If you had bought 100 shares of Wipro at the rate of Rs 100 per share in 1980, they would be worth Rs 200 crore (Rs 2 billion) 2007. If you had invested Rs 10,000 in Infosys shares in 1992, you would be richer by Rs 1.5 crore (Rs 15 million) in 2007. Details in this link.
If a presumptive loss of 1.76 lakh crore is the “biggest scam of Independent India”, then our spouses have every right to allege that we are part of “second biggest scam of independent India”, for not investing in Infosys and Wipro. Well, that’s on a lighter note.
Let us look at the possible ways in which spectrum could be allocated to applicants:
Let us not even try to defend the first choice.
The second one seems more appropriate, it generates more revenue, the valuation considers the changes due to the growth in the sector; it does not disturb the “level playing field”. It is the opinion of the blogger that this is best possible option that DoT should have adopted.
The third option is what everyone in the media is shouting about— The Auction. Let us see if this is a practical possibility.
On 2nd November 2007, PM writes to A.Raja
In order that spectrum use efficiency gets directly linked with correct pricing of spectrum, consider
(i) introduction of a transparent methodology of auction, whenever legally and technically feasible, and
(ii) revision of entry fee, which is currently benchmarked on old spectrum auction figures.
On the same day, A.Raja replies back:
The issue of spectrum was considered by TRAI and the Telecom commission and was not recommended as the existing license holders who are already having spectrum upto 10Mhz per circle have got it without any spectrum charge. It will be unfair, discriminatory, arbitrary and capricious to auction the spectrum to new applicants as it will not give them level playing field.
The option of auction is NOT favored not just by DoT but also by TRAI and Telecom commission. This is a legitimate decision. There are already operators in the field and if DoT allocates spectrum based on auction, sure, there will be good revenue for the government but the new applicants will have to compete with their old counterparts after paying a significant license fee as determined by the auction.
It is very important to maximize the revenue while issuing licenses but it is even more important to ensure that the policy sustains and the sector doesn’t collapse. Let us go back to the CAG report of 2000.
The licensees of cellular mobile and basic telephone services in metros and telecom circles defaulted in making payment of license fee to the government leading to mounting dues. They also did not submit requisite financial bank guarantees as per their contractual obligations. On one side private licensees repeatedly violated the conditions of license agreements on the other government granted concessions after concessions in relaxation of tender conditions decided through open competitive bidding.
….The licensees did not adhere to the prescribed payment schedule as laid down in the license agreements. Scrutiny of records in DoT disclosed that as on 31 May 1999, dues amounting to Rs 3779.45 crore were outstanding on account of license fee against various licensees of cellular and basic services. The circle cellular licensees did not pay license fee on a regular basis from second year onwards (from March 1997). Even the metro cellular operators, who were having much larger size of the market several times higher than their initial projections as discussed in paragraph 14.7.5 of this review, stopped paying license fee regularly from the fourth year onwards.
……DoT was in possession of financial bank guarantees of only Rs 1581.56 crore as against the outstanding license fee of Rs 3779.45 crore against various licensees of basic and cellular services.
The telecom sector was in turmoil—Why did this happen? The conditions were decided through “an open and competitive bidding”, and there were no concerns of level playing too, so why did this situation still occur?—Operators were grossly wrong in their projections.
…..The basic premise on which the above package of concessions for existing licensees was based was that all the existing licensees of cellular and basic telephone services were incurring losses as their projections of demand had gone wrong and therefore, they were not in a position to pay huge license fee dues outstanding against them.
CAG claims that the situation of telecom companies at that time was much better than what they were projecting, but the real situation of Telecom companies was so bad that Government had to go for a “bailout package”.
Apart from the advice of the Attorney General, government used the studies made by Industrial Credit and Investment Corporation of India Limited (ICICI) in June 1998 and by Bureau of Industrial Cost and Prices (BICP) in October 1998 to justify the bailout package and the offer of migration
In the same report, CAG ruthlessly criticizes the then government for giving concessions. CAG instead wanted government to impose penalties for delayed payments instead of bailing them out. Of course, both the scenarios cannot be compared, but the mindset of the CAG at that point was instant revenue loss and the aim of the government is to make sure the sector survives and thrives. Today everyone knows if CAG was correct in 2000 or it was government.
In the present scenario, even TRAI didn’t recommend auction and CAG does a “hyperbolic” interpretation of why DoT should have even ignored TRAI and went ahead with auctioning. It reads:
It is to be noted that the role of TRAI, as per the TRAI Act is primarily to foster competition and to ensure a level playing field in the sector. Generation of revenue for the Government is not within the scope of its mandate and hence not perhaps a basis for framing its recommendations. Thus, while accepting the recommendations of TRAI, protecting the financial interests of the Government should have been an important consideration for the DoT.
Spectrum is a limited resource and in a bidding process, applicants tend to lose rationality and go for higher bids; No doubt, it generates a lot of instant revenue for the Government, but if the licensee fails to live upto his own initial estimations and unable to compete with the existing operators because of a heavy upfront license fee, then the entire policy is a failure. Well, then CAG will publish another report saying “TRAI and Telecom commission opined against auction, had DoT listened to this, the policy failure wouldn’t have happened”. For CAG, it is heads I win and tails you lose.
To be fair to CAG, had mentioned atleast three times in the report that the loss is presumptive and the models used has assumptions. And perhaps even CAG would have been surprised that media ignored most of other valuable findings in the report and just stick to a hypothetical figure of Rs.1.76lakh crore.
Now the fourth, Auction after a level playing field, an “out-of-the-box-option” of Mr.Pranab Mukerjee in point 17. of his secret note to PM :
This can only be a communist suggestion. Only communists define equality (level playing field) as converting rich to poor instead of the other way round. This idea is no worse. His approach is simple:
Why TRAI did not recommend auction?
Because it destroys level playing field, new entrants after paying high price have to compete with the existing operators who will be at an advantage.
How can you ensure level playing field?
Destroy the advantage the existing licensee has.
How do you do that?
Throw them out of license and let them also participate in bidding.
How is it possible?
Ah! There is a clause which says
The LICENSOR reserves the right to modify at any time the these guidelines and terms and conditions of the LICENCE, if in the opinion of the LICENSOR it is necessary or expedient to do so in public interest or in the interest of the security of the State or for the proper conduct of the telegraphs. The decision of the LICENSOR shall be final and binding in this regard.
This is such a ridiculous idea; there is no evidence so far that either DoT or TRAI or Telecom commission or DEA even attempted to consider it. If this idea is ever considered, will any operator sign a new license, knowing that, even the new licensee can also be thrown out citing “public interest”? Is this the business environment we hope to create in this country?
The clauses such as the one above, will be included in the license, to keep the licensor at upper hand at all times and to make sure that licensor can change the guidelines, like amount of penalty etc, but to say that this clause should have been used to cancel the licenses of existing operators is just preposterous to say the least and to say that Mr.P.Chidambaram didn’t press for the auction to this extent is even more ridiculous.
Our media is no mood to explain this. Not that they don’t know, —- “Pranab sends a secret note to PM blaming Chidambaram on 2G issue” makes such a great headline that they can’t resist the temptation to misconstrue.
2G Scam :
So if FCFS is just a policy decision and not crime, why is A.Raja in jail. This is the topic (The dirty tricks of A.Raja) which media should have better explained to people, if only they care.
In any First-Come-First-Serve policy, an applicant who has first applied for the service will be provided with the service first. That is the definition. So the allotment of spectrum has to be done based on the date of application filed by the applicant. Let us look at what A.Raja did :
1. Spectrum is a limited resource, since FCFS is followed, there is no point in mentioning the cut-off date as there is no restriction in number of operators in a given circle as long as spectrum is available, that was the opinion of TRAI and that is what is mentioned in CAG report. But Mr.Raja goes against this and fixes 01-Oct-2007 as deadline for considering the applications.
2. DoT arbitrarily decides that the cutoff time will be 25-Sep-2007. (This decision, he informs PM too who could have intervened and stopped, PM expresses concern, asks for auction but doesn’t follow up).
3. (The Magic starts from now) The definition FCFS has been changed. From the receipt of application to date of compliance of LoI (Letter of Intent) .Some of the applicants were waiting for years after filing the application, that doesn’t matter, but who ever brings the deposit fee, bank guarantee and some other required documents will first get the spectrum.
4. Now, according to CBI charge sheet and CAG report, this change to who-ever-complies-with-LoI-First, was leaked to few .
5. The people with whom the information was leaked prepares Bank drafts by November 2007. The change in policy comes out formally through a press release only in 10-Jan-2008.
6. This information is further leaked and through media gradually all applicants were aware of this process are were ready with their bank drafts
7. Now the reader may ask, what will happen if more than one LoI is complied with, on the same date? Wait… There was some Hollywood fiction movie level thought process here.
8. On 07-Jan-2007 a draft of press release was shown to Ld. Solicitor General of India and he approves.
9. A. Raja then deletes the last and a very crucial paragraph from the press release manually and gets an appended one. The last paragraph states that
If more than applicant complies with LOI condition on the same date, the inter-se seniority would be decided by the date of application
10. Lets fool ourselves by still calling it a FCFS and move further
11. TO Quote CBI charge sheet “…representatives were required to rush to the reception area of the Sanchar Bhawan at Ground Floor, after receiving the LOIs, for submission of LOI compliance/Entry Fee etc…As a result of the said conspiracy, M/s Swam Telecom Pvt Ltd. was the first to submit compliances for Delhi (where spectrum was limited for one licensee only) and Mumbai circles; and M/s Unitech Wireless (Tamilnadu ) Pvt. Ltd. (representing all 8 Unitech group companies later merged into it) were able to get priority in all circles over many other applicants which applied much before it.”
12. …”This desperate race to the reception area led to a lot of chaos. Which also resulted in a situation that physical fitness of the representatives became the main deciding factor for priority of submission of compliance of LoIs and entrée fee etc., making a mockery of the first-come-first-served policy”
13. FCFS on basis of application to FCFS on LoI compliance and then to Darwinian Theory of survival the fittest…
14. At this point of time, one would have expected PM to step in and give a legally-permissable-equivalent of a tight slap to the concerned minister and ask him to undo the rubbish. He didn’t. coalition dharma matters more.
15. From CAG Report: 85 Licenses out of the 122 new licenses issued to 13 Companies in 2008 were granted to those companies which did not satisfy the eligibility conditions. They didn’t have paid up capital required at the time of application.
16. From Pages 33 to 45 of CAG report explains all the clauses violated and how undue favors have been given to other companies and read the CBI charge-sheet for more criminal charges levelled.
Aren’t all these irregularities made out of criminal intent and brutally abusing the FCFS policy instead of using it? Shouldn’t PM have stepped in and abruptly called off this entire process and restarted with a more transparent one again. The policy of FCFS could be a bad policy, but couldn’t this have been implemented fairly without doing all the above non-sense?
( All the citations on 2G scam were from CAG Report and CBI Chargesheet)