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The Great Telecom Scam: is it really a scam?

The Great Telecom Scam: is it really a scam?

Last updated on: November 18, 2010 at 4:13 pm by jessicafick

The Great Telecom Scam: is it really a scam? 2010-11-18T16:13:43-06:00 jessicafick

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The entire 2G spectrum scam is a sham.

Lets look at the numbers first, they are saying that the numbers that the CAG arrived at were notional but true – Can somebody please answer:

If DoT gave away 6.2 MHz for 22 circles, i.e.136.4 MHz of spectrum at Rs.1,658.57 crore in 2008 at 2001 prices (at Rs.12 crore per MHz). How do you physically siphon off 176000 crore’s which is 176000,0000000 rupees out of a system.

The answer is you don’t because its an imaginary number based on imaginary projections. This is not a crore of rupees in cash in a suitcase.

I would doubt that american banks with their clever securities machinations would be able to siphon off 100 crore rupees without a stinking money trail, which undoubtedly would lead to the footprints money leaves, throughout the world, while it makes its way to the destination of choice. Are we not wiser in the post sub prime world to the interconnectedness of things. Lets look at some facts.

The allegation is:

The modus operandi was devious and simple enough – a scarce national and natural resource (telecom bandwidth-spectrum) was grossly undervalued and offered to a chosen few with vested interests. How many were the chosen few one might ask. 122 in number, is the answer, if that is a few i wonder what a large no of interested parties would be ?

So wait a minute, was this minister actually managing 122 disparate entities who individually qualified for bidding for 2G spectrum as sources for money in corruption. Very astute corruption. i know of allegations of people having made money from selling fodder at a particular rate or cement at another but well 122 entities all of whom got different slices of spectrum, mostly for similar prices being managed for by paying underhand money would be quite a sleight of hand would it not. Is this even remotely possible ?

The plot sickens. The other allegation is 13 parties who had qualified for allocation of spectrum were summarily denied even after having the resources to pay for it.

Lets take a hard look at the realities.

There are only 5 seriously successful private telecom operators in the country, Namely Bharti, Tata, Reliance, Idea and Vodafone. This is a far cry from the days of 1995, when we had over 56 operators (domestic & international) interested in bidding for different circles. Today they say 13 operators have got their claim to spectrum rejected, due to inefficiency which they allege is part of the system in terms of sheer % its double the no of existing operators we have on 2G never mind that over 122 operators have been approved.

Objectively speaking. Who needs the 2G spectrum the most ? The existing operators. Do they have enough ? Well they did succeed in getting enough while they are more focussed on getting 3G spectrum, unfortunately this was sold to them at premium. The larger demands for spectrum and traffic are in Urban clusters which see a more upmarket largely tech savvy audience wanting more out of the latest high speed gizmo that’s on offer.

So who really bought the spectrum, well a motley bunch of companies, Construction companies interested into getting into an annuity based business, Pure telecom companies interested in making a foray into the Indian markets. Not to mention some must be proxy or friendly companies propped up by the big five themselves. Operators bid as high as 30000 crores for ‘A’ grade circles such as maharashtra and the metro’s et alle – with a pay moratorium of over 15 years.

Will all this spectrum that got sold ever get used then, Well its nice to think that at some point of time either the operator who bought it would use it or sell it to someone who needs it more than the one holding it. But in a business where obsolescence leads the core interest by hours and days, while ever more latest applications such as facebook, twitter, email, messengers, you tube and their breed jostle for space on your handset, its anybodies guess, how long 2G tech & spectrum will hold its own against emerging technologies. Those that push boundaries on the instrument everybody carries.

One of the arguments proffered of course is that the 3G spectrum attracted higher prices, Well it did, essentially because the Govt decided to shoot itself in the foot by giving up part of its revenue share for a small really ‘very small’ amount of money which it raised through auctioning spectrum. What are the details ? Well at 5 MHz for 22 circles, which means 110 MHz for Rs.16,750.58 crore (an average yield of Rs.152 crore per MHz). Essentially, for 3G, the companies paid 12 times higher for each MHz, i.e., Rs.152 crore vis a vis Rs 12 crore. Who do you think will pay for this, No prizes for guessing ‘the indian consumer’, be sure to expect 3G data access services to launch at a premium. It is unfortunate because the govt could have made more money from revenue share than from the auction process. 1.76 lac crores remember. Hazard what the CAG must value 3G at ?

Ok so lets leave the wild guesses aside.

Was there really a scam, NO – most obviously, definitely not. Now for the real question. Is there corruption, Yes, sure some ministers are corrupt, Ratan Tata endorses it too. There must be however, a certain degree of tolerance under which corruption exists. In many ministries there may be some crores of rupees that have changed hands. What could it be in this case ? The indian businessman is not fool enough to pay over 5% of the money that is the actual value of spectrum in the first place. it just wont be economically viable as a business. Failed state’s such as Pakistan have politicians demanding for 10%, In India the politician never demands, its generally a couched request and in cases where the politician knows that this is an issue for critical national development its passed many a time without a hint of corruption or money changing hands whatsoever.

This may come as a surprise to most common indian citizenry but a whole lot of government work in our country does actually get done without any corruption.

So if a prosecution makes its debut by arguing that, to borrow from counsel Prashant Bhushan’s words – “it was a multistage, well thought-out act in which a criminal conspiracy was hatched between private companies/persons and officials of the Department of Telecommunications (DoT) to circumvent an open, transparent auction process by choosing the first come, first served route and thereby causing a huge loss to the exchequer” in the supreme court of our nation.”

How come 122 chappies qualified ?

As an industry insider for many years i am given to wonder how far empty rhetoric leads. This mess is not going to go down easy but lets look at the story of this industry.

In 1995 when they opened up telecom, they ‘the government’ compelled operators to bid for licenses – 2 to a circle. Every state was designated as a circle, the metros of course were circles in themselves. Operators bid as high as 30000 crores for circles such as maharashtra – with a pay moratorium of over 15 years needless to say after investing 4 to 5000 crore rupees in networks and promising 30k cr in revenues to the government. operators were looking at revenues of 12000 cr plus p.a. It never happened telecom was a non starter at 16 rupees a minute. More than half of the operators folded up, those who did survive, survived with difficulty. In National Telecom Policy 1999, the government waived off, license fee dues with the agreement to share revenues from profits to the tune of 48% and with conditions that it could introduce any no of players. The new regime of revenue share allowed for free market competition. No license protectorates anymore. All the beleaguered operators agreed.

With no license fees to pay towards spectrum & more operators allowed in by the govt, the competitive market became a free for all amongst operators, with each vying to get more market share than the other: to add to this the govt rationalised tax and revenue share to 30% of gross revenues and now its even lesser, this benefited the indian consumer and prices fell upto 30 to 50 paise for nationwide calling, on a per minute pulse. The party continued. We currently enjoy the lowest telecom tariffs in the world. More the competition, more the penetration and better the quality of service, so more spectrum was opened.

Sure enough some like the Tata’s who’s foray in telecom was a non starter and who were unclear about which platform they should committ themselves to, cried foul and claimed grapes were sour. They offered to pay as much as 1500 cr for additional spectrum. Nobody noticed that were the Tata’s to qualify on merit in terms of sheer subscriber strength they wouldnt get anywhere. Their numbers just didnt add up. This need to justify the need for more spectrum, was only because with more spectrum the other players would steal a lead over them. Amongst allegations of hawking the family silver cheap, the cabinet announced that they will sell spectrum on a first come first serve basis, which they did. Existing operators picked up as much as they needed and the rest was picked up by others who bid for it. In all 122 operators picked up 2g spectrum.

Eventually all the 2G spectrum was sold for Rupees 1658.57 crore’s and this was good for the country. It helped driving consumer prices further south. Some of the 122 who own spectrum now, may never use it. it may just become a wasted investment as india migrates to 3G, but hold on. There’s more.

THE BIG MISTAKE this here government made is sold 3G for a fancy price and made operators bid for it. CAG, which essentially does not do much, except the occasional enquiry or expense audit. A relatively toothless outfit, found its chance in the sun. Out came the 2G spectrum scam based on algorithms & no’s that would make your head spin. All due in part to 3G auctions which has garnered 12 X the revenue. They are two different platforms but who is listening.

Is the CAG being used as an instrument to axe Raja out of the ministry and leashing in the DMK. Better still, Perhaps this is a political Scam to save the money Indian Entrepreneurs have invested by refunding the monies they paid the Government and cancelling these here licenses. Perhaps both the ruling party and the opposition are on the same side. Maybe more than 85 applicants will never find use for the spectrum they bought. How do they get their money back, Is this a SCAM or is that a SCAM. One cant really say.

The sums of money they speak off, will take a banking system to absorb. This kind of worth in numbers that the CAG is throwing around, is not normal. Imagine the levels of lunacy in our bureaucracy. creating a scam where none existed. Imagine the levels of stupidity of the indian mind buying what media frenzy continues to feed. So, for now ‘Off with Raja’s Head’ it is. In the meanwhile 3G data access could have launched at Rs 100 unlimited access but it may launch at 5 to 10X the cost. Somebody has to pay for the 17000 odd crores operators bid for 3G spectrum, Never mind the costs of expensive 3G gear. The indian consumer as usual will pay. Disclaimer: They may not mention spectrum bid costs in the bill.

The truth we all hope should prevail. I hope this article serves its purpose to usher some sanity, in as real a perspective can be.

MEET THE AUTHOR: Ameet Singh As as Environmentalist, My work today is about building sustainability into everything that we do. Globally, humanity’s Ecological Footprint or the demand on nature exceeds the bio capacity or nature’s ability to meet these demands by 25% and organisations and corporations need to balance their demand on nature and supply of natural capital. Business and government intervention is required to reverse the risky trends of climate change and ensure a sustainable future. Moreover, the impact of climate change will be the heaviest for the developing and under developed countries. I work to ensure that people and organisations have us to turn to, for help to cross the green divide.

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