Telecom License Fees: BJP’s New Caper

With the attention of the country focused on the icy  reaches of Kargil, the BJP government is all set to change the basic policy on Telecom. That this is a government which has already been defeated on the floor of the House and is only a caretaker one has not dampened its enthusiasm to hand over the telecom licences virtually gratis to the cellular and basic services operators. Instead of Rs. 4,500 crore license fees (Rs.783 crore for basic services, Rs.2,944 crore for cellular services plus interest) that the telecom operators already owe the government , the Government will collect only a meagre amount per connection under the so called revenue sharing scheme plus a small one time entry fee. It is certainly a sharing of revenues that the BJP is looking for, but not necessarily for the government. And if this is not enough, there are more concessions such as no lock-in for equity transfers, extension of the license period up to 20 years, etc., which are also being considered.  It has been reported that the Cabinet Note on this is ready and will be passed by the Cabinet any day. What is not clear, is the tearing hurry for this decision, when propriety suggests that any policy change should be done only by a duly elected Government.

 Before we look at the shenanigans of the BJP on the telecom license issue, it is worthwhile to recapitulate the circumstances under which licenses were issued to the basic and cellular service operators. The government policy under the Rao-Sukhram combine was to suggest that in order to expedite telecom penetration in the country in the Eighth plan period, there was a need to seek additional resources, namely foreign and Indian private capital. This was the basis of tendering for a second operator in basic services (apart from DoT) and auctioning of two cellular licenses per state to private operators. Though the argument for inducting private operators was for augmenting capital investments in telecom, during the tendering stage, licence fees were made virtually the sole criteria for award of licenses. During the Supreme Court hearings, Delhi Science Forum and others had argued that high license fee is effectively a tax on the telecom subscriber and instead commitments regarding rural and urban deployment should be the basis. DSF had also argued that the private parties would concentrate only on a few of the better off states and not invest in rural telephony or in states where the revenues are likely to be low. This is turn, would lead to even further skewed telecom development in the country.

 Both the government of the day and the private operators were vociferous in their arguments that the telecom pie was big enough to provide for the quoted license fees and cheap telecom services. Various “learned” economists commented on this “efficiency” of private capital versus “inefficient” public investments and therefore private capital was the way to go. Not surprisingly, with the private operators refusing to pay the license fees, there is either deafening silence about these “efficient” private capitalists or pleading for changing the basic conditions of the tender by the same economists.

 Soon after award of licenses to the private operators, these operators sought time to make their payments. The arguments put forward varied from DoT’s delays to the nuclear bomb and subsequent sanctions. However, soon the true state of affairs surfaced. The private operators had never any intention of paying the license fees. Having secured the license under fraudulent pretences, they were interested in converting these license from up front payments to a revenue sharing arrangement: or pay out from profits.

 This is simply outrageous on many counts. First, the entire argument that private capital will augment capital investments in telecom infrastructure has already shown to be false. DoT has arranged for loan capital from governmental financial institutions for the private operators. The second part, that the license fees should be waived in  favour of a revenue sharing arrangement makes a complete mockery of the tendering procedure. The parties that secured the license did it on the basis of commitments regarding license fees. If the license fees are done away with, then the entire basis of award of contract falls to the ground. And whatever little the merit of inducting private capital — augmenting the Government coffers with license fees – also disappears.

 The press reports indicate that the Prime Minister’s Office (PMO) has been the key player in this entire game. It started with a working group on telecom that drew up once again a New Telecom Policy. This exercise was done without addressing the problems experienced with the now slightly older and faded National Telecom Policy of 1994. The entire exercise would have been a meaningless one as it said nothing new except for the statement in the new policy that the government would consider changing from a licence fee arrangement to a revenue sharing one for the private operators. The entire exercise of the working group was to get this through so as to allow the PMO to move on to the next step: waiving of Rs. 4,500 crore outstanding as license fees from the private operators.

 Unfortunately for this game plan, Jagmohan proved a stumbling block. He backed DoT’s contention that  – such a change in licensing arrangement would be wrong and came down hard on the defaulting operators. Some of the defaulters came through; the others moved the PMO for Jagmohan’s removal. The country then witnessed the unseemly spectacle of shifting a Minister from one post to another, even under a caretaker regime. Soon after Jagmohan’s removal, the Attorney General Soli  Sorabjee is believed to have given his third opinion on the subject saying that the government and the private operators could change the license conditions, as according to him, the New Telecom Policy and the old one could not run together. What Soli fails to note is that while the National Telecom Policy of 94 was at least placed before the Parliament, the New Telecom policy is nothing but an executive document of a Government which does not even have the confidence of the House.
This is now the proposal in front of the cabinet : allow private operators the retain their licenses with paying some of the arrears but waiving off the major amount. And of course no further future payments: instead of a 10 year regime of license fees totalling Rs.50,000 to 60,000 crore, the operators will have to pay only a pittance. At one stroke, the entire tendering procedure followed in the cellular and basic services tender would have been rendered fraudulent. With Rs. 4,500 were at stake as license fees for the first two years alone, and huge future amounts, obviously the largesse that the private operators can provide is handsome. The parties concerned are Essar, Birlas, Reliance, Tatas, Ispat etc. Essar and the Ispat group of Mittals are already in the news after the steel bail out provided by the BJP Government and Reliance of course is an all time favourite of both BJP and the Congress Governments.

If we now look back at the 1994 National Telecom Policy and its current avatar of the New Telecom Policy, the fraud on the people will be obvious. The only additionality of resources that the private operators have brought in are public funds arranged by the government from its own financial institutions. The basic services operator have put almost nothing in place in the Eighth Plan period. Even the little that has been put up is in the towns (Gwalior and Jabbalpur) and nothing has been put  up in the rural areas. The promised bonanza of license fees have proved a mirage. And to cap it all, under the pressure eof the private operators, the call rates of the low end consumer have gone up by almost 100%. Even though a Sukh Ram with his private hoard of suitcases under the bed may no longer be the Telecom Minster, he is still the mentor of the BJP government: they are following in his footsteps.  This is the meaning of the latest move on Telecom licensing. It is another scam in the growing list of scams that the BJP has perpetrated on the people in its short 15 month regime: crony capitalism the BJP way.