Telecom travesty

Even by the somewhat relaxed standards of propriety used to allow Reliance Infocomm (as it was then called) to convert its fixed landline licence into a CDMA-mobile one in 2001 (using a series of spurious arguments), Friday's decision to also give a company a head-start in getting GSM spectrum is a travesty. Allowing the company to offer GSM-based services is hardly an issue, given how the licences were supposed to be technology-agnostic. The problem lies in how the government's action has allowed Reliance to jump the queue for getting scarce spectrum, and amounts to barefaced playing of favourites "" something that will almost certainly be challenged in court.

Since the government chose not to go in for auctioning spectrum, it has 46 firms vying for the same spectrum. Reliance was No. 3 or No. 4 in the queue, by virtue of applications by companies (Swan and Cheetah) owned by it. Since the government needs to keep around 10MHz of spectrum to give existing firms when they have enough subscribers to qualify for it, it can give spectrum to perhaps one or at most two new players. Since Reliance has been allowed to pay its licence fee on the basis of Friday's decision, and spectrum is to be given first to those who have paid this fee, the company has moved up the waiting list and is now certain to get spectrum if the government's decision is not challenged.

What makes matters worse, and exposes the government's actions for what they are, is that Reliance will now be able to offer two types of services (CDMA mobile and GSM mobile) in the same circle while the existing rules frown on two telecom firms even having the barest of common ownership lest there be some collusion "" under the law, no owner of a telecom firm can have more than 10 per cent shareholding in another telecom firm in the same circle. The fact that Reliance has been allowed to deposit a licence fee for GSM spectrum in all 23 circles while it already has GSM licences for seven circles (logically, it cannot be given fresh spectrum for these circles) also speaks volumes about how casually the rules have been interpreted as far as the company is concerned.

In the event, the biggest losers from the exercise are the government and the other existing telecom firms like Bharti, Vodafone-Essar, Idea and Tata Teleservices. The government is an obvious loser since it is charging Reliance no more than Rs 1,633 crore. That price was discovered more than six years ago, when the country had just 4 million subscribers "" today, 6-7 million get added in a month. The fact that there are, on average, 26 applicants in each telecom circle is its own commentary on how low the price is perceived to be. In some senses, companies like Bharti and Vodafone-Essar have only themselves to blame since, if they had been in favour of auctions, the government could never have allotted spectrum to anyone, on any criterion "" and given the strength of their balance sheets, infrastructure on the ground and past track record in winning bids in India and globally, these firms were the best positioned to win any auction. Instead, they voted against auctions and in favour of a subscriber-linked criterion after a low and flat fee of Rs 1,633 crore. So, Trai/government accepted this, but upped the subscriber-link criterion 2-5 times (which rules out giving spectrum to the existing firms for the time being), created the huge spectrum rush that the country has been witnessing, and used the resulting wiggle room to play favourites in a shameful display of deliberate misgovernance.