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| Sunil Jain: Wow! | |
| RATIONAL EXPECTATIONS | | Sunil Jain / New Delhi December 1, 2008, 0:09 IST | |
One can still appreciate the confusion between Trai and the telecom ministry on the issue of whether the 120 licences handed out by telecom minister A Raja should have been auctioned or whether they should have been handed out, in 2008, at prices that were discovered through an auction as far back as 2001. While Raja argues he’s simply followed what Trai had recommended on the matter in August last year, Trai chief Nripendra Misra says this is simply not true — the possible confusion stems from the fact that Misra did not unequivocally recommend auctions since, he says, this was not what he had been asked to give his recommendations on and that, in any case, everyone knew that auctions were decided government policy. But how do you explain the confusion between telecom minister A Raja and telecom secretary S Behura?
Though Raja has generally not thought himself answerable to the Prime Minister, he has been under some sort of pressure since firms like Swan Telecom and Unitech Telecom have entered into agreements to sell part of their equity at values which suggest he handed out the licences at a fraction of their market price — Opposition parties have raked up the matter in his home state of Tamil Nadu and there have also been some vigilance inquiries on the matter.
So, on the eve of the Economic Editors’ conference last week, Raja said he was going to keep a sharp vigil on what the 120 licencees did with the licences he’d given them (how he’ll keep a vigil since he’s out in six months is another matter!). Under the terms of their licence, these firms have to ensure that their networks are rolled out in at least ten per cent of all District Headquarters (DHQs) in the country within a year of getting their licence (it’s been around eight months already and not even one per cent has been done by most firms); within three years, the network has to be rolled out in at least half the DHQs; rolling out means that the telco’s signals should be receivable in at least 90 per cent of the area in each DHQ — for metros, the rollout obligation is 90 per cent within a year. Raja said that he wanted to tighten the rollout obligatons and, if they were not met, he’d take back the spectrum given to these firms. This, by the way, is in keeping with his public arguments on the subject for the last one year — he’s argued that while he may have undercharged for the spectrum, these firms have onerous rollout obligations and, therefore, this will ensure more telecom networks will come up. More networks, in turn, would mean more competition and therefore lower consumer tariffs.
But here’s the twist. A day later, at the Economic Editors’ conference, Behura said the rollout obligations were an irritant and, in fact, did not exist in other countries in the world; and that is why a committee has been set up to look into the matter; the ministry has also just sent a letter to Trai asking for its recommendations on removing the rollout obligations! Wow! India’s being compared with countries in the west that have more than 100 per cent teledensity (it’s just 13 per cent in rural India), and Behura’s not even addressing the most obvious inconsistency — that the lower-than-market valuations were justified on the basis of rollout obligations which, as most firms are all set to default on, the ministry is thinking of removing.
Removing the rollout obligations in the future is not the only favour the ministry is planning for the favoured firms which got the 120 licences. Raja, for instance, is only talking of the rollout obligations after three years — the licence, however, talks of one year for 10 per cent coverage — after prescribing a penalty of Rs 7 crore if there is a delay of more than 26 weeks, the licence says it has to be terminated after 52 weeks.
Interestingly, in August last year, Trai recommended this termination clause be amended in various ways. One, instead of a Rs 7 crore penalty, the performance bank guarantee (around Rs 250 crore for an all-India licence) be encashed by the government and the firm be asked to furnish another one — that is, hike the penalty to punitive levels. Two, since it was obvious even then that several of the firms would just want to get licences to be able to re-sell their spectrum, Trai said neither merger nor acquisition be allowed until the rollout obligations were met — so, for three years, there could be no merger or acquisition. In which case, how did Swan/Unitech happen?
It happened because Raja didn’t accept this part of this recommendation and while notifying the merger and acquisition guidelines on April 22 this year, the ministry only talked of ‘merger’ and conveniently forgot about ‘acquisition’! It said the government’s permission would be required for mergers (since it never spoke of acquisitions, this means no government permission is required for this!) — any new firm, like Etisalat/Telenor buying a stake in firms like Swan/Unitech is an ‘acquisition’ while an existing firm like Bharti/Vodafone/Idea buying into them is a ‘merger’. As for mergers, the ministry made this easier as well — it said permission for mergers would be given only after three years but interestingly, it has no mention of rollout obligations.
Hopefully, when Trai gives its recommendations on rollout obligations, it will keep this in mind. Of course, it remains true, as the 2007 events have shown, the ministry is free to cherry-pick from Trai recommendations.
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