The CBI raids on the department of telecommunications and subsequent searches of the premises of eight new telecom licensees do not seem to have fazed communications & IT minister A Raja.
Instead, the minister chose to display bravado characteristic of DMK leaders, while defending the allocation of licences to new operators in January 2008. ?All decisions on spectrum licensing have been taken in accordance with procedures laid down by Trai and in consultation with the Prime Minister,? he said.
However, that may not be entirely accurate. A scrutiny of recommendations by regulator Trai in 2007–by which Raja swears–and even earlier in 2003 shows that DoT made significant departures and clearly cherry-picked points to suit its convenience.
For instance, the two sets of suggestions show that Trai has consistently said new licences should be granted only through auctions. Para 7.39 of Trai?s 2003 note, for instance, states that ?all future licence is to be auctioned through a multi-stage bidding. Entry fee should be as per the multi-stage bidding, except for those who have got the licence or migrated?.
However, new licences were granted to Unitech Wireless, Swan Telecom (now Etisalat DB), Loop Telecom, Sistema Shyam, Datacom, S-Tel, Allianz Infratech and Spice Telecom in January 2008 on a first-come-first-served basis at a price discovered way back in 2001 when a fourth cellular operator was added to each circle.
Justifying the move, Raja and his officials have repeatedly pointed to Trai?s August 2007 recommendations, which seem to imply that Trai did not favour auctioning 2G licences. Again, this is inaccurate. What Trai had actually said was that it did not favour the auction of spectrum in the 800, 900 and 1800 bands (currently used for 2G services).
DoT clearly blurred the distinction between the auction of licences and auction of spectrum. Since the opening of the telecom sector to private players, licences have been auctioned while spectrum has not. That?s because Trai feels auctioning of licences can obtain a market-determined price, which then justifies not auctioning spectrum.
This is what Trai stated in 2007: ?The entry fee as it exists today is, in fact, a result of the price discovered through a market mechanism applicable for the grant of licence to the fourth cellular operator.?
?In today?s dynamism and unprecedented growth of (the) telecom sector, the entry fee determined then is also not the realistic price for obtaining a licence. Perhaps, it needs to be reassessed through a market mechanism,? the Trai note added.
There?s another key area where Raja deviated from Trai?s 2007 note, which helped companies like Swan and Unitech offload 45% and 60% equity, respectively, in favour of foreign telecom majors at exponential valuations without even having basic infrastructure in place. Trai had clearly recommended that ?any proposal of permission of merger & acquisition should not be entertained until the rollout obligation is met?.
The rollout obligation mandates that at least 10% of a circle be covered within a year of obtaining a licence and 50% within three years. If Raja had accepted this, Swan and Unitech would not have been able to divest any stake.
However, DoT tweaked the Trai recommendation and disallowed only total acquisition for three years, but permitted stake sale up to 74%, which is allowed under the FDI policy. Later, facing criticism, DoT disallowed promoters of new licensee firms from selling their stake for a period of three years. But by this time, Swan and Unitech had already made a killing.