Apart from the fact that India moved to auctions as a policy, the good news is most telcos who got sweet deals since 2001 ended up with their businesses in trouble.
The trial court’s decision to exonerate all the accused in the 2G scam comes as a shock and recalls the ‘No one killed Jessica’ headline when a court delivered a not-guilty verdict in that case. In which case, though the 2G judge has given his reasons for how the prosecution failed to make its case, it is to be hoped that the review process throws up a conviction because the irregularities are glaring. If you believe, as Congress leader Kapil Sibal argued on Thursday, the prevailing law of the land was to allot spectrum on a first-come-first-served (FCFS) basis, then telecom minister A Raja did nothing wrong. What is ignored, however, is that, in 2001, the 4th cellular licence slot was auctioned for Rs 1,658 crore —so FCFS was not the policy at that point.
Matters were muddied by Trai in 2007 when its chief Nripendra Misra argued for auctioning some bands of spectrum— but not the major ones— on grounds of a “level playing field”. This didn’t make sense since early entrants in any business generally get things cheaper than later ones, but even if you buy Misra’s argument, he put in some safeguards—there was to be unlimited competition (that would ensure new entrants didn’t get huge profits) for instance, and, once allotted, the licence couldn’t be sold for at least three years.
As it happened, Raja violated the issue of caps and restrictions on resale and this led Misra to protest, but to no avail. And given the large number of applicants—575—versus the limited spectrum available, the prime minister, the finance minister and the law minister, all argued for either auctions or a thorough review of the situation. The law minister, for instance, said the matter should be “considered by an Empowered Group of Ministers”. The PM said a transparent auction should be considered, if possible, and that the current fee of `1,658 crore was an old one. After Raja ignored all of them and issued 122 licences, the finance minister said that auctions should be used in future!
But let’s, for now, accept that FCFS was the policy for everything. On September 24, 2007, the department of telecom (DoT) issued a press release saying applications for fresh licences would be accepted till October 1, 2007—till that date, a total of 167 applications had been received including some going back to March 2006. By October 1, a total of 575 applications had been received. This was many times more than the spectrum the government had with it.
On January 10, 2008, the DoT issued two press releases. The first advanced the cut-off date to September 25! A second press release, at 2.30 in the afternoon, told companies to complete all their paperwork, including submitting the demand drafts, between 3.30 pm and 4.30 pm the same day! In the investigation, it was found some of those who paid the money had got their bank drafts made weeks in advance—clearly, they knew of the change in the dates, so they were ready with the paperwork.
Nor were the first 122 — of the 575 — applicants given licences by Raja as you would expect. Indeed, while the DoT press release talked of ‘inter se seniority’ based on the date of application, Raja cut this out. So, for instance, Swan Telecom which put in its application on March 2, 2007 got spectrum for Delhi while Spice Communications that had applied in August 2006 did not; Spice got pushed back in the queue for Maharashtra also, while Unitech and Videocon got their spectrum earlier.
Of the 122 licences issued, as many as 85 did not qualify even by the FCFS terms the Congress is swearing by today. The rules, for instance, said that applicants had to be those in the business of telecom, had to have a minimum net worth, couldn’t be firms who already had licences—an existing licensee could have a maximum of 10% equity in the new applicant. Most of these conditions were violated.
So, in the case of some firms owned by one group, the CAG report on the 2G scam points out, while their clauses of incorporation said they were telecom companies, this was done by the registrar of companies (RoC) by altering the main clause in their original articles of association—in other words, it was done at the last moment to get the spectrum. In some cases, these were registered by the RoC after the date of submission. In another case, one company had a share capital of just Rs 5 lakh as compared to the Rs 150 crore required—it passed resolutions to raise this on September 20 (the day before the cut-off!) but paid the stamp duties required to ratify this only in October. Another company had a paid up capital of Rs 1 lakh but lied to say it was Rs 150 crore. And in one celebrated case, while the parent had invested Rs 98 crore, an existing telecom player had invested Rs 1,003 crore in the joint venture but this was disguised by showing Rs 992 crore as ‘preference shares’ which are not counted as equity in India!
With these licences being acquired to resell at a profit, soon enough, they were flipped over and Etisalat paid Swan—one of the firms that got the licence—Rs 3,217 crore for a 44.7% share in its company while Telenor paid Unitech Rs 6,120 crore for a 67.3% stake; had Raja stuck with Misra’s ban on M&As for three years, this would never have been possible.
While these issues need to be brought up in the appeals process, the good news is that, right since 2001, most of the companies that unfairly benefited from the DoT’s largesse have been unable to run their businesses and have all but shut down; the Raja licences were in any case cancelled by the Supreme Court in 2012. The other good news is that, thanks to the Raja scam, India moved decisively to auctions—and not just for telecom but also for coal, etc—and got Rs 356,000 crore in six telecom auctions since 2010.