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Application of the FCFS principle was faulty
Rajan S Mathews, Director General, Cellular Operators Association of India (COAI)
Issue Date - 01/03/2012
B&E: Does the SC judgement on 2G spectrum scam reflect on how telecom players did business in India?
Rajan Mathew (RM): I do not think that is fair to say. Companies usually react to what the government puts out. Government enunciates the methodology and companies respond to it. This is not to say that companies do not act inappropriately. There have been instances when we have left the matter to courts, investigating agencies and vigilance, to determine who acted appropriately and inappropriately, legally or illegally.

B&E: The apex courtís judgement is very stern. Do you see clarity in terms of where the industry is headed?
RM: There is clarity in terms of where the industry will go. However, there is lack of clarity on some aspects of implementation of the order. The Supreme Court has said that the first-come-first-serve principle applied was faulty. The way to go forward is the auction. We support auction but FCFS, inherently, is neither good or bad. The SC says it is open to abuse. A lot of aspects of life like getting a train ticket is based on the concept of FCFS. The notion of FCFS is not flawed. What the court basically said is that when it is applied to this issue of scarce natural resources, then we have to adopt a methodology that ensures citizensí interests and maximises value.

B&E: There are apprehensions that FDI flow will take a hit in the telecom sector after the judgement. What do you say?
RM: We have been seeing the actual impact. Those players whose licences were cancelled, their stocks took a beating and for those with licences, their stocks went up. The investors are saying, ďwe want clarity.Ē

B&E: Is that the lesson you draw from the entire judgement?
RM: There are some key factors that investors look for - predictability, clarity, certainty and transparency. If any of these canons is put to risk, investors gets nervous. In this particular instance there was no clarity. On the issue of predictability, we have an independent judiciary that will step in. That is what happened when there was lack of will to fix the problem, which is good news. Investors invariably look to the judiciary for adjudicating on matters of contractual obligations. If investors get nervous about contractual obligations, thatís a worry.

B&E: What about the telecom players whose licences have been cancelled?
RM: The Supreme Court says that the contracts itself have been one-sided. Let me illustrate. Even if you buy a stolen car in good faith, the law says you have to return it back to the rightful owner. On the issue of the 2G scam, the government itself did not repudiate the licences. The telecom players are innocent. Protect them. But if the court and investigating agencies find operatorsí conduct wrong, bring them to book. But give them a hearing in the court. Donít do things arbitrarily.

B&E: On the issue of re-auctioning of the 2G spectrum, the government expects a huge windfall . With telecom players already having paid so much for BWA and 3G, is that kind of money really available with them?
RM: I donít think that kind of money is available with domestic players. That is why the government itself indicated that it would raise the FDI limit in the sector to 74%. Government knows that the aggregate has to come from international investors. If you look at the 12th Five Year Plan proposals for the telecom sector, the preliminary numbers put out by the Planning Commission suggest Rs. 6,500 billion as the outlay for rolling out various initiatives by government. They themselves admit that 80% of that will have to come from international sources.

B&E: Will companies like to go for bidding when the incumbents already have sufficient spectrum?
RM: First of all, people should not expect the kind of prices that came from 3G. 3G had artificial scarcity built into it. The 750 MHz is coming out by the end of the year. This was not the case in the first round of auction. So the whole scarcity and time frame of spectrum has been made clear. Given all these issues, I donít expect to see sky-high prices. Will it be more than Rs. 10.65 billion? Probably, because new entrants will come. So you will see robust but reasonable bidding.

B&E: TRAI, the sectoral regulator has invited comments from stakeholders on the issue spectrum allocation. What are your expectations on the same?
RM: We are waiting to see what methodology TRAI will adopt. Those whose licences were cancelled are asking for spectrum of 4.4 MHz (bare minimum) and are interested in getting their licences back. But there is also a demand by them calling for exclusion of the incumbents. They say it is inappropriate for the incumbents to bid because the licence cancelled belonged to the new holders. And the incumbents are saying that everybody should be allowed to bid. Let TRAI come out with what it thinks is the best. Let us see how it structures the auction to meet the requirements of the Supreme Court order.

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