Presidential Reference on 2G flawed on facts and logic
TAKING THE LID OFF THE TRUTH: CBI staff with the chargesheet in the 2G spectrum case at Patiala House. Photo: Sandeep Saxena | The Hindu

The Presidential Reference against the Supreme Court 2G judgment, which carries the approval of the Cabinet, is ridden with serious misrepresentations and factual errors which could become a potential source of embarrassment for both the office of the President and the country's apex policy-making body.

The misrepresentations are despite the fact that at least three of the members of the group pushing the Presidential Reference under the chairmanship of Finance Minister Pranab Mukherjee have had a fairly deep engagement with the 2G mess. This includes Telecom Minister Kapil Sibal, now famous for his “zero loss” theory, Salman Khurshid, who put up a strong, but futile, government defence in the 2G matter, and Attorney General Goolam Vahanvati, who approved the press release of January 10, 2008 and defended the government twice over in the Supreme Court in the 2G matter — both times unsuccessfully.

Given this level of experience, it is discomfiting to find that the reference strings together rank falsehoods and half truths to prove that spectrum has rarely been bid for in India except when it was auctioned for 3G in 2010, in order to establish that a vast majority of the sector is impacted by the Supreme Court order cancelling 122 licences for being allocated in 2008 through a serious of illegal steps.

The legal questions raised generate dangerous and unnecessary uncertainty, placing licences from 1994 vintage under judicial scrutiny by asking questions, several of which have no relevance to the Supreme Court's previous judgment.

Strangely, though the Reference has been prepared based on a presentation made to the Prime Minister on February 11, followed by one to the Finance Minister on February 24, it has managed to bypass scrutiny save for a strong rejection by Deputy Chairman of the Planning Commission Montek Singh Ahluwalia.

While describing the various cellular and basic service licences allocated between 1994 and 1997, referring to them as pre-2001 licences, the Reference concludes that spectrum for these licences was allocated on a “first come, first served (FCFS) basis without any upfront charges for spectrum.” This is wrong on both counts. The question of allocating spectrum on a FCFS basis didn't arise as there were only two licences in case of mobile and a single licence where basic services were concerned. The second highest bidder had to match the highest bidder and spectrum was allocated on that basis. The 34 cellular mobile licences in 1995 and the six basic licences of 1997 received upfront bids of Rs.20,393.84 crore and Rs.27,863.30 crore for 10 and 15 years respectively — a fact that the Reference hides.

Apart from the amounts being bid upfront and at least in the case of the cellular licences of 1995, they were nothing but a payment for the 4.4 MHz of spectrum that came guaranteed with the mobile licence. Without spectrum, the licences were worthless. The only difference in 1995 was that the upfront bid was to be paid across the life of the licence through annual payments — 10 years in case of mobile licences and 15 years in case of basic telecom licences.

Contradicting itself later, the Reference, while describing the 17 mobile licences granted in mid-2001, claims: “Similar to the pre-2001 licences, the 2001 licences required that licensees pay a one-time non-refundable entry fee”. Wrong again. In the pre-2001 period, there was no one-time entry fee. The upfront bid amount was payable across the life of the licence — as described above, while in 2001, the government received a one-time upfront entry fee of Rs.1,633 crore for 17 mobile licences with linked 2G spectrum.

Further, the Reference maintains that the 22 licences granted for limited mobility in 2001 were on a FCFS basis. It deliberately hides the fact that unlike in the case of ex-Telecom Minister A. Raja, who processed letters of intent by manipulating the FCFS criteria, the 2001 limited mobility licences received spectrum based on a detailed notification dated March 23, 2001 subject to investments in infrastructure and meeting rollout obligations. The first to meet the rollout obligations would be the first to get spectrum. This is very different from Mr Raja's tactics, which have been severely criticised by the Supreme Court and cited as the primary reason for cancelling the licences. Yet, the Reference conveniently chooses to paint all FCFS with the same brush.

A lie

The lowest point in the Reference lies in paragraphs 12 and 16 which claim that mobile licences till 2001 were granted 2G spectrum “with no upfront payment for spectrum.” This is a blatant lie. It is a matter of record that all 2001 licences — 17 mobile and 22 basic — made an upfront payment for spectrum. The government's bid to persuade the Court that investors were paying for the licence (a mere paper permit) and not spectrum is a non-starter considering that the Telecom Regulatory Authority of India (TRAI) on May 11, 2010, valued the Unified Access Services (UAS) licence, inclusive of national and international long distance as well as ISP services minus spectrum, at merely Rs.20 crore. The government will be hard pressed to explain its conclusions, especially since its Reference disagrees with itself in several paragraphs.

Lower still is a shocking claim that “no separate fee was payable for allocation of spectrum” for dual technology licences which received precious 4.4 MHz of Global system for mobile communication (GSM) spectrum in 2008 on their existing UAS licences of 2003 vintage. If these companies, primarily Reliance and the Tatas, already held UAS licences in 2003 and they didn't pay for GSM spectrum in 2008 — as the Reference claims — then what was it that they paid for? Why would these companies fork out Rs.1,658 crore each if they had already paid for licence and GSM spectrum came free? It doesn't end here. The Reference is riddled with similar senseless arguments.

According to the Reference, “In terms of the directions of this Hon'ble Court, GoI would be auctioning the spectrum in 2G bands.” The Supreme Court, however, has given no such direction. The Supreme Court knows that in the case of 2G, UAS licences with linked 2G spectrum were auctioned, and not spectrum. Contrary to the Reference, in paragraph 74(iv) of its February 2, 2012 judgment the Supreme Court states: “The Central Government shall consider the recommendations of TRAI and take appropriate decision within the next one month and fresh licences be granted by auction.”

By refusing to do honest homework, the questions raised in the Reference place 80 licences — seven of 1994 vintage, 22 from 2001, and 51 between 2003 and 2007 — under the Supreme Court scanner, creating tremendous uncertainty about their future. They also indirectly cast doubts about Mahanagar Telephone Nigam Ltd. (MTNL) and Bharat Sanchar Nigam Ltd.'s (BSNL) mobile licences granted in 2001 even while keeping the matter outside the Reference, since its cellular licences were given without auctions and without any entry fee.

Additional questions about dual technology licences also seem ridiculous for two reasons: the government is defending the legality of these licences in an ongoing litigation in the Supreme Court while questioning the same Court about their legal status in the Presidential Reference. Additionally, the Supreme Court's direction to the Central Bureau Of Investigation (CBI) of December 16, 2010 specifically seeks an investigation and a possible FIR into the allocation of dual technology spectrum — at least a large portion of it. Why dual technology should be included for a third opinion of the Supreme Court is anybody's guess.

Questioning whether there should be a ceiling on the acquisition of spectrum also has nothing whatsoever to do with the judgment cancelling the 122 licences. It is a straightforward Merger and acquisition (M&A) question for the TRAI and the Competition Commission of India. The Reference then takes a second bite at the cherry by seeking a clarification on whether auction is mandatory for the allocation of natural resources — an issue which has already been posed in its review petition filed on March 2, 2012.

It is unlikely that this Presidential Reference will accomplish anything other than generating uncertainty for six-18 months and then starting afresh from exactly the same point as today. Since the Reference does not touch upon the 122 licences that have been cancelled, it cannot hope to impact any of the grief arising from that judgment. At the end of this mammoth exercise, the government would have, at best, taken the sector back by two years.

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