided and auctioned.

A Raja “Arun Shourie Gave the First-Come First-Served Policy in 2003” Telecom minister a. raja is at the centre of a storm over sale of new licences for a song, which could be touted as a Rs 50,000-crore scam. He traced the no-auction rule for new licences back to former Telecom Minister Arun Shourie. Excerpts: You have issued new licences ignoring TRAI’s recommendations of multi-stage bidding. Why? TRAI never recommended bidding. In 2007, it did not give any specific recommendation for revision of the entry fee. It only said that “Perhaps, it needs to be reassessed through a market mechanism.” The guideline for entry into the UASL regime for all existing and new entrants in future was finalised by Arun Shourie in 2003, enunciating the first-come-firstserved (FCFS) policy. Between 2003 and March 2007, 51 new UASLs were issued using the FCFS principle. Weren’t those licences given to migrate players to UASL? No, they were all new licences. Why did you shift the cut-off date for receiving applications for licences from October 1 to September 25, 2007? For administrative reasons it was decided that applications received up to the date on which the press note appeared (September 25, 2007) will be initially processed. It was felt that those who applied prior to the release were serious applicants. Swan and Unitech have arbitraged their licences for huge sums, which you could have raised directly from foreign investors. Why didn’t Telenor and others apply? Licences and 2G spectrum are not a source of revenue. We’ll auction 3G spectrum as companies can later extract the bid money from subscribers of the high-end service. Both Swan and Unitech have said that the investment brought in would be used for rolling out the services. Besides, the promoters’ absolute shareholding would remain intact. However, to check any outright sale by promoters, DoT is deliberating on putting a restrictive clause of sale of promoter’s equity.