The King of All Telecom Scams — Part 5

[Previously in this series: Part 1, Part 2, Part 3, Part 4.]

There’s a saying in Hindi. “Raja vyapari toh praja bhikari.” If the ruler involves himself in business, the citizens are reduced to begging. Good old fashioned down to earth practical wisdom. Astonishing isn’t it that a people whose ancestors include Kautilya are reduced to such a sorry state that they allow the government to mess around in business and they don’t even understand that to be the cause of their immiserization. It’s something of a mystery. Well, not really. There are plausible explanations of how this came to be. For now, let’s look at the telecom scam and the press has been reporting on it. If you know the details already, there’s nothing new for you in this post.

Chandan Mitra of The Pioneer (Nov 19th) in conversation with J Gopikrishnan who doggedly investigated the spectrum deals and unearthed the scam:

Q: Did any political or corporate entity offer you financial inducements to stop writing on this?

A: Yes, they did. The figures were mind-boggling. Corporate lobbyists and Raja’s people even asked me to stop informing the Editor and end the series abruptly. I told them even the meeting with them was in the knowledge of the Editor and the Bureau chief. Some shameless fellows tried to access Raja, claiming friendship with me. Some were acting as double agents. One top lobbyist was actually a double agent. That person was leaking information against Raja while providing information to him too. Pressure on the whistleblower was enormous by now, but he stood by us fearlessly. There were several politicians who enlightened and encouraged me. Some bureaucrats and police officials also guided our investigations.

Q: Do you think the matter will end with Raja’s resignation or will more heads roll?

A: I personally feel the court cases filed by Subramanian Swamy and Prashant Bhushan would come to logical conclusions, leading to the cancellation of all licences which were found illegal by CAG. The court may direct auctions to be held like the old petrol pump scam of Satish Sharma. I don’t expect anything from the Government in this matter. Some persons, including Raja, may face the wrath of the law. I don’t think anything harsh will happen to corporates from the Government’s side. After the CAG report and PAC findings, if the Government has the willpower, it can — by executive order — cancel all licences and order auction, which will definitely fetch around `2-3 lakh crore.

Q: How do you think the Government can make the spectrum policy transparent and above board?

A: Spectrum management should be handed over to ISRO, but no politician would like that for obvious reasons. In India, spectrum is not yet audited. No one knows how much spectrum is available. This was purposefully done for making easy money. First the Government should ask an organisation like ISRO to audit spectrum availability in all departments. Only then will transparency come.

R Jagannathan’s article, Not just Raja; the buck stops with Sonia and Manmohan (DNA, Nov 18th), as usual is excellent.

The Supreme Court (SC) asked the right question of Manmohan Singh. Why did you sit for so long on Subramanian Swamy’s request to prosecute A Raja, the now-disgraced former telecom minister? The key to unravelling the spectrum mess lies in the answer to this. That Raja has resigned is neither here nor there. It’s obvious he quit to save his boss, M Karunanidhi, the blushes.

The media is barking up the wrong tree because it has put three people — the PM, Sonia Gandhi and Karunanidhi — in the “beyond reproach” category. Going after them, and the businessmen involved, has consequences for journalists and the media — loss of access to the dynasty, harassment of Tamil Nadu-based journalists, etc. This is why the focus is on Raja and some faceless bureaucrats.

Raja is the symptom of the underlying rot. The disease is something else.

Actually this is true of all scams: they are all symptoms of the real problem. In my considered opinion, it is the problem of too much too big government. At the end of this series of posts, we will look at that a bit more in depth so that we have a good handle on how to fix these scams once and for all.

Back to Jagannathan.

Meanwhile, Manmohan did what he could. He bleated on about transparency, but could do zilch about reining in Raja. In 2009 he even tried to keep Raja out of the ministry, but failed when Sonia buckled under Karunanidhi’s pressure tactics. The reason why Singh could not reply to Swamy’s request was that he could not cross Sonia’s advice. If he had said go ahead, Karunanidhi would have rocked the boat. If he had done nothing, Singh would have been complicit in Raja’s crimes.

This is what I find most puzzling. Why does Manmohan Singh bleat? Sardars shouldn’t bleat.

[Manmohan Singh] did the next best thing. He played for time, and sent the CBI in to probe in the hope that when things got really hot, Raja will quit. When the time was ripe, the Congress ensured a few strategic leaks, and the CAG report was used to raise the level of pressure on Raja.

Now let’s look at the crime from the side of the likely guilty parties: Raja and his party boss. . .

Raja took his place because he was someone Karunanidhi trusted. It is thus reasonable to assume that Raja’s tenure was used to serve Karunanidhi’s interests.

What next? With Raja out, will the truth finally emerge? Will the CBI go after the culprits? Most unlikely. For one, the Congress is gaining the upper hand with DMK. It has no reason to let go of it. Two, the nexus between businessmen and politics is so strong, that any hasty prosecution will have huge political and economic ramifications. Three, the business rivalries that allowed the telecom scam to surface in the first place cannot be allowed to go too far.

On Nov 16th, the New York Times reported the claim that spectrum allocation was rigged.

The comptroller and auditor general of India say in a 96-page report that the agency in charge of cellular licenses, the Ministry of Communications and Information Technology, arbitrarily moved up deadlines in a 2008 auction of new bandwidth for phone operators.

The Communications Ministry also rejected calls from the prime minister and the Ministry of Law for greater scrutiny and awarded licenses to operators in a way that “lacked transparency and fairness,” the report says.

The questionable practices cost the Indian government 1.76 trillion rupees ($39 billion) in revenue, auditors say. The report, issued after a nine-month investigation by the auditor and the Central Bureau of Intelligence, seems to focus on the Communications Ministry and a handful of operators, including Reliance Communications.

. . .
In October, India added more than 18 million new cellphone customers, bringing the total to 671 million. China has 830 million.

. . .

With the industry’s fast growth has come competition. More than a dozen mobile companies operate in some major urban areas, and operators have become desperate for new bandwidth to support their growing subscriber bases.

An auction of 3G, or third-generation, telecommunications licenses in January raised $11 billion, much more than original government estimates. The high prices those licenses fetched helped increase pressure by opposition political parties to investigate the 2008 auction. Officials from the Bharatiya Janata Party, the main opposition party, called Tuesday for a criminal investigation into the report’s accusations.

Of 122 licenses granted in the 2008 auction, 85 went to companies that “suppressed facts, disclosed incomplete information and submitted fictitious documents,” and therefore did not comply with requirements for the licenses, the auditor said. In at least one instance, the ministry’s Department of Telecommunications “miserably failed to do the necessary due diligence in the examination of the applications,” the report says.

Here are some numbers from an ExpressBuzz piece by Paranjoy Guha Thakurta.

The CAG report categorically states that the Department of Telecommunications (DoT) under Raja actively colluded with a clutch of companies that included not just companies in the Unitech group, the Swan group and the Shyam group. Another set of corporate entities that are part of the Tata, Reliance, Bharti and Videocon groups, among others, also gained indirectly. There were three clear dimensions to the scam. Some companies gained because of undervaluation of spectrum. Others benefited from the DoT’s decision to have a ‘technology neutral’ licensing regime — wherein operators using either the Global System of Mobile (GSM) communications or the Code Division Multiple Access (CDMA) could use both technologies to provide telecom services. The third category of beneficiaries included existing operators — the so-called ‘cartel’ that Raja claims he tried to break — who received excess spectrum.

By adding up the losses to the exchequer under these three heads, the CAG arrived at the figure of Rs 1,76,379 cr. One bidder, S Tel, had offered Rs 13,752 cr for 6.2 MHz of spectrum against Rs 1,651 cr for 4.4 MHz of spectrum charged by the DoT. The CAG concluded that the government could have raised Rs 65,725 cr against Rs 9,013 cr that it actually obtained. Using the amounts obtained for third generation (3G) spectrum through a transparent public auction as yardsticks, the CAG concluded that the government could have got an extra Rs 1,11,511 cr.

If spectrum for dual technology firms (Reliance and Tata) was also auctioned, it would have fetched an additional Rs 37,153 cr. Finally, the third part of the scam is that if the government had charged incumbent operators (like Bharti) market rates for holding spectrum in excess of 6.2 Mhz, another Rs 36,729 cr would have accrued to the exchequer. The grand total was thus arrived at. The CAG not only highlighted the loss to the exchequer, its report described in excruciating detail what happened on the fateful day licences were issued on a first-come-first-served (FCFS) basis.

On January 10, 2008, the DoT issued a press note indicating its intent to provide letters of intent (LoIs) to all applicants who had applied before the arbitrarily forwarded cut-off date of September 25, 2007. The press release stated: “(The) DoT has been implementing a policy of FCFS for grant of UAS (unified access services) licences under which initially an application, which is received first will be processed first and thereafter if found eligible will be granted (an) LoI.” Thereafter, a new clause was inserted saying “…and then whosoever complies with the conditions of (the) LoI first will be granted (an) UAS licence.”

Later the same day, another press release was put out by the DoT asking all applicants to authorise one representative to collect LoIs thereby making irrelevant an earlier condition giving 15 days time to each applicant to deposit fees. The one who paid first was given a licence first. Swan was the first to make the payment followed by Unitech. From fourth and eighth position respectively, they jumped to the first and second positions in the long queue.

Another significant finding of the CAG was that over two-thirds of the applicants for LoIs should not have been allowed to apply in the first place for they did not meet the eligibility criteria specified by the DoT itself. What was worse was that in the name of breaking a cartel, Raja favoured particular companies who had no prior experience in telecommunications (including real estate concerns, Unitech and Swan).

The CAG did not spare the regulator as well, the TRAI. Here’s how the damning last paragraph of the CAG’s report reads:

“The Hon’ble MoC&IT (meaning Raja) for no apparent logical or valid reasons ignored the advice of (the) Ministry of Law, and (the) Ministry of Finance, avoided the deliberations of the Telecom Commission to allocate 2G (second-generation) spectrum, a scarce, finite, national asset at less than its true value on flexible criteria and procedures adopted to benefit a few operators. (The) TRAI, the regulator, also stood by as a helpless spectator when its recommendations were being either ignored or misused.”

Arun Shourie claimed that the CBI knows who handled the bribes.

[Arun Shourie] said that Raja had “personal relations” with some of the firms who bagged licenses. “It is now well known to the CBI through the officers who were dealing with the matter. A pattern was also visible.”

Asked whether he thought the CBI knows exactly what has happened, he said “I have no doubt at all. Because in some cases, the very officers who were handling the material….manipulation have testified to the CBI…The officers have told me what they had told the CBI.” He claimed that he had conveyed this to “higher persons” in the government, but nothing happened.

Shourie asserted that the CBI knows who the person is and said if the investigating agency questions him now, he may reveal what had transpired. The CBI, however, was caught in procedural wrangling over seeking permission to question that person. He said the CBI should go ahead and if the “government refuses (sanction), that, of course, will prove the point.”

Shourie also criticised Prime Minister Manmohan Singh saying that without his knowledge, the pricing of spectrum would not have been kept out of the purview of the Group of Ministers which was set up to decide on the release of spectrum during UPA I.

“The accommodation of allies by the PM…because in the terms of reference with these Group of Ministers the pricing of spectrum was included and Raja insisted that no, this should be taken out and somehow this was taken out from the reference of the Group of Ministers. It could not have been done in our system without the knowledge of the PM,” he said.

He said he would be surprised if the Prime Minister did not have knowledge about it. In any case, he said Raja would use the argument about the PM’s knowledge to defend himself in court

OK, that’s it. In this post I have merely recorded some of the details of the telecom scam as reported in the main stream media. With that out of the way, I will get back to considering in some depth the economics of telecommunications, corruption, government control, etc. I will also propose a couple of alternative ways of allocating spectrum.

Thank you, good night, and may your god go with you.

[Continued in Part 6.]

Author: Atanu Dey

Economist. View all posts by Atanu Dey