The telecom tangle

Print edition : August 14, 1999

By facilitating the migration of private telecom operators from a regime of licence fee payment to one of revenue sharing, overlooking the legal and ethical hazards involved, the Vajpayee Government has set a new standard of impropriety for a caretaker administration.

THE best defence that the Bharatiya Janata Party-led government has to offer for the telecom policy directives that were spelt out on July 6 is that they were in essence determined well before the Government was reduced to a caretaker capacity. In fact, it is authoritatively stated that the details of the policy were agreed at a meeting of the Union Cabinet on March 26.

The plea slips up on one small detail: the Union Cabinet on March 26 considered the report of the Group on Telecom (GoT) which had been constituted late last year to propose the broad directions of policy. But the GoT specifically ruled out the policy option that the Government has rushed to embrace today. And this is the point central to ongoing controversies - the migration of private telecom operators from a regime of licence fee payment to revenue sharing. In overhauling the rules of commercial participation after contracts have long been executed, this effectively rewards the private telecom operators for a pattern of persistent default on contractual obligations.

Prime Ministe A.B. Vajpayee. It is increasingly clear that he has been the principal motivating factor behind the telecom policy changes.-V.SUDERSHAN

The GoT's findings were underpinned by the realisation that licence fee payments could not be the sole or principal criterion for awarding contracts. This was a finding that was based on the evident reality that most private telecom operators had grievously erred in making their bids, and undertaken licence fee obligations that they could not possibly fulfil.

Against this backdrop, the GoT outlined three policy options that the Government could consider where existing telecom licensees were concerned. It could revoke all licences in accordance with the provisions of the law and open up a process of bidding to award fresh contracts. It could, on the other hand, allow licensees to continue subject to the fulfilment of contractual obligations, and allot the vacant telecom circles to fresh bidders on the principle of revenue sharing. Finally, it could renegotiate existing licences to facilitate a shift towards a revenue-sharing arrangement. But such a course, the GoT warned, should be "legally tenable".

The legal and ethical hazards were very apparent to the GoT, on account of which it advocated a cautious approach: "As and when the circles presently occupied by existing licensees are vacated either by expiry of the existing period, surrender, through mutual consent or otherwise, new licensees should be appointed under the new policy regime. This would enable a New Telecom Policy to be formulated, notified and implemented without litigation or controversy, and over a period of time the entire country can be covered under the new policy regime."

THE reasons for the caution were clear. As the Delhi Science Forum (DSF) has pointed out in its public interest petition filed in the Delhi High Court, contracts for private telecom operators were awarded exclusively on the criterion of licence fee bids in the case of cellular services, and with predominant weightage to this criterion in the case of basic telephony. Invariably, it was the highest bidder who was awarded the contract. Infamously, the highest bidder in most circles - acting collusively with the then Minister for Communications Sukh Ram - was allowed without penalty to renege on all it promises.

Jagmohan, who was shifte out of the Communications Ministry in June. The questions he raised about the switchover to a revenue-sharing formula were inconvenient for both the private telecom operators and their official patrons.-RAJEEV BHATT

The Government then adopted a curious attitude - it would selectively accept the highest bids, but would not consider itself obliged to assess the feasibility or internal consistency of the proposals it received. Commercial realism was discouraged by this process, with all the rewards being reserved for those who made the most extravagant promises. A few bailouts, it needs to be added, were also ensured for those who went over the limits of prudence.

The bailout being fashioned for the operators today is, by any perspective, repugnant to the integrity of the original process of commercial bidding. Many who lost out in that round could consider themselves unfairly deprived, for the simple sin of using commercially realistic parameters in formulating their bids. As Attorney-General Soli Sorabjee pointed out in an opinion rendered on January 6, a shift from licence fees to revenue sharing for existing licensees "would be vulnerable to a challenge from unsuccessful bidders". The grounds they could use would be simple: "Had they known that departures from the licence agreements would be subsequently permitted, they would have given bids on different calculations and perhaps succeeded in obtaining licences." Legally and logically, this seems to be the obverse of affirming that if realism rather than fantasy had been the basis of the original award of tenders, then changes in contractual conditions today would not have become a matter of compulsion.

THIS was one among many asymmetries that Jagmohan, as Minister for Communications, drew attention to in a detailed note drafted in May. Confronting the private operators' demand that a revision of their contractual terms was called for, Jagmohan asked how far it was "legally, constitutionally, financially, commercially and morally justifiable to sign legal agreements, after giving competitive bids, and then not to observe contractual obligations".

If the operators were incurring losses as they claimed, then Jagmohan suggested, the option before them was very simple - to surrender their licences. It did not make commercial sense for operators to continue in a business simply to have their losses "multiplied". At the same time, Jagmohan also sought to envision the situation that may have evolved had the private operators been more successful than anticipated in their venture: "If the licensees had made more profits than originally calculated, would they have come forward to share the extra gains with the licensors?"

Clearly, these were inconvenient questions for both the private operators and their official patrons. Jagmohan was shifted out from the Ministry of Communications in June, a bizarre expression of skewed priorities by a caretaker government in a war-like situation. And in a public avowal of undue interest, Vajpayee - a Prime Minister rallying the nation to confront an external aggression - found the time and the inclination to take the portfolio under his direct charge. After Pramod Mahajan, Sushma Swaraj and Jagmohan, the first among equals had to take up the mantle himself. Having shuffled the portfolio among three trusted aides without getting any closer to meeting his objective, Vajpayee was compelled in just over a year, to take direct charge.

THE Attorney-General undoubtedly received the right cue from this personal affirmation of commitment by the Prime Minister. In a fresh opinion, sought by Jagmohan but rendered to Vajpayee, he proved himself completely acquiescent to political directives. Since his opinion of January, the only substantive change in ground realities had been the Union Cabinet decision of March 26, a mere expression of intent that the public interest demanded that the telecom policy parameters be uniform across the country.

Attorney-General Sol Sorabjee. After Vajpayee took over the Communications portfolio from Jagmohan, he reversed his earlier opinion that changes in the contractual conditions would invite legal challenge.-SHANKER CHAKRAVARTY

The Attorney-General unfortunately seemed to forget in the process that policy directives should be symmetric in their application and the process of the law, uniform for all citizens. After arguing in January that government actions "should not be perceived as putting a premium on defaults or favouring defaulters", Soli Sorabjee found in June that there could be no viable legal challenge to a regime that permitted the migration of existing operators from licence fee payments to revenue sharing. He stipulated certain conditions - for instance, there should be no waiver of licence fee arrears, which should be wholly or partly collected, with the outstanding amount being secured by bank guarantees taken on by the licensee. But his finding was authoritative - there could be no sustainable legal challenge to the migration of operators to a revenue-sharing regime if the conditions he stipulated were met.

The Ministry of Communications note, presented to the Union Cabinet on July 6, went substantially by this assurance and sanctioned the migration of existing licensees to a regime of revenue sharing. Apart from the law of contracts applied asymmetrically over time, this also raises questions about the uniform treatment of unequals, an approach which only reinforces and perpetuates existing disparities.

CELLULAR telephone operators in the metropolitan regions are known to suffer few disabilities as far as payment of licence fees is concerned. The number of subscribers for Hutchison Max in Mumbai multiplied by a factor of almost ten - from 12,000 to 117,000 - between year one and year three of operations. BPL-Mobile, which is the competing concern in the metropolis, had an equal windfall, its subscriber base multiplying from 14,000 to 111,000 in the same period of time. With capital expenditure having been incurred largely in the first year, the two companies should be turning the corner and beginning to earn a substantial revenue-surplus from year four onwards. In fact, existing licence arrangement stipulate that from the fourth year, the metro cellular operators would shift from a schedule of fixed licence fees to paying Rs.6,023 on every subscriber. The main accruals as licence fees from the metro areas, in other words, were expected to start in year four. But with the abrupt and arbitrary switch to revenue sharing, the Union Government has virtually written off this option. The metro cellular operators will now be governed by identical rules as any other telecom service provider. If licence fees are retained at the stipulated figure of 15 per cent of revenue, metro operators would be coming into nothing less than a bonanza.

For other operators, there is no strong inducement inherent in the new policy dispensation. There is a promise that the date of application of their licences will be extended for six months, to redress the commercial harm that may have been caused by delays in official sanctions. This waiver alone is expected to cause a revenue loss of Rs.1,400 crores to the Union Government in the current financial year. It is a completely new circumstance today for a caretaker government to write off this volume of revenues, after both Houses of Parliament had passed a Union Budget which provided for Rs.1,800 crores in receipts from telecom licence fee. This was the substance of President K.R. Narayanan's queries to the Government about the propriety of pushing through summary changes in policy. The queries, of course, remain unanswered.

What was the cause of such pressing urgency, asked the Delhi High Court, while hearing a public interest petition filed by the DSF? What would have been lost if two months had been allowed to elapse before the policy directives were framed? Appearing for the Government, the Attorney-General was categorical in his affirmations. Large sums of money were involved for the telecom operators, as also for the Government. Further delay would have led to a mounting sense of uncertainty and possible bankruptcy and closure for many of the operators. Public interest was also involved in the security of large funds invested in the telecom firms by various financial institutions. These circumstances, said Soli Sorabjee, compelled the Government to act without further delay.

In doing so, the Vajpayee Government has set a new standard of impropriety for a caretaker administration and underlined public cynicism about those in authority. Rather than iron out the irrationalities of the policy regime it inherited, it has chosen to compound them. The party that had little hesitation in aligning itself with Sukh Ram, the architect of the policy disaster, has now provided definitive affirmation of its intent to follow his example.

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