2G Supreme Court verdict: Is it a blow against corruption?

The recent verdict by the Supreme Court cancelling 122 licenses given on a first-come-first served basis during Raja’s tenure has attracted comments from different quarters.

Those who have been affected by the judgement such as Abu Dhabi’s Etisalat and Norwegian telecom firm Telenor are obviously unhappy over the judgement. They have threatened to take their capital out of India and revoke the joint ventures with their Indian partners. Some Indian industry spokespersons initially criticized the judgement saying that it will turn away FDI in telecom and will act as a bad precedence of a government going back on its award of licenses.

But as the dust settles down it appears that the Supreme Court judgement has favoured the incumbent monopolies, particularly AirTel and Vodafone. It has also laid down a level playing field for large monopolies, Indian and foreign. By taking a step to remove anamolies in the present telecom policy, the judgement will actually open the floodgates for monopolies to enter the lucrative telecom sector and operate in a more certain policy environment favouring even more intense pillage of a natural resource by a few monopolies hankering for maximum profit.

Looking back at the history of mobile operators in India, one can see that successive telecom policies have helped a handful of monopolies to consolidate their hold in this market. These policies, which were made both during the Narasimha Rao-led Congress regime in the nineties and the Vajpayee-led BJP regime in the early 2000s, have resulted in a handful of monopolies cornering a huge share of the Indian mobile subscriber market. The top two operators, AirTel and Vodafone control 51.5% revenue share in this market. The top 5 operators control 83.5% of revenue share.

Through the years, all these monopolies have consolidated themselves through a telecom policy that favoured take-overs and mergers resulting in heavy monopolization of the market. While a lot of noise is being made about the Indian telecom sector being very competitive and consumers benefiting by decreasing tariff rates, the actual story is that these operators have not passed on the benefits of technology and scale to their consumers, and have instead piled on more profits.

The National Telecom Policy (NTP)-1994, initiated the first phase of liberalization in mobile telephone service with the issue of 8 licenses for mobile services in the 4 metro cities of Delhi, Mumbai, Calcutta and Chennai to 8 private companies in November 1994. Subsequently, 34 licenses for 18 Territorial Telecom Circles were also issued to 14 private companies during 1995 to 1998. Further, 17 fresh licenses were issued to private companies as fourth cellular operator in each region in 2001, one each in 4 Metro cities and 13 Telecom Circles.  The now infamous 122 licenses were granted during the UPA-1 regime in 2008. What is evident is that after what appears on the surface to be an effort to broadbase the telecom sector and introduce more competition, the majority share of the market is still in the hands of two operators!

In the initial stages, these licensees were to pay fixed amount of license fees annually based on an agreed amount during the bidding process. Subsequently, they were permitted to migrate to a New Telecom Policy (NTP) 1999 regime wherein they are required to pay a License fee based on revenue share. This migration seems to have strengthened the hands of incumbent monopolies in the sector.

Those who have lost because of the Supreme Court verdict are some foreign monopolies and their Indian partners, such as Telenor of Norway and Unitech Group, Sistema of Russia and Shyam group, Etisalat of UAE and Swan Telecom, Axia Group of Malaysia and Idea Cellular of Aditya Birla Group, Batelco of Bhrain and STel. The Tatas, Birlas and the Khaitans have also lost a few licenses.

As the Radiia tapes revealed, the 2G spectrum scam was an outcome of the all-out war between incumbent monopolies themselves and between established monopolies and the new entrants. The war has since crossed several important milestones.

Recently the Supreme Court set aside the claim 11,200 crores by tax authorities towards its purchase of the Indian share of Hong Kong’s Hutchison Whampoa. The Supreme Court declared that Indian authorities do not have jurisdiction on an overseas transaction in Cayman Islands between Britain’s Vodafone and Hong Kong’s Hutch! However, the tax authorities had argued that the purchase was related to services to be provided in India and therefore it was governed by Indian tax laws.

The war continues between GSM monopolies and the CDMA monopolies. The GSM industry body COAI, dominated by AirTel and Vodafone, has recently alleged that the government has suffered a loss of Rs 51,977 crore due to licence-related violations by the dual-technology operators. The CDMA lobby AUSPI, on the other hand, has said that prospective charging of spectrum beyond 6.2 Mhz will lead to a loss of Rs 20,000 crore to the government.

The 2G scam revelations, the Radiia tape exposures, the Supreme Court verdicts on the Vodafone tax case followed by the cancellation of new licenses, may all seem to be independent events. But they are signposts pointing in one direction – the consolidation of a few players in the huge Indian telecom industry and the establishment of a level playing field for Indian and foreign monopolies. Looking at it in this light the Supreme Court verdict cancelling licenses cannot be considered as a blow against corruption.

Posted In: Economy    COAI    AUSPI    AirTel    Telenor    Vodafone    telecom policy    Etisalat    GSM    CDMA    dual technology   

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