India attempts to clean up long- running telecoms scandal

The Telecom Regulatory Authority of India ( TRAI) on Friday issued draft guidelines for the sale and allocation of mobile phone frequency spectrum as part of the country’s efforts to close off the $ 40- billion scandal that engulfed the sector four years ago.

The new TRAI policy aims at simplifying licensing rules, providing greater transparency, and encouraging mergers and acquisitions.

It comes after a Feb. 2 ruling by India’s Supreme Court annulling 122 licences obtained by nine companies in the controversial 2008 awards.

The court ruling and new policy in the world’s fastest growing telecoms market is an attempt to draw a line under a scandal with its themes of government corruption, lack of transparency and opaque regulations that in the view of many analysts has tainted India’s entire standing as an investment destination.

The TRAI will hold an auction by the end of the year for the 122 cancelled licences in the 2G, second generation, spectrum, in contrast to what happened in 2008 when the department of telecommunications dispensed them on a firstcome, first- served basis.

An investigation by India’s comptroller and auditor- general found the licences were grossly undervalued. They were given a 2001 valuation and brought in only $ 2.8 billion when, the auditors estimated, they should have raised over $ 40 billion.

The auditors also found the licences were given to a select group of companies that received prior knowledge of the allocations.

The result was that of the 122 licences issued in 2008, 85 were given to 13 companies that were not eligible. Of those 85 licences, 45 were given to companies that were not primarily telecom service providers.

“Thus the entire process of allotment of [ unified access services] licences in January 2008 lacked transparency and appeared to have been done with the objective of favouring a few firms over others,” said the auditors’ report.

The telecommunications minister at the time, Andimuthu Raja, is in prison in an ongoing court case involving the scam.

There are likely to be many more legal wranglings before the whole scandal is laid to rest.

Several of the Indian companies that obtained licences in 2008, especially those with no experience in the mobile phone industry, quickly sold on their allotment, often to foreign companies and at hefty profits.

The Norwegian telecommunications firm Telenor ASA, for example, said last week it will seek compensation from its Indian joint venture partner, Unitech Wireless, after being ordered by the Supreme Court to return all 22 mobile licences in its batch.

The reallocation of the 2G spectrum licences comes at a difficult time in the Indian wireless mobile device industry.

The allocation of 3G licences in 2010 was not as upbeat as expected and there is a feeling the sector has too many players chasing too low tariffs.

But the long- term prospects for the Indian telecoms market suggests growth is inevitable.

The Indian market is just too large for even a major scandal to deter investment for long.

Figures from a year ago say there were 825 million telephone connections in the country of which over 95 per cent are wireless. There are expected to be one billion connections by 2014.

Industry revenues have grown to $ 30 billion a year, or 2.3 per cent of India’s gross domestic product.

There has been some skepticism at the Supreme Court’s decision to give the TRAI responsibility for cleaning up the mess left by the scandal and developing a new transparent and fair system.

“The Court’s decision to assign the task to the same set of institutions that helped create the problem in the first place will temper expectations,” sniffed Oxford Analytica, the global analysis and advisory organization based at Britain’s Oxford University.

“Yet it also offers an opportunity to re- establish institutional credibility, a feature conspicuously absent in the recent past. It is more likely that the prospect for redemption will guide future telecoms policy,” said the briefing paper last week with muted optimism.