The view that rent-seeking was behind the telecom ministry’s rejection of auctions—the only fair method of allocating radio spectrum—gets strengthened by the day. Mint has been pointing to this concern for months now, even while welcoming Prime Minister Manmohan Singh’s emphasis on transparency in spectrum allocation a few weeks ago. Unfortunately, politics seems to have blocked the PM from containing telecom minister A. Raja’s continued abuse of his powers—abuse so blatant that telecom regulator Trai’s chief Nripendra Mishra has finally woken up and taken a stern, public stand.
The second letter from Mishra to the department of telecom (DoT), reported in the media on Thursday, together with his first one reported a few days back, highlights very serious issues. The first letter indicated that DoT misled the telecom tribunal (TDSAT) when it said its decisions on mobile licences and spectrum allocation were in accordance with Trai’s recommendations, when this was not fully true. The second letter shows how DoT continued to take opaque and arbitrary decisions, ignoring the interlinkages among Trai’s 28 August recommendations on licence terms and conditions.
By ignoring Trai’s advice that allocation of new licences must be subject to spectrum availability—and by repeated shifts in the already ad hoc criteria such as cut-off dates for priority in the queue for licences and spectrum—DoT has created a messy situation: one which could not only trap the government in litigation for years, but is also highly vulnerable to horse trading.
The irony in all this: DoT invited and accepted applications for licences to increase competition in cellular services. But the process has been bereft of genuine competition —unless, of course, we view a physical race between company executives to get first to the payments window as enhanced competition.
Yet, there’s no clarity on how much spectrum would be available. All that is clear is that it will not, by any measure, be enough to cater to the demands from existing operators for the expansion plans, earlier licensees waiting without spectrum, players crossing over from CDMA-based services into the GSM space, and new awardees.
The award of 121 letters of intent thus makes little—but at the same time much—sense if we consider the interlinks in Trai recommendations (of 28 August). These relate to the obligations for roll-out of services by new licensees and specify that they cannot participate in any mergers or acquisitions (M&As) until they meet their roll-out obligations. But actual roll-out for a pan-India licence would entail up to Rs30,000 crore—investments of an order that several of the new applicants really cannot afford. For them, it makes business sense to sell their licences at a premium to others who are in the telecom business for keeps and who would be happy to pay that premium.
Indeed, there’s anecdotal evidence on deals being currently discussed—where the premium would depend on how many new applicants get spectrum. The numbers range from Rs6,000 crore-Rs8,000 crore—multiples of the Rs1,651 crore the government gets. So, it should be no surprise that the telecom minister did not alert applicants of the Trai ban on M&As in the 2G services space—although for 3G spectrum, which will necessarily be auctioned, he has clearly stated that M&As won’t be allowed for a full five years, well in advance!
If, as the track record points to, the cherry picking of Trai recommendations persists, the M&A norm will be bypassed, too. A fair review is necessary to stop this from happening.
Sad enough that TDSAT got misled, but it’s a shame it didn’t do due diligence while hearing the appeal for stay of spectrum allocation. Trai must make its presence felt.
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