Author: Editorial
Publication: Business Standard
Date: October 31, 2008
URL: http://www.business-standard.com/india/storypage.php?autono=338815
Even if Communications Minister A Raja is
not willing to concede that he handed over scarce spectrum (used for mobile
communications) to a few select firms for a virtual song, the evidence is
now mounting. Just last month, one of the firms (Swan Telecom), which had
paid Rs 1,537 crore for its 13 telecom circles in the country, was able to
sell 45 per cent of its equity for $900 million (the enterprise value was
therefore $2 billion). At the going exchange rate, that meant Swan had got
a value 5.9 times what it had paid just eight months earlier. Since the Rs
1,537 crore that Swan paid was based on the auction price for the fourth cellular
licence way back in June 2001, when there were just four million mobile phone
users in the country (today, that number is added every two weeks), it was
always obvious that the government would get a much higher price if it auctioned
the spectrum. Since the government got Rs 9,000 crore from the companies to
whom it sold the spectrum last January, using the Swan valuation meant the
government had got around Rs 44,100 crore less than it should have got. But
even this valuation, it now appears, may have been an underestimate.
Just a couple of days ago, the real estate
firm Unitech, another beneficiary of Mr Raja's largesse, sold a 60 per cent
stake in its telecom firm (it applied for all 23 circles and paid Rs1,651
crore as licence fee) to Telenor of Norway. Since, like Swan, Unitech has
not rolled out any of its network and does not have a single subscriber, and
since the company has no knowledge of the telecom business, the Rs 6,120 crore
paid is only for the spectrum that Unitech got. Including the debt component
that will be taken on by Telenor, the company says its enterprise value is
now Rs 11,620 crore - that is, Unitech has got a valuation that is more than
seven times what it paid. Given that Telenor has got a majority stake in the
firm, which Etisalat did not, the Norwegian firm has naturally paid more.
Based on this, the loss to the government is Rs 54,300 crore, or a substantial
portion of that (assuming you have to leave something on the table for investors
to be attracted). By way of contrast, the entire Bofors contract, and not
the 14 per cent commission paid secretly to various middlemen, was worth Rs
1,600 crore, and that was enough to bring down a government two decades ago.
On the flip side, the promoters of the Unitech
group (which is the second largest real estate enterprise in the country)
have made more money out of grabbing a telecom licence and selling a majority
stake in it, than they have done through decades of building their real estate
business. And how were they and the other lucky people chosen to be given
spectrum? On the basis of the 'first come, first served' principle that was
announced arbitrarily and shut the door on potential applicants, and which
then created the equivalent of a rugby scrum to be first through the door,
on the appointed morning! Is anyone shocked enough to cry 'Foul!', or has
the country ceased to care?
Since this has happened despite Prime Minister
Manmohan Singh being against it (at a Ficci function, he stated publicly that
auctions were the best way to go), it is clear that he is helpless in the
face of coalition politics. That is, the communications ministry is with the
DMK, without whose support the government would not survive; Mr Raja's appointment
as the communications minister was first made by Mr Karunanidhi in Chennai,
not by the Prime Minister or President; and the DMK and its minister seem
to enjoy free rein, with collective Cabinet responsibility being a convenient
piece of fiction. The message to the country is that, if the next government
is as beholden to its coalition partners as this one is, crony capitalism
will continue to flourish. Indeed, what has just happened in telecom is likely
to be repeated when it comes to the impending 3G auctions, from which new
players are sought to be excluded. But that will only drop bid prices, because
there will be fewer bidders. Any takers for the public interest?