This was highly ironical—the telecom minister earlier justified his rejection of the most efficient route to allocate scarce radio spectrum—auctions—on the grounds that he can’t change the existing policy, and then, on Friday, changed rules for the already messy queue system. It arbitrarily affected, in the process, the business plans of a number of applicants for telecom licences in the country. If, as the department of telecom (DoT) press release on Friday said, the objective is to enhance competition, then the policy it announced, which clearly works to the benefit of Reliance, totally contradicts that.
The problem with Friday’s decision is not that an existing player can offer both GSM and CDMA-based mobile services. It is the flawed processing of that decision—as a result of which the government has itself invited extended litigation and sent wrong signals to the investor community.
At the root of the problem is the earlier decision to allocate spectrum on a first-come-first-served basis. As this paper has been arguing, it allows ample scope for manipulation of criteria to alter ranking of players. That this has happened is evident.
Not only is it visible in DoT’s decision to consider Reliance’s case for GSM spectrum from the date on which it pays its licence fee, but even more so in the speed with which Reliance was able to pay up—the morning after the new criteria were announced late in the preceding evening.
The blame goes to the combination of a weak telecom regulator and a government that used such weakness to manipulate the system.
While it is the Telecom Regulatory Authority of India (Trai) mandate to see there’s efficient management of available spectrum, the regulator fell short of doing that. When it favoured the use of dual technologies in one licence in its August guidelines, it failed to clarify how spectrum could be allocated to existing operators seeking to deploy the other technology—GSM/CDMA.
That ambiguity has clearly enabled DoT to let Reliance jump the queue, ahead of others such as Bycell—whose application dates prior to that of Reliance—and Tata Teleservices. It is no surprise that other CDMA operators such as the Tatas will now ask for similar treatment.
So, not only is there a royal mess in the spectrum queue, but DoT has also created further scope for confusion on its proposed decision on mergers and acquisition (M&A) norms. Its 19 October note says M&A guidelines will be issued separately. Again, it has been able to make use of the ambiguity created by the regulator.
On this front, Trai’s guidelines were conflicting—they retained the limit of 10% shareholding in a second company within a circle on the grounds of promoting competition, but allowed one company to run two competing businesses (CDMA/GSM) under a single licence. What DoT has done in real haste is allow Reliance to get legal rights to do the latter. It has conveniently held back its decision on Trai’s recommendation on M&A guidelines. In other words, if at a later date DoT has to interpret Trai’s guidelines as conflicting with each other, it will be forced to accommodate these hastily determined interests of Reliance.
The events raise serious questions about the government’s attitude towards governance. Fundamental to it all is a regulator with little capacity to deliver on its mandate and a competition commission with little say. This problem arises because those who steer the authorities identify with the government’s mindset. How else could spectrum auctions for 2G be rejected when global experiences show that this works best? For true valuation of spectrum, for the exchequer to net that value and for allowing only efficient players, irrespective of the technology used.
It is now up to existing, and new, applicants to stand up against the government’s non-transparency and ad hocism.
(Can DoT correct the spectrum mess? Write to us at email@example.com)