It is a sad day for Indian democracy when a legislator misleads the public with a spin of half-truths. Telecom minister A. Raja, in a late Friday night press release, tried, in vain, to build a case for his clearly prone-to-manipulation, first-come-first-served grant of new 2G licences in January.
The note seeks to refute the media’s criticism of the way scarce spectrum, bundled with those licences at a fraction of its market value, has helped Swan and Unitech make a killing in the Etisalat and Telenor deals at the cost of the exchequer. It says the enterprise valuations also cover infrastructure, equipment, subscribers and the company’s knowledge base. But neither Swan nor Unitech, both new to the sector, has any of these and the reason why they are getting six and seven times the price of the licence is the spectrum, both given and promised. A foreign firm would have paid more in a government auction for a clear 75% stake, while Swan sold 45% and Unitech, 60%.
Despite two done deals showing how the market prices the spectrum (a 700% rise in 10 months for no built-up assets, while all other asset prices fell), Raja oddly insists government revenue has not been compromised. Equally odd is his either/or case for revenue share and the auction/licence fee. Winners of the 2001 auction also pay revenue share and spectrum-use charges. As for the argument that the current approach favours consumers, surely the buyers will recover their acquisition costs over the licence period.
The note refers to the 1994 auctions when bids went too high and says the subsequent shift in 1999 to the revenue share regime led to a fall in tariffs. The fact, however, is that it was the 2001 auction for the fourth cellular licence that the market truly picked up and competition lowered tariffs. Contrary to Raja’s “clarification”, the grant of 2008 licences was not in line with the national telecom policy, 1999 and the 2003 Cabinet approval—both of which favoured auctions. Again, contrary to his suggestion that auctions preclude rural roll-out obligations, those were part of the 2001 auction.
All Raja’s regime has done is help new licensees arbitrage the spectrum market value—with the full support inherent in a weak coalition government and a co-opted political opposition.
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