A wiry mess

Even as the government has tied itself up into knots over the appointment of Central Vigilance Commissioner P.J. Thomas and the institution of a Joint Parliamentary Committee to inquire into the spectrum scam, in his zeal to show hoe quickly and efficiently he has been working, Union minister for communications and information technology Kapil Sibal has announced the contours of a proposed new telecommunications policy that directly contradicts his own position — as well as that of the deputy chairman, Planning Commission, Montek Singh Ahluwalia — that the Comptroller and Auditor General of India has erroneously calculated the extent of the under-valuation of second generation (2G) electromagnetic spectrum.

Here are a few of the contradictions that have been highlighted by, among others, Rajeev Chandrasekhar, member of the Rajya Sabha. Late-2007 onwards, former communications minister Andimuthu Raja had claimed that the Department of Telecommunications (DoT) could not auction spectrum in 2008 because the Telecom Regulatory Authority of India (Trai) had opposed such auctions. This view was subsequently echoed almost verbatim by Mr Sibal and Mr Ahluwalia. Now, without any new recommendations from the Trai, Mr Sibal has performed a neat somersault by claiming that in the future, all 2G spectrum will be auctioned or allocated through a market mechanism.
Does this mean that the recommendations of the Trai are not binding on the DoT and had been used to defend illegal actions and huge loses to the exchequer by Mr Raja’s decision to allocate spectrum on a first-come-first-served (FCFS) basis instead of through auctions? It may be worthwhile here to jog Mr Sibal’s memory that auctions were recommended over FCFS to Mr Raja by the then DoT secretary D.S. Mathur in an internal note dated October 25, 2007, then by the Prime Minister in a letter dated November 2, 2007, and again by the then finance secretary D. Subba Rao (now Governor, Reserve Bank of India) on November 22 that year — all these documents are in the public domain. The question is simple: If auctions for allocation of spectrum are desirable now, why was it not in 2008?
In his letter to the Prime Minister, Mr Raja had argued against auctions ostensibly to create a level-playing field between incumbent operators and new entrants. This argument was repeated by Messrs Sibal and Ahluwalia. The minister has to explain why the so-called level-playing field policy has now become subservient to the need to go in for market-determined pricing of spectrum. Mr Sibal has announced that incumbents (before 2008) will pay market price for spectrum beyond 6.2 megaHertz (MHz) but new entrants (after 2008) will pay market price for spectrum beyond 4.4 MHz.
In May 2010, the Trai had recommended that it “is clearly of the view that contracted spectrum for all the access licences issued in or after 2001, is 6.2 MHz”. It is apparent that Mr Sibal’s announcement does not ensure a level-playing field between incumbents and new entrants, since the latter is being discriminated against. Should all licence holders not be made to pay for beyond 4.4 MHz?
If Mr Sibal’s policy is enforced, of the 575 applicants for licences with spectrum, 122 will receive 4.4 MHz of spectrum at 2001 prices while the remaining 343 applicants will either have access to no spectrum (because there’s hardly any left to auction) or will need to acquire the same through a auction process — even though all 575 applicants were in the same queue and had placed their applications before the original cut-off date of October 1, 2007.
Mr Raja, Mr Sibal and Mr Ahluwalia have all supported the FCFS system on the ground that it intensified competition thereby lowering tariffs and enlarging the mobile phone subscriber base. There is no evidence to indicate that this was indeed the case. The latest data of the Trai indicate that the combined market share of the new entrants three years after receiving licences is barely five per cent. Most of these new entrants have been issued showcause notices by the DoT under Mr Sibal for their inability to meet their roll-out obligations. During Mr Raja’s tenure there was “insufficient” competition. Now, presumably because there is “sufficient” competition, Mr Sibal is opting for a new “market-friendly” policy.
Mr Chandrasekhar alleges that this new policy “will now be aimed at providing safe passage to the beneficiaries of the 2G spectrum scam (over and above Unitech and Swan) through mergers and acquisitions (M&A)” using the “illegal” M&A guidelines of April 22, 2008. He is of the view that Mr Sibal should have refrained from making “ad hoc” announcements about a new telecom policy before following a consultation process specified in the Trai Act that calls for receiving the regulatory authority’s recommendations before (and not after) announcing new policies that come into “immediate effect”.
Auctioning spectrum is absolutely correct. After all, this is a scarce resource that belongs to the people of India. The question, for Mr Sibal, is simple. If what Mr Sibal is suggesting today is right, why was it wrong in January 2008? And is this the best way to undo the damage done? Mr Sibal may be a smart lawyer. But what he intends doing through the so-called new telecom policy of 2011 is to lay out a legal minefield that is certain to be challenged in tribunals and courts. In other words, he may just have created more problems than he has solved.