Radio spectrum, the carrier of wireless communications, is a scarce but reusable natural resource. It has been the focus of policy manipulations and corporate battles. Today, this issue has fireballed into a controversial national issue of such prodigious political proportions that it threatens the very stability of the government. Naresh Minocha explains the historical perspectives and intricacies of the spectrum wars now being investigated by the CBI under Supreme Court supervision and how billions of rupees went down the drain.
SCAM I: the metro tender revenue goof
It all began in January 1992 when the government invited bids for two cellular service licences each in four metros. It fixed both the licence fee and telecom tariff. In the case of Delhi, for instance, it fixed a ridiculously low fee of Rs 2 crore in the first year, Rs 3 crore in the second year and Rs 6 crore in the third year for the capital’s telecom operator.
The government did not initially charge any upfront fee for spectrum. Later, however, it fixed modest charges for spectrum usage. The award of licences was delayed by about two years due to fierce litigation triggered by the highly discretionary criteria for selection of winners. The criteria included rental to be charged from the consumers, project financing plan, foreign exchange inflow-outflow, and foreign partner’s operating experience.
The weightages to seven such criteria were assigned after submission of bids, giving government a free hand to decide to whom to make the king and to whom show the door. It was small wonder that the Cellular Operators Association of India (COAI) dubbed this competition a “beauty parade”.
Neither licence winners such as Bharti nor the government bothered to enforce the obligations such as exports and publication of directories that were mandatory in the tender documents given by the winners.
The National Telecom Policy (NTP) was framed in 1994, about two years after the selection of eight cellular operators for four metro cities.
Both the initial metro competition and a subsequent one in 1995 for two cellular licences each in 19 telecom circles were conducted even before the before the formation of the statutory Telecom Regulatory Authority of India (TRAI).
The cart was thus put before the horse even before the advent of telecom reforms and regulations purportedly aimed at providing a level field in the bid for the frequency spectrum—a public resource because, after all, the airwaves belong to the public and must be apportioned in the public benefit to operators who must behave as licensed public trustees.
The licence fee-based bidding competition for services in the 19 circles gave the government an idea of the non-tax revenue potential: The quoted license fees aggregated to Rs 20,000 crore for a 10-year period. Analysts had then concluded that the government had frittered away its chance to earn Rs 10,000 crore as licensing revenues from the initial metro tender.
SCAM II: the royal bailout scheme
Next, the cellular service operators (CSOs) resorted to lobbying and litigation to prevent the entry of public sector MTNL in the cellular telephony business. MTNL and its big brother Bharat Sanchar Nigam Limited (BSNL) had thus to wait till 2000 to start providing cellular services in a phased manner.
The high tariff charged by toddler CSOs smothered the demand for mobile telephones. The year 1998 witnessed even fiercer multi-faceted lobbying by CSOs, their lenders, foreign governments to change the entire governance regime. To institutionalize the planned post-tender changes, the Government jettisoned NTP 1994 and came out with a new policy in March 1999.
NTP 1999 changed the upfront annual payment of bidding competition-derived licence fee to a one-time entry fee, followed by payment of licence fee in subsequent years as a percentage of revenue earned by operators.
Later, the periodicity for payment of revenue share-based fee was fixed at quarterly intervals.
To implement the new policy, the government unveiled a package for migration of existing licencees from fixed, yearly fee regime to revenue sharing arrangement in August 1999. It also envisaged extension of the validity of cellular and other telecom licences from 10 years to 15 years.
Through this extension, the Government frittered away opportunity to organize fresh bidding for licences/spectrum for five years. This decision obviously led to revenue loss of thousands of crores of revenue to the exchequer.
The migration package resulted in a revenue forfeit of Rs 50,000 crore as estimated by an NGO in its petition to the Delhi High Court filed at that time.
SCAM III: the WLL-M loss
Both the cellular and basic service (wired telephony) operators promptly lapped up the package. The private basic service operators (BSOs) were earlier selected in 1995 through competitive bidding.
The government awarded a fourth cellular licence in each telecom circle in 2001. The licencees were selected through competitive bidding. Simultaneously, the government adopted open-door policy for basic services. Any company could secure a basic service licence by payment of fixed one-time licence fee.
An innocuous provision in NTP was wireless local loop (WLL), a wireless technique of providing connection to the subscriber from the nearest junction box or remote line unit of a telephone exchange. WLL has its origin in the 1994 BSO tendering competition that stated that the operators would not be allowed to use copper cable over a certain distance of the local loop. BSOs were thus required to use costlier optical fibre in the local loop or WLL.
BSOs exploited WLL and dubbed it as WLL with limited mobility (WLL-M) to compete with CSOs. While CSOs used tender-mandated GSM technology, BSOs provided WLL-M with a rival cellular technology named CDMA. BSOs could have used other WLL technologies but they opted for CDMA to provide illegal competition to GSM-based cellular operators.
WLL thus turned out to be an Indian policy ploy created to enable influential BSOs to provide cellular service under the garb of basic service and thus avoiding paying higher entry fees payable by any cellular service entrant.
When CSOs and BSOs locked horns over WLL, the government again activated its role of king-maker. It decided to unify cellular and basic service licensing by introducing single licence under the name unified access service (UAS) in November 2003.
BSOs such as Reliance and Tata were obvious beneficiaries of UAS as they had paid lower fees for basic licences as compared the ones required for cellular licences. Both BSOs and CSOs ultimately embraced UAS.
SCAM IV: letting dominant CSOs ride roughshod
The fourth scam, which was at the core of the latest round of spectrum wars is allotment of excess spectrum to dominant CSOs. Had the government sold this additional 2G spectrum through bidding among existing operators or had it offered the spectrum to prospective entrants through competitive bidding, the national exchequer would have received thousands of crores of rupee.
In addition, over the years, there was a gradual reduction in licence fees payable by CSOs and other telecom licencees. Under the revenue sharing arrangement, the annual licence fee for cellular/UAS has been reduced from 17% of the adjusted gross revenue (AGR) earned by operators in 2001 to of 6-10% AGR at present.
SCAM V: last come first served by Raja
The sixth financial scam happened in January 2008 when ousted Telecom Minister D. Raja decided to allot UAS licences on a first-come-first served basis without bidding competition. The applicants were required to pay only licence fees arrived at in 2001.
The charge against Raja is that he had frittered away opportunity to earn higher licensing fees under the booming market conditions. There have also been allegations in the manner in which the cut-off date of 1 October 2007 was announced and later advanced to meet the flood of UAS applications.
The beneficiaries of Raja’s licensing regime include Reliance Telecom and Tata Telecom, both of whom had so far provided cellular service through CDMA technology. They now acquired UAS licences to provide GSM-based mobile telephone service. Other beneficiaries of Raja’s regime include Unitech Wireless and Swan Telecom, both of whom sold
significant stakes in their telecom ventures to foreign companies at very high premiums, thereby giving fresh ammunition to Raja’s critics that he sold UAS licences for a song.
Following the relentless media campaign against Mr. Raja, the Central Bureau of Investigation registered a case in October 2009 to investigate alleged irregularities in issue of UAS licencees.
The loss due to licensing of 2G spectrum that comes bundled with UAS licence has been estimated between Rs 60,000 crore to Rs 1,24,000 crore by critics.
