Foreign investors in India?s telecom sector are reportedly upset that, after investing billions of dollars in the sector, licensing rules are changing, to their disadvantage. In one case existing licences stand cancelled, in another a promised one is being denied, and in yet another licences and fees that were unnecessary until now are being forced on foreign companies after they set up expensive and immovable infrastructure.
There is no allegation of systematic (or, even systemic!) bias against foreign companies. The problem, as this piece argues, is the huge discretion in India?s licensing regime that leaves room for mischief.
Take the 122 licences that were cancelled by the Supreme Court on February 2. None of the foreign investors in these licences can claim ignorance of the murky circumstances in which their local partners obtained the licences. Indeed, reports suggest that documents relating to Telenor?s transaction with its Indian partner Unitech required the latter to vouch that licences were legal and valid. However, it is pertinent that the Court has not found wrongdoing by foreign players. On the contrary, the Court found that those responsible at Trai provided contradictory advice and those at the ministry of communications and information technology used it to benefit cronies.
Spectrum auctions will make this difficult, if not impossible. Yes, politicians or bureaucrats cannot easily fix open auctions. However, they can influence who can bid, for how much spectrum and the ?reserve price? at which bidding can start. There are other issues post the auctions too that can undo the good.
Nothing illustrates this better than wireless giant Qualcomm?s experience in the 3G/BWA spectrum auctions in 2010. The company won BWA spectrum in four of the 22 service areas in India. It paid the full bid amount of R4,900 crore (roughly $1billion) in the prescribed time and applied for an internet service provider (ISP) licence that it must mandatorily acquire to be able to use its BWA spectrum to offer any service.
Among the many licences in the telecom sector, the ISP licence arguably requires the least cost, effort, or paperwork. Over 300 small and large companies have it. But Qualcomm?s application for this licence and allocation of the spectrum it won was pending over a year before TDSAT ordered its issue last week.
DoT?s reason for denying the licence seemed trivial and unrelated to any provision in the auction documents. First, it said this was because Qualcomm wanted four separate licences for its service areas and only one composite licence for all four service areas could be issued. The company said that it was in compliance with the auction documents but would accept DoT?s version. DoT?s next excuse was that the four different subsidiaries that Qualcomm had set up for its four service areas?all have identical ownership and equity patterns?had not been introduced to DoT, even though no such rule existed.
Qualcomm moved court. DoT?s next excuse in court against issuing a licence to Qualcomm was that its Indian partner, Tulip, had not cleared its licence fee dues on its other telecom business. Tulip claims that DoT?s calculation of its liabilities related to telecom manufacturing for which there are no licence fees. Regardless, Qualcomm has offered to pay Tulip dues pending enquiries whether they are genuine. After resisting and delaying this, DoT finally accepted it last week when the TDSAT disposed off the matter.
It is unclear whether companies with a commercial interest were influencing DoT decisions. A newspaper reported recently that a telecom heavyweight wrote to DoT claiming that a delayed licence to Qualcomm would naturally expire later and consequently disadvantage its competitors! Losers in the last auction too would plausibly welcome another chance if DoT rejected Qualcomm?s application, since there are currently only two slots of BWA spectrum available per circle. Similarly, the uncertainty about the licence would hurt its commercial valuation and help those who wish to buy it from Qualcomm, since it has publicly declared its intention to exit at an opportune time since it sees itself as essentially a technology player and not a service provider. This would scarcely escape shrewd players.
Nevertheless, conspiracies, intrigue and posturing are quite the ?norm? in the business world. However, they would have little impact if decision makers had no discretion to abuse. Unfortunately, they do. DoT and Trai have squarely failed to prevent rampant abuse of discretion especially by staff with little training to understand the financial or economic impact of their decisions. If they did, they would ensure that investors in 3G and BWA spectrum, and importantly, the users, get full value, without unnecessary delay. They would consider the cost-benefit of decisions that depart from best practices elsewhere. They would appreciate better that large investors, foreign or Indian, have a right to expect stable and predictable regulation.
This is easy to do. In future, documentation accompanying any major investment must state explicitly that the government?s sole criterion for imposing any later change or impediment would be manifest public interest.
The author is a telecom consultant