Column : Sibal begins a clean-up

Written by Sunil Jain | Updated: Feb 1 2011, 05:04am hrs
After an extraordinarily brazen defence of his predecessors decision to hand out 122 licences (and another 35 dual-technology ones) in 2008 at 2001 prices, where he rubbished the CAG report on it by arguing there was a zero loss to the exchequer, telecom minister Kapil Sibal has finally begun operation clean-up. By announcing that all new 2G spectrum would be auctioned in the future, and that Rajas beneficiaries wouldnt get the next lot of 1.8 MHz of contracted spectrum for free, Sibal has also admitted that, in effect, the CAG was right all along. After all, the CAG argued the prices prevalent in 2001 could not be charged in 2008; that auctions were the only way to decide winners when just 122 licences had to be given to 573 applicants; the CAGs Rs 1,76,000 crore loss figure that both Sibal and Montek Singh Ahluwalia ridiculed was based on the Trais view that 2G spectrum should be valued at least at the 3G rate (in some cases, it said, the value was 1.5 times)its a different matter the independent Trai will now come up with a new 2G-3G number

Sibals announcement, though more than welcome, is problematic since he hasnt made the mandatory consultation with Trai before announcing policy, but leave that aside since he is trying to limit the huge losses Raja caused the exchequer. If the Justice Shivraj Patil committee report, due this week, says Rajas process was illegal, or if the Court cancels the licences, we could even recover a large part of the loss Raja caused.

What is interesting is the huge contradiction between the ministers earlier and current stance, and the problems this is likely to cause.

l Auctions cause tariffs to rise: Sibal made much of how the idea was to keep tariffs low, how having auctions would raise tariffs for customers, he even quoted various government documents to show how raising revenues was not the governments top priority. When many argued tariffs were not determined by auction costs but by the level of competition, Sibal disagreed and said there wasnt enough competition. On Saturday, he said the opposite: The stage has been reached when there is enough competition to warrant a market-driven process. Well, all 122 of Rajas beneficiaries (if you exclude the 35 dual-technology ones), have a market share of 5% three years after getting their licences! News agency PTI put out a story that most papers carried on Sunday, based on Sibals old argument, saying tariffs would rise as a result of the new policy of auctions! Hoist with his own petard.

l Level-playing field: If we give the newcomers licences at auction prices that are higher than those paid by the older firms in the 2001 auctions, this will create an unlevel-playing field. This was always specious since someone buying land in 2008 cant get it at the same price paid by another person in 2001, and Sibal has done well to finally accept he was wrong. But, Tata Teleservices, one of Rajas beneficiaries, is using Sibals old argument to ask why it has to pay a market price for the additional 1.8 MHz of spectrum when its licence says 6.2 MHz has to be given for free, something the Trai concurs withthe older telcos are being asked to pay for their extra spectrum only beyond 6.2 MHz, so the level-playing-field argument requires that they also get 6.2 MHz free, or both should be asked to pay for spectrum beyond 4.4 MHz. Sibals going to have a hard time reconciling his new stance with the old one.

l PMs stand: When Sibal was against auctions, he said the press had got it wrong, the PM had never asked Raja to auction spectrum, never mind that everyone in the press has a copy of the PMs letter. Now that Sibal is in favour of auctions, can we know the latest official view on the PMs then official view

l Government affidavit: Since the minister said the media had blown his remarks out of context when the Supreme Court expressed its unhappiness over his there-was-no-loss press conference, its a good idea to focus on the most official document that expresses the governments current viewand thats the affidavit filed in the Court. The affidavit gives the old auctions-raise-tariffs and level-playing-field argument, and also says that all 573 applications for licences will be processed by the government and not just the 122 that Raja awardedclearly this isnt going to be happening now. So is there a level-playing field between the 122 firms and those that are left! The sooner the affidavit is junked, the better.

This, of course, is what happens when the government decides to find cute answers to each problem as and when it encounters them, instead of coming up with an honest and clean solution to the problem. Sibal didnt want to admit to the huge losses Raja cost the exchequer, so he said what he did, about tariffs, about level-playing fields. Now, when hes realised it isnt going to wash, hes moved to the sensible solution but since hes still not willing to admit to the loss, he has the unenviable task of reconciling all the half-truths and untruths told in the case so far.

Will it work In all probability, though it depends on what the Supreme Court does since it has been the one driving the process, including getting the CBI to raid Raja and his friends and forcing the government to act. The BJP, for all its initial activism, has lost interest and is indulging in tokenism, perhaps because it feels its misdeeds will also be exposed or because it is harder to get its head around complex issues than it is to whip up sentiment on even immoral issues (but not illegal, its chief tells us!) like allowing Yeddyurappa to continue2G is Bofors many times over, but understandably for a party which bases its legitimacy on the past going back to Lord Ram, its natural to not want to deal with contemporary issues.

The older telcos are happy that Trai will oblige by coming up with a lower 2G-3G number and the recommendation that these firms be asked to renew their 2G licences at 3G rates (theyll start coming up for renewal after 4-5 years) has been put on the back-burnermakes you wonder if the 2G-costs-more-than-3G and renewal-at-3G prices was just aimed at softening up these firms when they protested Rajas largesse. Even if you assume 85 of the 157 licences issued by Raja are cancelled, this means Sibal is not moving on roughly half the licences and will allow them to gain from the 4.4 MHz they got virtually free. Unless of course the Justice Patil committee report, due later this week, says the entire Raja process was illegal, and all 157 licences are cancelled. We live in hope.