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BW Businessworld

Raja’s Rule Reversal

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Mobile licences have been described as the oxygen that lets networks breathe. So it's hard to imagine that some telecom services companies are drowning because they don't have the money to roll out their services despite having spectrum that they bid for and won. Which makes Minister for Communications A. Raja's proposal to throw them a lifeline — he called it an exit route — even more surprising. Of course, his suggestion to let them merge or sell their spectrum to existing players created an even bigger furore: if accepted, it would violate the spirit of mergers and acquisitions (M&A) guidelines that the government had approved earlier this year, and undermine the Telecom Regulatory Authority of India (Trai).

Under current rules, there is a spectrum transfer fee for mergers, at 5 per cent of the difference between the transaction price and current price. Trai's view is that spectrum should not be a traded commodity; so the acquirer would have to pay for excess spectrum if it went beyond the mandated 6.2 megahertz (Mhz) per operator. And if excess spectrum exceeded other set limits, it would have to be surrendered. It is these rules that have prevented large companies from swallowing smaller ones.

Raja, who is under attack from opposition parties in Parliament, and under investigation by the Comptroller and Auditor General of India (CAG) besides the Central Vigilance Commission (CVC) for allowing the six companies — the ones that would benefit from his proposal — to get spectrum at a throwaway price of Rs 1,651 crore, seems unperturbed.

Raja had allocated spectrum to new telecom players such as Uninor, Videocon, Etisalat DB (formerly Swan), STel and Loop Telecom, amidst protests of flouting the previous regulations on spectrum allocation. He cited a specific Trai recommendation on the allocation of telecom licences in doing so, but refused to acknowledge the context it was to be allocated.

True, the Department of Telecommunications (DoT) is within its rights in announcing a policy change. But Raja has been accused by former Trai chairman Nripendra Misra of picking specific paragraphs in the recommendations and approving some, while rejecting others.

Others believe that introducing a new policy change without consulting Trai will be detrimental to the sector.
"Institutions need to be strengthened, not individuals," says D.P.S. Seth, a former member of Trai. "The communications ministry should ask Trai again, if it wants to change the recommendations made by it, and then make policy changes."

Will Raja succeed? "Political equations in a coalition government are in his favour," says a bureaucrat in the commerce ministry who had a stint in the communications ministry, too. Many say that by not seeking fresh recommendations from Trai, Raja sets a bad precedent.

That would also allow the firms to get away from paying for the spectrum that they have held without rolling out the network. "The 3G auction and previous fights between the operators for spectrum shows the value of spectrum," says Gautam Balakrishnan, director of Optsoe Consultants, a telecom analytics firm.

However, the dilution of M&A norms would also help the major telecom companies; many have been unhappy with norms that did not provide any scope for mergers between major operators. But the government is not rushing into creating new M&A norms. "We have only discussed it with the minister, no final decision has been taken," a senior DoT official says.
Raja could have handled it better, by seeking the approval of Trai first.

(This story was published in Businessworld Issue Dated 04-10-2010)