The last few weeks have been utterly delightful. Thanks to the valuation received by real-estate firm Unitech while selling a 60 per cent stake in its telecom arm — which got spectrum from Communications Minister A Raja at bargain-basement prices last February (another beneficiary Swan Telecom sold a 45 per cent stake prior to this at an equally high valuation) — the government has come under some pretty major flak. The latest to join the chorus is the CPI’s D Raja, who held a press conference asking for a probe into the matter. A Raja reacted by offering to resign, at a counter press conference, if proved guilty. He also announced the government planned to hike the fees charged to existing mobile operators by 1-2 per cent as well as charge them a one-time fee for the spectrum they’d got beyond 6.2MHz — the one-time fee is likely to be of the order of around Rs 4,000-5,000 crore.
This is hilarious for a variety of reasons. For one, the amounts A Raja is talking of raising are less than a tenth the amount he’s accused of having underpriced the spectrum by, since he didn’t auction it but gave it away, in 2008, at the same price paid by firms in 2001 during an auction. What’s more interesting is that while he’s accused of favouring firms like Unitech, Swan, Loop, Datacom, Reliance Communications etc, he wants to get another set of firms — the existing cellular-mobile phone firms — to make good part of this.
Why 6.2MHz? While the licence that cellular mobile phone firms like Bharti/Vodafone bid for in 2001 promised them up to 6.2 MHz of spectrum, the rest (firms like Bharti and Vodafone have around 9-10 MHz of spectrum on average) was given to the firms based on administrative orders passed by the government from time to time. While ‘Eenee, meenee, mainee, mo!’ (July 30, 2007) has greater details, an example of just how whimsical these orders (which based additional spectrum allotment on the basis of the subscribers these firms had) were can be judged from the fact that the subscriber norms were jacked up several times earlier this year — that is, they were either too lax earlier or are too strict now.
A committee has been set up to figure out what this one-time ‘regularisation’ fee will be. Naturally, the fee will have to be based on the Rs 1,651 crore just charged Unitech etc for their 4.4 MHz of spectrum. Else, Bharti/Vodafone and the others will protest violently. So, a value which everyone knows to be hugely underestimated is to be used to levy a ‘penalty’ on Bharti/Vodafone! (This also explains why Bharti/Vodafone and others are now privately saying the under-pricing of spectrum by Raja has been over-blown by the press.)
The 1-2 per cent hike in spectrum fee that Raja is talking of is also related to this ‘extra’ spectrum that Bharti/Vodafone have got. Since they didn’t pay the market/auction price for it, Raja argues, they should be asked to pay a higher annual fee for this. In which case, once Raja gets his ‘regularisation’ fee of Rs 5,000 crore, he should lower the annual spectrum fee. Based on a 10 per cent interest rate, the ‘regularisation’ fee will yield Rs 500 crore in annual revenue in perpetuity while a 1-2 per cent higher spectrum fee generates several times this amount each year! What a bargain.
But let’s not get lost in the numbers. The larger point is whether Bharti/Vodafone and the other cellular mobile phone firms were given undue benefits when they were given spectrum beyond the 6.2 MHz promised in their licences? While I believe they were — for reasons explained in ‘Eenee, meenee, mainee, mo!’—what really matters is whether this stands in a court of law. And here’s where the twist comes in.
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Reliance Communications and Tata Teleservices filed a case in the telecom appellate tribunal (TDSAT) against the Government of India arguing it had given Bharti/Vodafone and other cellular mobile phone firms excess spectrum beyond their 6.2 MHz entitlement and that this should be returned by these firms. Naturally, the government filed an affidavit. This affidavit, which would have been prepared/vetted by Raja’s ministry, says there is nothing wrong with the allotment of spectrum beyond 6.2MHz and that this was in keeping with government policy which linked additional spectrum to the number of subscribers a firm had! Raja can’t have it both ways — was the allotment illegal or not? If it was, which is the only way the ‘regularisation’ fee can be justified, then the TDSAT affidavit is false, and that’s a serious offence.
More than that, it also knocks the bottom of the very policy used by Raja to give away spectrum to firms like Unitech, Swan, and so on. At the time when Raja decided to give the spectrum to Unitech/Swan, existing firms like Bharti/Vodafone were eligible for additional spectrum under the subscriber-linked criterion. The government, however, suddenly jacked up the required subscriber numbers to deny Bharti/Vodafone their legitimate spectrum due, and instead gave this ‘surplus’ spectrum to Unitech/Swan. But if the TDSAT affidavit is to be believed, the earlier subscriber-linked criterion was valid government policy. Well, if it was policy, why weren’t Bharti/Vodafone and the others given their due spectrum first?
Oh what a tangled web we weave, when first we practice to deceive!