Sharing the booty

If, as newspaper reports suggest, a solution to the telecom tangle is in sight and may crystallise during the telecom secretary's meetings with the industry early this week, that is good news. No one has benefited from the current impasse, and the sooner the country's fastest-growing sector is freed from controversy, the better. The country needs to move away from a scenario in which India's policy-making is seen to be either capricious or driven by an opaque logic. But while the telecom minister, A Raja, was incorrect in his decision to create cross-over technology firms (a CDMA mobile phone firm wanting GSM spectrum, and vice versa) as a distinct and preferred category among all those applying for fresh spectrum, and then allowing Reliance Communications to pay its licence fee based on this logic, he was not the first to take a wrong decision. For the fact is that the GSM-mobile firms have got free spectrum beyond their 6.2MHz licence entitlement, based on ad hoc government policy that linked spectrum to the number of subscribers that a firm had (that this ad hoc policy was used to tighten the norms dramatically, first through the telecom regulator and then further through an expert body answerable to the minister, is another matter). Reliance Communications' chairman Anil Ambani referred to this when he complained to the Prime Minister a couple of weeks ago that the GSM firms had got Rs 20,000 crore of benefits without paying for it. Mr Ambani won the PR battle when he offered to give up the 'extra' spectrum that he had got, if the GSM lot followed suit. It is another matter that, based on his own calculations, Mr Ambani has also got very valuable spectrum by paying a relative pittance.

The solution which seems to be emerging is that the GSM firms will accept the new subscriber norms prescribed by the telecom regulator (these norms have become acceptable to companies because they are less onerous than those proposed by the expert body in the ministry), and withdraw their case before the appellate authority against the decision favouring Reliance Communications. But on the basis of the new spectrum norms, the GSM firms will have got more spectrum than they need. Logically, they should return this excess spectrum; but their quid pro quo for not questioning the minister's diktat on Reliance is that they will be allowed to keep the extra spectrum. In other words, everyone will get to keep what they have got, and the only change of the last couple of months will be that Reliance has joined the GSM club. The only problem with this cosy arrangement is that the exchequer will lose many thousands of crores that it would have got if the additional spectrum had been auctioned.

A better solution would be to freeze all spectrum at current levels and ask everyone, including Reliance, to bid for new spectrum. This ensures that a market price is paid and also ensures that no one plays favourites. The GSM lot who have got "extra" spectrum over the 6.2MHz should then be told they have got to pay for this, based on the price discovered by the auction. Since the amount that they will have to pay will be a fraction of the market capitalisation that they stand to lose if they do not get fresh spectrum in the future, no serious player will refuse. All this assumes, of course, that the government is interested in protecting the exchequer and that the Prime Minister is not a captive of his erratic communications minister.