Telecom tangle has deep roots

Telecom tangle has deep roots

New Delhi: Tata Sons Ltd chairman Ratan Tata reacted angrily to an open letter from Rajya Sabha member and former telecom entrepreneur Rajeev Chandrasekhar, but while the text of his 14-page (including annexures) response highlighted his own consistent position on the pricing and allotment of air waves, it also reiterated an emerging truth about the Indian telecommunications business: one that involves ad hoc changes in policy, poor regulation, and an impressive display of crony capitalism.

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Since the late 1990s, India’s telecom policy has seen sudden changes in some cases, or the retention of an outdated policy in others, and while some of these changes are responsible for the country’s mobile telephony boom—India had 688 million mobile connections at the end of September, but the Telecom Regulatory Authority of India (Trai) says only 70% are active—they have also benefited almost all companies in the business.

In an indirect admission of the fluidity of the country’s telecom policy, telecom minister Kapil Sibal said the government would ask a retired Supreme Court judge to investigate all allocation of air waves (or spectrum) since 2001.

On Wednesday, India’s top court, too, signalled that it would like the investigation to date back to 2001. The court was hearing a public interest litigation asking it to step in and monitor the Central Bureau of Investigation’s (CBI) probe into what is being termed the 2G scam—the allegedly preferential and favourable allocation in 2008 of licences and spectrum to telcos entering the second-generation (2G) mobile telephony business.

The United Progressive Alliance (UPA) government, too, has previously suggested that it would like to see any investigation stretch back to 1999; the UPA’s main rival, the National Democratic Alliance (NDA), ruled India between 1999 and 2004.

Ad hoc(ism) rules

The changes, while arbitrary and beneficial to some telcos (and detrimental to the fortunes of others), did result in growth. In 2000, India had only 1.88 million mobile phone customers and average call rates were around Rs16 a minute.

At the end of September, the number of phone connections had multiplied 365 times and average tariffs dropped to around Rs0.30 a minute. In the process, India’s teledensity soared from 2.86% in 2000 to 60.99% in 2010.

“There have been some unique changes in policy over the years. In 2000, one change that made a significant difference is the shift from licence fee regime to revenue-share regime. This ensured that the telcos survived the initial hiccups and were able to build a viable business," said Kunal Bajaj, partner and director (India) for Analysys Mason, a consulting firm.

“Another important change was the introduction of the uniform termination regime that eventually enabled incoming calls to become free and allowed the mobile service providers to compete with the heavily subsidized fixed-line providers," he said.

Through the boom, India’s policy on spectrum has been inconsistent. The recent report by the government’s auditor, the Comptroller and Auditor General of India (CAG), that looks at the issue of 2G licences in 2008, points out that between 2001 and 2008 all telcos benefited from this

But analysts reckon that Tata Teleservices Ltd and Reliance Communications Ltd (RCom) were among the biggest beneficiaries of inexplicable changes in policy—such as the one in 2003 that allowed the two companies, which only had licences to offer fixed telephony services, to offer mobile telephony, albeit on a different technology platform, CDMA, than the one used by the companies that had licences to offer GSM mobile telephony services.

In 2008, RCom and Tata Teleservices were again the beneficiaries when companies offering mobile telephony on the CDMA platform were also allowed to do so on the GSM platform.

“One policy change that made a huge difference is the introduction of the UASL (telecom) licence in 2004 that allowed the full-fledged entry of Reliance in the market. This brought in new competition and enabled the telcos to experiment with things like tariff strategies among others. The competition made a huge difference," Bajaj added. UASL is short for unified access service licence.

To be sure, the telcos that had historically offered services on the GSM platform too enjoyed their share of benefits—the spectrum allocation policy was skewed in favour of these firms, for instance.

And between 2004 and 2007, some of these telcos received licences (around 48 of them were issued) and spectrum largely because of the arbitrariness of government policy, or the lack of one—something Tata has complained about in his reply to Chandrashekhar.

“You have also not noticed that the CAG has not ascribed value to 48 new GSM licences issued to incumbents during this period even though CAG was supposed to cover the period from 2003," Tata wrote.

(For a complete list of policies that changed the course of the telecom business, see chart, Change, the only constant).

Tata vs Chandrasekhar

In his response to Chandrasekhar, who wrote a letter to Tata on 6 December, and released it to the media on the same day, the chairman of Tata Sons said that the missive from the member of parliament appeared to be an attempt to embarrass the ruling party and the Prime Minister.

“We should all note that many of the flip-flops in the telecom policies occurred during the BJP (Bharatiya Janata Party) regime," Tata wrote. “Your affiliation to a particular political party is well-known and it appears that political aspirations and their endeavour to embarrass the Prime Minister and the ruling party may well have been the motivation behind your letter".

Chandrasekhar was elected to the Rajya Sabha with the support of the BJP in May 2006.

Tata didn’t spare the current government either and said the CAG report had ignored the 48 GSM licences issued to incumbent telcos between 2004 and 2008. Later on Thursday evening, Tata Teleservices sent a letter to Chandrasekhar refuting his argument, put forth in his letter, that Tata was one of the biggest beneficiaries of out-of-turn allocation of spectrum.


The UPA, too, seemed to be in a mood to revisit recent history, with the Congress’ spokesperson Manish Tewari alleging that the migration of telcos from a licence fee regime to a revenue-sharing one in 1999, when the NDA was in power, had cost the exchequer Rs60,000 crore in notional losses.

The BJP, the dominant member of the NDA, responded by focusing on what its change in policy had achieved. “We unleashed the revolution and today we are boasting of more than 600 million mobiles in the country. It is due to the pragmatic and visionary policy of the NDA and that is why we are proud of our policy," said the party’s spokesperson Prakash Javadekar.

He added, referring to Tata’s letter, that the chairman of Tata Sons probably didn’t know “much about what has actually happened".

Meanwhile, opposition parties continued their demand for an investigation into the 2G controversy by a joint parliamentary committee.

CBI vs Raja

On Thursday, CBI questioned former telecom minister A. Raja’s aides and associates, including his former personal secretary R.K. Chandolia, former telecom secretary Siddhartha Behuria, former member of the telecom commission K. Sridhar; former deputy director general in the access service wing of DoT A.K. Srivastava, and managing director of Chennai-based real estate firm Greenhouse Exports, Sadiqui Batcha.

On Wednesday, the agency had searched the residences of Raja and several of these aides. “There will be more raids and we do not rule out the arrest of these officials," said a CBI official who spoke on condition of anonymity. He didn’t rule out interrogating Raja. The agency also said that it had seized a diary belonging to Raja with notes in Tamil.

In a related development, the committee of secretaries, including the home secretary, the secretary of department of personnel and training, the revenue secretary, the chiefs of both the intelligence agencies and the directors of CBI and the Enforcement Directorate, met in the home ministry. “We discussed the nexus between journalists, bureaucrats and politicians," said an official who attended the meeting, asking not to be identified.

In mid-November, two magazines published transcripts of phone conversations between Niira Radia, a lobbyist for the Tata group and Reliance Industries Ltd, and several journalists, politicians and former bureaucrats. Some of the conversations, dating back to 2009 and wiretapped by the income-tax department, dealt with the formation of the government.