Indian Spectrum Scandal Taints All It Touches

May 4th, 2012 by · Leave a Comment

This article was authored by Tony Poulos, and was originally posted on

“The Great Indian Spectrum Scandal”, as I choose to call it, shows no signs of abating. The Telecom Regulatory Authority of India (TRAI) has recommended to the government that holders of cancelled 2G licenses should not be compensated for their loss.

It claimed there was no need for a separate “exit policy” to be put in place and that the fees already paid “continue to be non-refundable”. The recommendation came after some of those affected had called for the refund of license fees on a pro-rata basis, subject to the companies involved having met the conditions of issue (e.g. rollout obligations).

It also looks very unlikely that fees will be carried-forward as partial payment if those already “disenfranchised” are successful in bidding for the re-issued licenses in the future, presuming they have any confidence left in dealing with the Indian authorities. In any case, this may be a long way off with the telecom ministry stating it could take some 400 days to hold an auction to redistribute the licenses.

According to news reports, Telenor will seek nearly $14 billion in damages from the Indian government, following the cancellation of the 2G licenses held by its Indian joint-venture Uninor. The company has reportedly made the threat in a letter to the prime minister’s office and telecom ministry, and also repeated threats to take the government into international arbitration. The company says it breaches existing trade agreements between India and Singapore where Telenor’s Asian operations are registered.

Russia’s Sistema last month invoked the provisions of a treaty between India and Russia to try to recover some of the investment sunk into its own 2G joint venture, Sistema Shyam.

One wonders why a group of these 122 ex-license holders have not banded together for a class action against the TRAI and the Indian government. Perhaps some are nervous about how they were initially awarded the licenses and fear exposure of their activities, or is it simply seen as a futile exercise?

In the meantime, the original perpetrators of what has become one of India’s biggest corruption scandals, former telecom minister A. Raja, and a number of other company executives and government officials, are yet to face trial. Until it is proven in court that the granting of the licenses was indeed fraudulent then the license rescission actions may be a little premature. After all, the cancellation of the licenses was based purely on the premise that, they were under-priced and favored some firms, supposedly costing the treasury up to $39 billion, their current estimated value.

Where’s the proof?

Surely, if these were the only allegations and were yet to be proven, the government should not have acted as it did. Some are going as far as saying that these actions were almost as unacceptable as those of Mr Raja and Co.

Maybe it is these fears, and potential repercussions from its trading partners, that has caused the government to now dispute the Supreme Court’s initial decision in February to cancel the 2G licenses, saying it violated the country’s constitution.

In a bout of what appears to be a case of “grand-standing”, the government said the court had “traveled beyond the limits of judicial review and entered the realm of policy-making.” The government argued that the Supreme Court had “erred in holding that the first-come first-served policy was flawed and lopsided” and that a public auction would have been preferable.

And just to add even more drama, Raja’s lawyers have also sought a review of the order canceling the license sales on the grounds that his case had not been heard by the Supreme Court before it issued its ruling. Raja, who is being held in jail, said in his request for a petition that the Supreme Court ruling could affect the outcome of his own court case.

Manmohan Singh’s Congress-led government efforts to reel in graft and corruption have become a hot political issue in India due to this and a string of other high-profile scandals. Its efforts, though commendable, will do little to placate international investors, knowingly or unknowingly implicated.

The whole sordid 2G saga has not only highlighted corruption and poor management but also bureaucratic miscommunication in India where government departments appear to work in silos. If there was ever a need for “transformation”, this is it, and for the country’s sake, the sooner the better.

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