‘The spectrum auction was rigged’

PRASHANT BHUSHAN, political activist and lawyer, has been in the thick of the legal battle to expose the manner in which Reliance Industries Ltd (RIL) acquired the Broadband Wireless Access (BWA) spectrum in the auctions held in 2010. Prashant Bhushan, who represents the Centre for Public Interest Litigation, argued in the Supreme Court in 2014 that Reliance’s modus operandi during the auction indicated the use of benami, a front for the conglomerate, which resulted not only in a subversion of competition but also lower price realisation for the national exchequer.

In a telephonic interview to Frontline, Prashant Bhushan said both the Congress and the Bharatiya Janata Party (BJP) should be held culpable for allowing Reliance to gain an unfair advantage in the auction process. Excerpts:

When auctions were first introduced to award licences for mobile telephony services, it was perceived as a more efficient and fairer means than the first-come-first-served method of awarding licences. Your experience with the petition in the Supreme Court about the manner in which Reliance acquired the BWA licence suggests that this is not a foolproof method either.

Even auctions can be rigged; and this was rigged. At the time of the auction it was specifically stated that the spectrum was only for data, not voice. But the government allowed Reliance to use it for voice. This has meant that other companies that would have been interested in participating in the spectrum auction stayed away. They may have paid more had they known that they could use the spectrum for voice traffic also. This is one aspect of the problem.

The second aspect of the fraud is that Reliance bid through a benami bidder. It bid through Infotel Broadband Services Private Limited [IBSPL], which would not have qualified had there been any minimum qualifications [such as minimum net worth] for bidders. Such a benami bidder should not have been allowed in the first place.

What do you think was the motive? Was it to reduce competition and thereby the bidding price for the spectrum?

The motive was to give this block of spectrum to Reliance. Since the spectrum was meant for data, the spectrum user charge [SUC] was only 1 per cent of revenues as opposed to 4 per cent for those holding spectrum used for voice traffic. This makes a huge difference. It is unfortunate that the Supreme Court overlooked many of these issues. The fact of the matter is that the auction conditions did not specify upfront that the spectrum could be used for voice. In fact, the Comptroller and Auditor General [CAG] had pointed out that the spectrum was meant only for data.

What was the motive of the benami nature of the bidding? Was it to depress the auction price?

If Reliance had bid directly, alarm bells would have rung. Other telecom operators would have, in that case, assumed that if Reliance was bidding, voice must be part of its plan too. It was common knowledge that Reliance was trying to get into voice, too. Reliance did not bid directly in order to allay that suspicion.

Does this whole episode, and other episodes and controversies surrounding the Reliance Group, especially in the oil and gas sectors, suggest regulatory or policy capture by conglomerates?

It is not a question of regulatory capture; it is more a case of the government selling out to Reliance. It allowed Reliance to have an advantage by enabling it to allow spectrum, which was only meant for data traffic, to carry voice. The terms of the auction were tweaked by the government, not the regulator, the Telecom Regulatory Authority of India [TRAI], in this case. The previous Congress government is mainly responsible for this. The Narendra Modi government is merely going along with it. The Supreme Court gave the Modi government the option of increasing the SUC but the government has not done anything. The Modi government is in the pocket of Reliance, which is clear from the manner in which Jio has been launched with Modi’s face all over the advertisements. This does not mean that the Congress government was not in Reliance’s pocket. It was the one that allowed Reliance to bid benami and get access to spectrum for voice through the backdoor. It also allowed Reliance a lower SUC relative to its competitors.

How effective have the courts been in enforcing the spirit of the legal framework governing auctions, which were perceived as a means of ending the scope of frauds such as what is now known as the 2G scam?

The courts have overlooked many of these issues and have gone by a minor clarification. In my view, the judgment is totally wrong. First, because it accepted the government’s claim that the spectrum was for voice, too. Secondly, it was wrong because it allowed the benami bidding without ordering an investigation into how it happened. Thirdly, the Supreme Court was wrong in allowing the government to fix a lower SUC for Reliance when it ought to have ensured that all voice carriers paid the same SUC. It was unfortunate that the court overlooked the CAG report.

What reforms are needed in the legal and regulatory framework governing auctions, such as those governing wireless spectrum? So much was vested with auctions, especially after the 2G scam.

Any reform has to ensure that such subterfuges as we have seen in this case are not allowed. This case shows clearly that auctions can also be rigged.