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Strange norms of Raja raj

Strange norms of Raja raj
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First Published: Wed, Apr 30 2008. 10 51 PM IST

Updated: Wed, Apr 30 2008. 10 51 PM IST
The department of telecommunications (DoT) announced rules last Wednesday for mergers and?acquisitions?(M&As), making it tougher for companies to buy or sell the much-sought-after spectrum bundled with new mobile licences. For telecom minister A. Raja—whose one year in office has been marked with a spate of controversial decisions— this relatively prudent one might raise fewer hackles at the ministry of finance (MoF) and the Central Vigilance Commission (CVC). Both agencies want the spectrum auctioned to discover its real value—which most experts believe is more than a billion dollars over what new players are paying for a pan-India licence. The new norms will deter speculators, but as Mark Twain might have said, that is all they will do. Raja’s failure to implement a transparent process for spectrum allocation and pricing has caused more serious distortions than the prudent M&A norms can fix. The agencies are not fully reassured anyway.
And the norms are still a compromise. The Telecom Regulatory Authority of India (Trai) had recommended that M&As be allowed only after companies meet roll- out conditions and that defaulting companies be barred from future auctions. The new norms have removed both conditions. Now companies can merge after three years.
Still, spectrum owned by the merging companies can be clubbed only if they can meet the now much stricter subscriber number criteria prescribed by DoT within three months of the deal. Else, companies must return excess spectrum and pay additional fees that—characteristically for DoT—are yet to be quantified.
The M&A norms will hurt existing GSM players who were already smarting from the new subscriber criteria and were banking on doing deals for the 4.4MHz of spectrum that comes with the new GSM licence. New players —with little resources to set up networks on their own—will resent that existing players cannot yet deal with them.
The merger norms leave the related issue of acquisition conspicuously vague and may allow new licensees to sell to players such as AT&T, Emirates’ Etisalat, etc., known to be eyeing the market. But new players, too, will doubtless wait till sellers get the full spectrum due to them. There are reports that the Armed Forces,? the current users of spectrum in question, may need months before it can be released for use by new licensees.
CDMA stalwart Reliance— alleged to be the prime beneficiary of the hurried changes in rules to allow companies to use both GSM and CDMA technologies— may not do well either. The 4.4MHz of GSM spectrum allotted to it through a controversial decision—being contested in court by the Cellular Operators Association of India (COAI) that represents GSM players—may not be enough to take on players such as Airtel and Vodafone, which have considerably more spectrum in most areas, besides crucial first-mover advantage. Having partly caused the stampede for GSM licences, Reliance might find the shortage and fragmentation of GSM spectrum hurts it the most.
In virtually every decision related to spectrum taken by DoT last year, transparency has been an issue. Reliance is alleged to have paid its fees before the guidelines to allow dual technology appeared on the DoT website. An auction was mentioned in those guidelines, but even minimal detail about what would be auctioned or when or how was missing. DoT never clarified why Trai, the Telecom Engineering Centre (TEC) and yet another committee looked into and gave very divergent recommendations on how many subscribers mobile companies must acquire for additional spectrum and why the first set prevailed. Similarly, after announcing a cut-off date of 1 October 2007 for new licence applications, the government considered for licences only those that had applied till a week earlier. An unsavoury confusion— accompanied by scuffles and torn clothes—related to a sudden announcement (since revoked) that a firm’s position in the queue for spectrum should depend not on the date it applied for spectrum, but the date it paid for it.
As repeatedly pointed out by experts, a transparent auction of all scarce spectrum to qualified bidders is the only defensible and sustainable method of selecting companies or technologies competing for its use. This is even truer for commercial use of spectrum.
Only serious players would want to bid. If prior clearance by regulatory and security agencies was mandatory—as it should be, in view of obvious risks—spectrum trading between players would be seen less as the abuse it is made out to be, and more as a means to promote still more efficient utilization of spectrum, raise billions in fees for the government, and help much needed consolidation of India’s crowded mobile sector.
The M&A norms may prevent brazen profiteering by vested interests. But it is the series of whimsical decisions—the hallmark of Raja’s first year in office —that attracted such interests in the first place. His ministry’s approach to spectrum is totally out of sync with the growing importance of spectrum and the reality of India’s uniquely high stake in rational spectrum management, since more than 90% of its population of over a billion people will depend almost exclusively on wireless communications in the foreseeable future.
Mahesh Uppal is director, Com First (India) Pvt. Ltd. He consults on regulatory issues. Comment at theirview@livemint.com
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First Published: Wed, Apr 30 2008. 10 51 PM IST
More Topics: Raja Raj | Norms | Department of Telecom | CVC | MoF |