The 2G Judgment of December 2017: What Was It About?

The judgment provides a critique of how no proper evidence was presented on existence of an FCFS policy and its improper implementation.

Shyam Ponappa 

  |   January 4, 2018

The recent 2G judgment raises perplexing questions about the case, with pointers in the judgment to issues of concern that we need to address going forward.
 

This preliminary analysis highlights questions that arise from select issues covered in the judgment of over a thousand pages: Can government policy itself be prosecuted as alleged wrongdoing, as the charge sheet apparently tried to do? The judgment states that the FIR alleged in item 1 that the licence fee in 2008 was Rs 16.58 billion as in 2001, and licences were issued on a first come, first served (FCFS) basis without competitive bidding.¹

a. These are factual statements in accord with prevailing policies, and licences could be applied for at the fee set in 2001. The charges question the appropriateness of the policies as there was no competitive bidding or auction.² Arguments for changing the policy to adopt auctions, or to increase fees, appear unconnected with proving wrongdoing.

b. Regarding the FCFS policy, the charges are twofold. One is whether or not there was in fact an established FCFS policy. Another is alleged malfeasance in policy implementation.

Was there an FCFS policy?

The judgment finds that the FCFS policy has been misrepresented in the claim that only one application was processed at a time.3 This is analysed and contradicted in detail. The judgment gives several contrary examples provided by the defence, such as later applicants being processed earlier when there was a problem with compliance by the earlier applicant, of successive applicants given letters of intent (LOIs) on the same day, and applicants with LOIs seeking repeated extensions before letting them lapse. The judgment states that no evidence was presented of a systematic FCFS process for the issue of LOIs and spectrum allocation/assignment in the case of 51 prior licences issued. The finding is that because there was a single applicant at a time earlier, a sequential process was followed, but that this was not a conscious policy. Also, that the evidence from the Wireless Planning and Coordination Wing (WPC) is that priority for spectrum allocation was from the date of application for spectrum, and not from the application for the unified access services (UAS) licence (LOI). The judgment concludes that there was no evidence to prove that there was an FCFS policy in the form as alleged in the charge sheet. The sense one has from the instances cited is that there was a loose policy with no standard operating procedure.

Possible malfeasance & evidence

Another allegation in the charge sheet is that the FCFS policy, such as it was, was implemented in a manner that resulted in wrongful gains. From press reports at the time, one expects that this statement of possible malfeasance is the sort for which evidence might be available and presented. So, was such evidence presented?

The FCFS process changed from the date of application for a licence in the order in which it was received to actual compliance with terms of the LOI. This meant submitting all requisite information, documentation and clearances together with bank drafts and guarantees. Earlier, the FCFS criterion was the completed application (as in the instance of a later complete application being processed before an earlier incomplete application). The judgment records that consideration of the proposed change to LOI compliance was publicly known well beforehand and was even published in the press.

The counter is that because of a large number of applicants, the criterion was established for serious applicants who complied with the conditions of LOIs, including all clearances and payments. All applicants were apparently well informed of impending developments at the Department of Telecommunications (DoT). The judgment notes: “Everything was leaking in DoT. There was no secrecy or sanctity… In such a situation, no blame can be cast on any of the accused alone.” However, one is left with a sense that this area has not been conclusively explored.

Some questions remain

A broad question: Is there a way to deliver justice while avoiding the infructuous path of dealing with the several hundred thousand pages of documents over seven years and the opportunity cost so far for all involved in just this case? If so, how do we change course going forward? The charges appear to have conflated the questioning of policy with allegations of improper implementation and culpability. Might separating the questioning of policy from establishing wrongful implementation and culpability be more constructive? Could defining narrower culpable allegations, focused on evidentiary material, obtain conclusions beyond reasonable doubt?

* The judgment provides a scathing critique of how no proper evidence was presented on the existence of an FCFS policy. What is the explanation for a weak case by the prosecution?

* The charges sought to prove that there was a conspiracy of all the 17 accused, and that the first indication of it was the letter from the DoT to the solicitor general regarding LOIs for pending applications. Could the charges have targeted other events and activities based on likely availability of evidence, and if so, what might they have found? Examples: Bringing forward the deadline for applications from October 1, 2007 to September 25, 2007, or the lack of orderly standard operating procedures adopted in changing the priority of applicants from the date/time of application to LOI compliance.

* Regarding wrongful gains, there is no indication if forensic methods were used in tracking transactions and if so, what the methods and findings were.

* What explains the rough-and-tumble process that applicants had to go through in complying with LOIs related to the case?

For the New Telecom Policy in 2018, we must hope to learn from and avoid such adverse situations. One way is to facilitate collaborative and transparent implementation.

---

Shyam(no space)Ponappa at gmail dot com

1. Delhi District Court judgment: Cbi vs . (1) A. Raja (A1); on 21 December, 2017.pdf

https://indiankanoon.org/doc/17920655/

2. The Trai (Telecom Regulatory Authority of India) recommended auctions in August 2007 for all spectrum except “2G bands”, but not for licensing. Acceptance by the DoT would have made this the policy, but this recommendation was not accepted.

3. (Ibid) Page 524, Paragraph 753

The Coming Telecom Monopoly

The 2G judgment and Trai spectrum pricing recommendations have led to a policy that makes sense for only one survivor

Shyam Ponappa / May 3, 2012

The Telecom Regulatory Authority of India, or Trai, has delivered a stunning blow to the telecom sector in the form of its spectrum pricing and refarming recommendations. The sector was already reeling from scandals and misgovernance, and staggered by a confused Supreme Court judgment based on inappropriate assumptions (for details, see “Time for a review”, March 1, 2012, and “Open access is the future,” March 4, 2012). This will cripple an erstwhile sunrise sector that drove (and still can) India’s prosperity through productivity, enabling many factors to converge positively — such as its economic momentum, enterprise, resilience and, most important, a demographic bulge that could become a blessing or a curse. This convergence was (and is) possible because of the enabling ability of telecom and broadband to provide access to education, vocational training and continuing education; health care and other public services; and commerce, including the delivery of individual output, within easy reach. All this is stalled, as we deliberately disembowel ourselves, as it were.

If Trai’s recommendations are implemented, they will ensure that a lone survivor dominates the sector, annihilating all significant competitors – Bharti, Vodafone, Idea, Tata, and newcomers like Telenor and Sistema – through their having to pay exorbitant fees just to keep their current business going, even without expansion. That is, provided the lawsuits that are likely to follow don’t obliterate everything for the next 10 years.


Are these setbacks happenstance, heaven-sent, or acts of man? Analysing the components shows that much is attributable to the machinations of men, although rendered by different individuals or groups under varying compulsions. The afflictions that began with cronyism and misgovernance have been aggravated by a judgment based on misapprehensions regarding: (a) spectrum technology; (b) the economics of auctions and; (c) competition in network economies.


In trying to get at the corrupt nexus of corporations, politicians, bureaucrats, and just plain crooked people, indiscriminate zealotry is destroying legitimate enterprise. The judgment lumps the guilty with the circumstantially proximate. Coupled with defining auctions as best for the public interest, this set the stage for what has followed. The furore over corruption and the Anna Hazare movement ensure that any objective recommendation would come under fire, with a mobocracy baying for revenge.

Is being deprived of ubiquitous, reasonably-priced broadband so devastating? Yes, because of broadband’s great potential in India’s vastness for enabling people at relatively low cost, compared with, say, fixing energy supply, or sanitation and water, or roads, or growing food. All these are necessary; but broadband is much easier to achieve, at lower cost, and would bring it all more easily within our grasp, especially in rural areas.

Performance

Some question the beneficial effect of revenue sharing from the National Telecom Policy, 1999, (NTP-99) suggesting the sector might have done as well or better without the change. Pakistan is cited as an example for growth with auctions. Consider the performance of the sector in both countries.

Chart 1 - Mobile Subscriptions (Millions) 2003-2010

(The third line shows India’s numbers reduced to 70 per cent, reflecting an estimate of live subscriptions.)

Chart 2 shows the percentage of population served. Pakistan’s coverage grew 

                                                                   Chart 2:  Percent Population Covered           

Sources: India – TRAI; PIB; http://en.wikipedia.org/wiki/Telecommunications_Statistics_in_India

Pakistan -  http://www.pta.gov.pk/index.php

rapidly until about 60 per cent, then tapered off. India started more gradually before accelerating to 60 per cent a couple of years later, and kept going. In March 2011, both were around 70 per cent. At the end of December 2011, India was at 76.86 per cent.

However, there are two major differences. One is the scale of India’s operations. Sheer magnitude makes for much greater complexity, and the achievement is therefore remarkable. The second is the significantly higher government levies in India. India’s telecom sector is perhaps the world’s most heavily burdened, with government collections higher than in Pakistan by 15 to 24 per cent of revenues.* (Compared with China,where government charges are only 3.5 per cent, India’s levies are even more grossly out of line.) Had Indian enterprises not had this burden, it’s conceivable they might have had the capacity and stomach to effectively address rural coverage, especially with the right incentives.

Achieving Ubiquitous Broadband

Now consider what needs doing for countrywide access to broadband, and what odds have to be overcome. First, there’s the addition necessary to rural and semi-urban networks, where almost three times the existing coverage is needed. Much of this needs wireless access. This is why spectrum pricing critically affects outcomes. Many people in India harp on a litany of sunk-costs-not-affecting-tariffs, oblivious to the vast deficiency in network coverage, ie, areas and people without access. It’s like arguing over pricing without any production plant or products. Without capital investments in network coverage, there can be no services, nor any tariffs, high or low. There is little doubt of the effects of high spectrum and licence fees: these needs remain unmet. Hence the low rural teledensity of under 39 per cent at the end of February 2012, with urban coverage at nearly 170 per cent, and overall teledensity at 78 per cent. Separately, there’s the issue of inadequate incentives for broadband delivery.

Statements from Trai and the Department of Telecommunications about the spectrum pricing recommendations being reasonable because of the revenue potential simply don’t add up. Their projections are based on a fantasy of booming growth (like the Budget projection of 7.6 per cent GDP growth, but even more exaggerated). Whereas the combined effect of the scam and its fallout, sentiment, momentum, and misguided efforts at tax-gouging will ensure that telecom revenue growth is no more than a stunted five to seven per cent, at best. No bank will lend seven-year funds in such uncertain circumstances to what was once a sunrise sector — but is now like heavy infrastructure, with a need for 20-year financing. Add the costs and difficulty of refarming the 900 MHz spectrum, and one has to wonder: who is going to bid, and why? It makes sense only for one survivor. All this is aside from the extension of subsidised non-performance at the PSUs, instead of transforming them into anchors of an  open-access national network.                                                                 


                                                                     shyamponappa at gmail dot com 

* According to Trai (2005):http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf
Changed to: https://main.trai.gov.in/sites/default/files/ir30june.pdf

Changed to: https://www.trai.gov.in/sites/default/files/ir30june.pdf   June 12, 2022

The 2G Supreme Court Judgment - 2

Open access is the future

Flawed technical assumptions in the Supreme Court's 2G judgment, and possible ways forward for the government

Shyam Ponappa / Mar 04, 2012

The first part of this article (‘Time for a review’, BS, March 1: http://organizing-india.blogspot.in/2012/03/2g-supreme-court-judgment-1.html) dealt with erroneous assumptions, especially regarding auctions. This part covers misplaced assumptions about technology, and explores constructive alternatives going forward.

Errors in technical assumptions 

An assumption underlying the prescription of auctions is that spectrum must be assigned to operators for their exclusive use. This was how wireless evolved during the first half of the 20th century, when radio frequency interference was the predominant problem in wireless communications.

With developments in technology, some advocate open spectrum predicated on the use of “cognitive radio” or “software-defined radio”, by which user equipment avoids interference by sensing unused channels automatically. In this model, open-access spectrum is a commons.


Another approach is to use a database-driven open-access model, whereby devices register with a database, and are dynamically assigned spectrum as needed. If this were possible in 1959, when Ronald Coase first recommended auctions, it would not have been necessary to parcel out spectrum. Even in America’s developed economy, the first auction was in 1994, and it failed.¹ Now, technological developments enable spectrum sharing and dynamic assignment. America’s FCC has appointed 10 database administrators for dynamic spectrum allocation, with Spectrum Bridge being the first — in operation from January 2012.
America restricts this approach to unused spectrum in the TV bands, and a portion of the 700 MHz band, called “TV white spaces” (TVWS). The UK’s Ofcom is taking similar steps, with implementation planned for 2013. While all licensed frequencies could be pooled, sharing is restricted to TVWS because of conventions and legacies, and operators’ and governments’ preference for auctions. This judgment rules out sharing, blocking other technologies if the spectrum were available.


The lure of auctions 
For markets like India, there is every reason from a technology perspective to share not only TVWS and 700 MHz, but all commercially licensed spectrum. There is a technological basis for pooled spectrum, without exclusive assignment and auctions. Yet people love auctions: liberals, because business must pay its way, and governments get revenues; conservatives, because market mechanisms substitute for government controls.² Operators prefer exclusive assignment to the uncertainties of open access and compensation for their holdings. Governments want auction revenues. So neither governments, nor big operators, nor the uninformed public, see incentives for pursuing what is in the public interest: shared spectrum.

For Technology leaders in OECD markets, shared spectrum was not a priority, because more spectrum was available to fewer operators. For instance, in 2010, operators in many US cities had 55-90 MHz according to gigaom.com, and AT&T was using only about half its available spectrum, whereas in Delhi and Mumbai, operators had only 10 MHz.

First-come-first-served 

Can the FCFS policy be abrogated on the basis of unconstitutionality? If so, the induced turmoil and far-reaching changes in procedures required for everything from tickets for railways or airlines, state-owned assets such as land, mining concessions, even government housing (including for judges?!), and all previous licences granted by FCFS procedures, defy imagination. This urgently needs review by the Supreme Court in the public interest.

Irregularities, outcomes, contracts and cancellation 

The same 11 companies whose licences were cancelled qualified according to the FCFS principle, except that their sequence was changed, apparently through procedural irregularities. In other words, without malfeasance, the same companies would have got the licences, except for S Tel getting Delhi and someone else not. Malfeasance deserves penalisation. However, as changes resulting from irregularities are limited in the sense that the same candidates would have won, must all licences be cancelled? Is there a judicial option of annulling the award, and placing the issue before the executive for equitable resolution in the public interest? After all, it is against the public interest to induce turmoil in markets and development capabilities, which the present ruling is likely to do not only in telecom, but in other sectors like energy, mining, manufacturing and transportation. Also, if foreign companies acquired legitimate stakes in licence holders, can these contracts be nullified without proof of their malfeasance? Or could erring parties be penalised, while legitimate parties are enabled to reconstitute their position as required by law?

The way forward 

Unfortunately, it is for our discredited and dispirited government to pick itself up and dig us out of this hole. Focused, goal-oriented action on the following lines would help.

First, review petitions: A first step is structured review petitions to the Supreme Court seeking relief, without grandstanding, bluster, or abdication of responsibility.

Second, an alternative to spectrum auctions exists in open access with payment. Both public revenues as well as public usage can be well served by treating access to spectrum as an open-access right-of-way. India’s policy makers need to consider the US and the UK’s shared spectrum approach. Spectrum can be paid for as it is used, as are oil pipelines, roads, or airports and ports.3

Open access could create tremendous opportunities in India, including for other technologies, e.g., a revival of WiMAX, if Intel grasps the nettle.

Third, on the cancelled licences. This has different problem sets. 

One set comprises parties who abused the system, punishable under due process of law. 

If there are parties in a second set that did no wrong, they should suffer no penalty.

What of a subset of the first, in which a foreign partner invested legitimately and built out, provided they were within the law? If these investors acted in good faith, perhaps a legal recourse could be to place their cases before the government for resolution and rehabilitation in the public interest conforming with the laws, if need be by a dispensation from the court, or even by fresh legislation. After all, good faith investors have contractual rights. Possible solutions might be (a) to penalise the guilty partner, while absolving the innocent, or (b) cancelling the licences of the guilty, while allowing the innocent to reconstitute as required by the law.

Above all, there is need for problem-solving that is systematic, transparent and participative, with expert inputs in domains and processes, to place the sector on a firm footing.

---

shyam ponappa at gmail dot com

1: http://www.benkler.org/Open_Wireless_V_Licensed_Spectrum_Market_Adoption_current.pdf
2: Paraphrasing Eli Noam: http://www.citi.columbia.edu/elinoam/articles/beyond_auctions.htm
3: For details, see: http://organizing india.blogspot.com/2011/06/ntp-2011-objective-broadband.html

The 2G Supreme Court Judgment - 1

Time for a review The judgment cancelling 2G licences was based on demonstrably incorrect assumptions about auctions Shyam Ponappa / Mar 01, 2012 This first of two articles starts out with identifying the false premises of the judgment, particularly relating to the consequences of auctions.  The next article, to be published on Sunday, March 4, 2012, addresses erroneous technological assumptions, and explores possible ways forward. The Supreme Court judgment of February 2, 2012, cancelling 122 2G licences needs a detailed review. This is because it is based on faulty premises relating to economics, finance and technology. If the Supreme Court entertains review petitions on this judgment, it is imperative that the judges be aware of these false premises, and that they be correctly informed regarding these issues. This article gives a few instances of such errors and explores the logic of auctions.  Click here for Cloud Computing First, as an example of an error, the judgment states, “Spectrum has been internationally accepted as a … renewable natural resource which is susceptible to degradation in case of inefficient utilisation.” The fact is that spectrum is not renewable, nor is it degraded. Spectrum is completely unaffected by use, unlike the degradation of land or water through use. However, use of a particular range of frequencies in a given space and time can block another user’s effective access to the same spectrum in that space and time — hence the need for considering efficient societal use. Second, the judgment states that “the Government of India has already taken a decision to ... allot the same [spectrum] by auction”, quoting Telecom Minister Kapil Sibal. The fact is that the government had not announced such a policy decision before the judgment. Third, the judgment prescribes auctions as being in the public interest. Are they? The assumption that auctions are in the public interest warrants a detailed review. Amidst a cacophony of confused opinion based on little knowledge and less understanding, here is the evidence: a) Maximum public revenues: auctions or revenue share? Assume for a moment that public revenues are indeed the appropriate measure in the public interest. What does the evidence show? An estimate from the Telecom Regulatory Authority of India (TRAI) in 2005, of auction fees foregone after the transition to revenue-sharing, was Rs 19,314 crore from March 1999 to March 2007. In fact, actual revenue-share collections by March 2007 amounted to double that number, or Rs 40,000 crore. Further, the amount collected by March 2010 was Rs 80,000 crore. Sources: Auctions - TRAI, 2005: http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf Revenue Share: CAG, 2010:  http://www.performance.gov.in/sites/default/files/departments/telecom/CAG Report 2009-10.pdf Report No. 19 of 2010 - Performance Audit of Issue of Licences and Allocation of 2G Spectrum of Union Government, Ministry of Communications and Information Technology 16 November 2010 https://cag.gov.in/cag_old/content/report-no-19-2010-performance-audit-issue-licences-and-allocation-2g-spectrum-union These data demonstrate that over seven and 10 years, revenue-share collections far exceeded auction fees foregone. Over the entire life-cycle (20 years or more with extensions?), the revenue-share collections will overwhelm even the Comptroller and Auditor General’s (CAG’s) imaginary lost revenues. b) Public interest: revenues, or access and usage? What is really in the public interest — revenue collections or the benefits of usage? The CAG report and the clamour for auctions assume that revenue collections reflect the public interest. However, the draft National Telecom Policy 2011 (NTP-2011) states as its first objective: “Provide high quality, affordable and secure telecommunication services to all citizens.” It states that revenue generation will be secondary. In other words, the policy objective is to provide the benefits of accessible, affordable services to users, not to maximise revenues collected. This was the first time the government unequivocally stated an objective that appeared emphatically in the public interest. The Supreme Court has thus far seen it differently, although this has nothing to do with upholding the law. The confusion is made worse because the preponderance of literature is by “auction experts” focusing on high fees — and not at all on the services that should have followed but didn’t, because the capital went into the auctions instead of building service capability. A notable exception is a more balanced study of spectrum auctions worldwide that considers social gains as well as fees — which estimates social gains at an overwhelming 240:1 (“What really matters in spectrum allocation design”, Thomas W Hazlett and Roberto E Munoz, April 9, 2010: http://ideas.repec.org/p/reg/wpaper/372.html). https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1961225_code410506.pdf). c) Are auctions in the public interest? There was one successful auction in India in 2001 – because the market was dead – for a fourth mobile operator per circle. Other auctions in India and abroad resulted in the failure of network rollout and services, but were hailed as successes because of high auction fees. For cases of “operation successful, but patient dead”, read on. Auction failures US, 1994: The first US auction netted huge bids. Soon after, a number of “successful” bidders declared bankruptcy. This was repeated in the 1995-1996 “C”-Block auctions.   India, 1994: This auction in 1994 was followed by chaos from overbidding and default. The sector recovered only after many years, when the bids were set aside in favour of revenue-sharing with NTP-99. It took almost a decade before a reduction in revenue share (lower fees) and tariffs (calling party pays) led to explosive growth in mobile telephony from mid-2003.   UK, 2000/European Union, 2001 (3G): Considered a spectacular success, netting about $35 billion in the UK, followed by high bids in Austria, Germany and Italy that netted over $100 billion, these auctions raised about ten times the amount expected. The markets collapsed thereafter, and the bidders couldn’t service the debts incurred. Companies have taken a decade to recover, moving cautiously even now on 4G.   India, 2010 (3G and broadband wireless access): Hailed as a success, with over Rs 1,00,000 crore bid, lacklustre performance has followed, as companies struggle with the “winner’s curse” of paying too much to corner spectrum. Auction experts have written disparagingly of “failures” (low fees) in countries like the Netherlands, Switzerland, Sweden, and non-auction countries like South Korea, Japan and Finland (until 2009). However, these disparaged countries have the best broadband services, according to a 2010 study by Saïd Business School at Oxford (http://www.sbs.ox.ac.uk/newsandevents/releases/PublishingImages/3 - Broadband quality ranking - by economic development.jpg). That is not surprising, considering that the capital was invested in service delivery, instead of in vying for spectrum.

The next article, which will appear on Sunday, March 4, 2012, will cover erroneous technological assumptions, together with policy issues and possible approaches to a constructive resolution of the gutted prospects of our telecommunications and broadband services sector.


                                                               Shyam (no space) Ponappa at gmail dot com