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Paranjoy Guha Thakurta

How many committees does it take to consider a Reliance request?

According to the Comptroller and Auditor General, the government’s decision to allow Reliance to offer voice services on its 4G spectrum caused a major loss to the exchequer.

Date published: January 26, 2016Publication: Scroll.in Link to original article

As Reliance Jio Infocomm prepares to launch its 4G telecom services, a public interest litigation is being heard in the Supreme Court that challenges the government’s decision to allow the company to offer voice services on its 4G spectrum.

In June 2010, an e-auction of electromagnetic spectrum had ended with a small Internet Service Provider called Infotel Broadband Services Private Limited trumping bigger rivals to emerge as the winner. Hours after the auction, Reliance Industries Limited took over the tiny company.

The next year, in 2011, Reliance Industries-owned IBSPL applied to the Department of Telecommunications for a “mobile country code” and a “mobile network code” that would enable an operator to set up a “public land mobile network”. This ran against the spirit of laid-out guidelines.

The Telecom Department had, first in 2008 and again in 2010, clarified that voice services were permitted only using 2G and 3G spectrum. The Telecom Regulatory Authority of India too had recommended that while 3G spectrum was meant for voice telephony and data applications, 4G spectrum was meant solely for faster diffusion of broadband and data services.

IBSPL, which had an Internet Service Provider licence, said it wanted the 4G spectrum to provide data services on a technological platform called Long-Term Evolution. According to a draft report of the Comptroller and Auditor General, this was red-flagged by a wing of the Department of Telecommunications called the Telecommunication Engineering Centre.

In March 2012, the wing warned that the capabilities “of LTE technology are much wider in scope than what is permitted in the ISP licence and since LTE is a technology which can be used for providing full-fledged mobile services along with high speed data services, it is possible for an ISP licencee to use LTE for both internet services as well as full-fledged mobile services…. Currently full mobile services were provided under UAS [Unified Access Services] licence only. Therefore these aspects may be examined by DoT."

How Reliance got a Unified Licence
Various committees were set up to examine the issue. In April 2012, at the request of the Telecom Department, the telecom regulator furnished guidelines on changing the licensing framework and replacing it with a new “Unified Licence” regime, which would facilitate the migration of Internet Service Providers into full-service operators offering voice services.

The TRAI guidelines were considered by a Department of Telecommunications committee and subsequently by the Telecom Commission.

In August 2012, another Telecom Department committee held that 3G spectrum was not to be sold as “liberalised spectrum” (where the licence terms don’t need frequencies to be used for a specific service or technology). It argued that, during the 2010 auction, if the spectrum blocks had been declared liberalised, the bidders would have taken “informed” decisions in their offers and the “market discovered price” might well have been different. Indeed, it said, under earlier telecom regimes, the Telecom Department would specify the purpose for which spectrum could be used – for instance, voice or data, but not both.

Essentially, the committee was arguing that had it been known that those using 4G spectrum would be allowed to provide voice services, the bidders would have bid for spectrum based on a different set of commercial criteria.

In September 2012, the Telecom Commission decided that, given the complexities of the Unified Licence regime, further analysis and deliberations were required. It was felt that there were serious implications in implementing the telecom regulator’s recommendations on the Unified Licence regime for new entrants as well as for existing licensees providing various services.

Yet another committee of the Telecom Department was constituted in September 2012 to examine the issue and suggest a way forward. On January 25, 2013, this committee was expanded by including all the full-time members of the Telecom Commission, including the Secretary, Telecom, and other technocrats. Finally, in February 2013, this committee approved the conversion of Internet Service Provider licences to the new Unified Licence.

IBSPL, by then renamed Reliance Jio, was the first to take advantage of this decision. The company paid an “entry fee” of Rs 15 crore and a “migration fee” of Rs 1,658 crore in August 2013 and was granted a Unified Licence on October 21, 2013, formally authorising it to provide voice services.

Was there an even playing field?
According to the draft report of CAG, the “migration fee” of Rs 1,658 crore had been decided upon in 2001 and this price didn’t reflect the “present value” of 4G spectrum in August 2013.

Taking into account the rate of inflation between 2001 and 2013, the report said, the value of the licence would have been at least Rs 5,025 crore. This meant that Reliance Jio got an “undue advantage” of Rs 3,367.29 crore, since the price at which the company “migrated” from an Internet Service Provider to a full-fledged telecommunications service provider of data as well as voice services didn’t factor in changes in the value of spectrum over a period of 12 years.

During the 2010 auctions, the licensees had paid Rs 1,658 crore as entry fee, while the Internet Service Providers licensees has paid only Rs 30 lakh. Between 2001, when the price had been decided upon, and 2013, when Reliance Jio paid the entry fee, the market conditions had changed drastically. But even in this case, the price was not modified to reflect the present value.

Thus, the draft CAG report said, the Telecom Department’s permission had allowed Internet Service Provider licensees holding 20 megahertz 4G spectrum to offer pan-India voice services by paying Rs 1,658 crore as entry fee, which was a fraction of the market price of same quantity of 3G or 2G spectrum.

In 2009, Telecom Department had decided that if a winner of 4G auction desires to provide voice services as well, they would have to pay 3G auction price. According to CAG’s draft report, the difference between the proportionate prices for 20 megahertz band size in 2.1 Ghz spectrum band (3G) and 2.3 Ghz spectrum band (4G) was Rs 20,653 crore on the basis of the 2010 auction price. Add to that the net present value of the entry fee for Unified Access services licensees at the end of financial year 2009-’10 – that is Rs 3,847 crore minus Rs 1,658 crore – and the figure would increase to Rs 22,842 crore.

The final report of CAG presented in Parliament on May 8, 2015, omitted any reference to the above calculation but merely stated that loopholes were never plugged by the Telecom Department.

Why was the CAG report trimmed down?
In September 2006, the telecom regulator had recommended stiff rollout obligations to facilitate rapid expansion of broadband services in rural and remote areas of India. It had recommended that 4G spectrum licences be awarded for five-year duration, renewable up to 20 years on payment of spectrum acquisition fee every five years. It also made it mandatory for a company to satisfy all the relevant terms and conditions before rolling out 4G services. However, in the notice inviting application for the auction of 4G spectrum, the Telecom Department allowed the use of spectrum for up to 20 years, unless the licence was revoked or surrendered earlier.

In its final report, CAG said that despite the liberal rollout obligations of five years, the 4G spectrum has remained largely unutilised, with hardly any significant rollout of services since the allotment of spectrum in 2010.“The liberal roll-out obligations have not been achieved by any of the six winners even after four years since the award of the spectrum,” it pointed out. “BWA services have been started only in a few select cities by only one operator. BWA services have not been rolled out in rural areas which was one of the prime objectives of the auction.”

The auditor pointed out that the Telecom Department did not maintain parity in the spectrum charges that were being paid by the UAS/CMTS (cellular mobile telecom services) operators providing voice services and operators who were using broadband wireless access to provide voice services. While UAS/CMTS operators were paying between 3% and 5% spectrum usage charges, depending on the quantum of spectrum held, broadband wireless access operators were allowed to continue to pay only 1% of the adjusted gross revenue as spectrum usage charges.

“This relaxation would result in significant loss of revenue to the government over [a] 20-year licence period, since the BWA spectrum had to provide voice services also in addition to data services,” the final report of the CAG concluded. “These deficiencies led to (a) lack of efficient use of spectrum, hoarding of spectrum in view of absence of roll out of BWA services and non-realisation of the expected revenue share in the form of SUC even after more than four years of allocation.”

While the draft report of CAG ran into 104 pages, the final report presented in Parliament was slashed down to 13 pages.

At the press conference following the submission of the final report, Suman Saxena, the deputy CAG, was asked how the figure of “undue benefit” to Reliance Jio had come down from Rs 22,842 crore in a draft report prepared in August 2014 to Rs 3,367 crore in the final report presented in May 2015. Her only response was: “A draft is a draft.”

Incidentally, the 2014 draft report of the Director General (Audit) along with the correspondence between the Telecom Department and the office of CAG from June to August 2014 marked “top secret” had been leaked to a news agency (the Press Trust of India) and several publications, including to this writer. Based on that, a report was published in Caravan magazine on May 31, 2015.

It is learnt that there were pressures on the office of CAG to dilute its report.

Chief Justice of India TS Thakur is correct when he says the Supreme Court should not entertain frivolous litigants nor should it tolerate “private interest litigation” initiated at the behest of corporate rivals. But is the Reliance Jio one such case? Or is there “public interest” involved in finding out whether a scarce and precious natural resource that belongs to the people of India – telecom spectrum – was allocated and priced for the benefit of a privileged few?

Date posted: May 25, 2016Last modified: May 25, 2016Posted byParanjoy Guha Thakurta