Reality Check India

2G scam – TRAI says cant price spectrum

Posted in Uncategorized by realitycheck on September 1, 2011

See important updates at end of this post.

Two news items that might give you an idea of where CBI is going with this

Maran gets clean chit (well almost) without even questioning him. Aides say Maran delayed files.

In what comes as some relief for former telecom minister Dayanidhi Maran, the CBI on Thursday told the Supreme Court that no element of coercion was found in sale of Aircel. The CBI, told this to the Supreme Court, in the status report filed today in the 2G spectrum allocation scam.The CBI said that it has so far found no evidence that Dayanidhi Maran misused his office to ensure that Aircel was sold by its owner to an entrepreneur who was close to Mr Maran and his brother, Kalanidhi.

Earlier, Maran had to resign as Union textiles minister in July after C Sivasankaran, who owned Aircel in 2006, complained against him and the CBI began investigating tha matter.

Source : HT

I am going to ignore the Maran story for now.  There seems to be great hurry for the CBI to wrap up a weak case because the accused have threatened to call in the PM and FM as witnesses.  One wonders if the case will even go to trial at this stage.

Lets focus on the other story. About the TRAI.

TRAI toes Raja’s line

Exonerating the former minister and Dravida Munnetra Kazhagam (DMK) leader, TRAI has told the CBI that his methods of selling and not auctioning spectrum were indeed according to rules and also it was not possible to estimate the revenue an auction would have fetched, reports said.

TRAI’s stand could weaken the CBI’s attack on Raja, when a special court, hearing the 2G case, will decide on Sept. 15, whether charges against the former minister and 16 others are valid enough to mandate a trial.

Source: IB

But the people of India are smarter. Way smarter than that.

Consider the issue on the table.

The Indian people have taken a 1.76Lakh Crore hit.

We are told that revenue generation is not good for us even though the money could have directly gone into constructing schools, hospitals, and infrastructure. 

A levy on AGR  instead of making money on sale is the better way it seems. We are also told that increasing tele-density and allowing rural poor to own a phone demands this hit .

This is where the genesis of the scam lies. The DMK ministers were adamant from day one on control of the pricing and allocation methodology. The CON leaders pushed for a while, probably alarmed at the scale of the wrongdoing, but suddenly fell in line.

Lets assume for a moment that the twin goals of a) inclusive telephony and b) a level playing field were worthy indeed in a country where teeming millions live in squalor. So worthy, that the government felt that leaving $40B on the table was a bargain.

That leads us to this question  :

Where is the study that balanced the two goals ? If there was no study at all – then it just means this whole line of teledensity, rural poor, inclusive telecom is a bogus argument.  We also know there was no study done – because inclusive telecom wasnt even a goal. Just a post facto alibi after being caught.  There was no homework done because the teacher gave no homework.

Dr Subba Rao puts it across the best in his testimony to the PAC.

Dr. Subbarao summed up:

“There is an argument to be made that if your forego revenue, you can gain on the welfare side like creating  teledensity and providing telecom access to lower income people.  Providing them opportunities would not only enhance growth but also made them more inclusive.  But I think that has to be an explicitly  objective and indepth study of costs and benefits of foregoing a certain amount of revenue against what would be the returns by way of increasing teledensity.  We had not done that at any point of time.  We were always arguing on the basis of level playing field rather then on the basis of any growth dimensions this might have subsidise that and if they have chosen to do that, then, as a civil servant, it would have been beyond my remit to contest that”.

In other words, the government did no due diligence at all before selling a most precious national asset.

What is a fit punishment for this gross negligence ?

Wont cancellation of the fruits of this malfeasance be the  most just ?

We will get to that in the next post.

Back to the TRAIs statement in the Supreme Court

Seven months after the Central Bureau of Investigation asked telecom regulator TRAI to quantify the loss to the exchequer in the 2G spectrum case, the latter has said that it is not possible to predict with certainty the precise values of spectrum that would have emerged in an auction.

Source : IT

In other words, TRAI is claiming to be incompetent. This is standard issue for those who are caught with their pants down.  This a complete U-Turn by a new chairman secretary Mr Arnold and contradicts TRAI’s own affidavit to the Supreme Court in March. Well guess what, this line is bogus too because it is trivial to deduce a fair value of the spectrum based on a number of parameters.

Some of these points were also made in the PAC hearings.

1. The USA made $32 Billion from selling spectrum just a few months before our own 2G. So there you go – an exact value. Update: See footnote.

2. Even  naive student of economics will apply indexation (based on inflation or PLR) to reprice the 2001 figure.  This, by itself would have priced the 2008 spectrum anywhere between 3,600 Cr to 4,400 Cr.

3. Total Indian market capitalization of all telecom companies in 2007-08 was $200 to $250 B.  Several orders of magnitude more than in 2001. That factor can be used to reprice the spectrum.

4. By 2008, all aspects of running the business were ironed out.  Technology winners had emerged. New vendors slashed prices of base stations and central equipment since 2001. Incumbents were bursting at the seams due to lack of spectrum. Airtel was begging for more spectrum even before 2008.

5. Vodafone paid $10B for a ~55% stake in Hutch in order to enter India. This values Hutch at $20B, it would have been straightforward to value their assets and isolate a figure for the spectrum. In hindsight, they could have entered India for $1.5B like Telenor and Etisalat did.

The CBI chasing down the NDA government is most unfortunate, not because they are doing such a bizarre thing. But because the Indian people are now awake to this sham. The anger will get reflected in unknown ways.

The government of the day being duly elected has every power to reframe and tweak any policies of any previous government.

Please rest assured we will do whatever it takes to spread awareness about the true nature of this monumental scam. Cancellation of all licenses is the only way the country can get justice and recover its lost assets.

Two Updates :

1.  Thanks to twitter.com/ChandrusWeb for pointing out this error. Mr R.K. Arnold is the Secretary of TRAI and not the Chairman. Mr J.S.Sarma is the Chairman.

2. The USA figure of $32 billion was cited by Chairman of VSNL during PAC hearings. I think he combined the numbers from two FCC auctions : Auction 73 and the AWS auction.  Auction 73 raised $19.3 B for the US government (Rs 90,000 Cr), this was won by AT&T  and Verizon. The AWS auction was won by T-Mobile ($4.2 B) and Verizon Wireless ($2.8B) and others – netted $13.2 B (Rs 52,000 Cr) for the US Treasury. It must be kept in mind that the USA is a smaller market than India even though ARPUs are higher due to value adds.

Nevertheless, the point is –  TRAI is misleading the country that it is impossible to reasonably value the spectrum by using a false dichotomy. The TRAI feels (now) that either they  should be able to predict with 100% certainty the precise value or they should be allowed to do nothing.  We are told, they did nothing because “it is impossible to  predict with certainty the precise values of spectrum that would have emerged in an auction”  Obviously such an dichotomy doesnt exist at all, because if it did then there is no need for auctions.  We can just invite TRAI to use its supernatural powers of precise prediction.  The awakened Indian people understand that just because you cant predict with 100% certainty does not mean you cant put a reasonable value on it.

I have never met a person who refused to leave the house because he didnt have an Audi A-8 to go out in.

The media ignores everything and instead of taking TRAI to the cleaners, claims the 2G case is dead.
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5 Responses

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  1. seadog4227 said, on September 2, 2011 at 3:33 am

    Thank you for your clear explanation here.
    As for the people’s anger against all this deliberate wrongdoing, the Indian reaction has come long after the other Middle-East movements subsided. Is something still brewing?

  2. NMG said, on September 5, 2011 at 9:23 am

    Let us not hype the issue saying that Indians lost 1.76 lakh crores which could be used to build schools & colleges. The same is applicable for the entire subsidies and many other. That subsidy is more than 100’s of billions of $ EVERY year. Also, pl do not compare the auction pricing in USA to India. Have you gone to any USA and checked the kind of internet speed and other mobile services you get, even for free at airports? That is value for money. One just don’t feel like paying money for mobile internet browsing in India. Every divestment of any asset by Govt. attracts so much of private participation to buy that asset out and every buy out is backed by PE investors. Why? Does this mean Govt is selling cheap? Since nobody paid for spectrum till date, why not levy a specific special tax of 100% or even 300% of bill value. Ultimately, consumers only have to pay for it. Why not collect it from customers directly and efficiently. Why make so much of hype around it? In USA there have been hundreds of cases where civil disputes are settled by payments of billions of $ by almost every reputed company including banks/ investment banks, pharma companies, software giants. Why don’t you suggest that.

    • rc said, on September 6, 2011 at 2:02 pm

      >> The same is applicable for the entire subsidies and many other.

      No it isnt the same as subsidies.

      >> One just don’t feel like paying money for mobile internet browsing in India.

      That has nothing to do with valuation of the spectrum. TRAI said it didnt know how to do it.

      >> Every divestment of any asset by Govt. attracts so much of private participation to buy that asset out and every buy out is backed by PE investors. Why? Does this mean Govt is selling cheap?

      Doesnt matter if PEs back investors. Goverment must have welfare of PEOPLE uppermost in its mind.

      On the other hand, if you are saying the spectrum loss can be balanced by rural penetration, point me to studies that support that. If not – this is just post facto rationalization after being caught.

  3. […] Source : RC – TRAI says cant price spectrum […]

  4. […] addressed by various people including myself in “Arbitrary and Capricious” and “2G Spectrum and TRAI ” . But this is the first time Shri Sibal is laying down his talking points in a single […]


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