The truth in the 2G scam is slowly emerging…..

Recent CBI disclosures have been revealing to say the least. One case of corruption after another appears to be falling by the wayside. What’s going on here? Is the CBI acting under pressure from the government? Since the CBI directly reports to the Hon’ble SC on 2G related investigations, is it fair to blame the government at all? Did we all jump the gun in simply believing every single accusation when it was made? Should we admit that we may have vastly misunderstood the whole 2G scam?

The first truth that CBI has brought out is that TRAI had not recommended that 2G spectrum be auctioned. This much the TRAI has itself admitted. The same TRAI had recommended that 3G auctions be put through an e-auctions route. Does this mean that TRAI has been inconsistent or does it mean that the two subjects were different in nature and warranted different treatments? Everyone knows that 3G is a premium service. The need for a fast data service is felt more by sections of the premium society, who are willing to pay a stiff fee. As compared to an ARPU (Average Revenue per User) of less than Rs 150 per month for users of 2G services, the outlay for 3G services is at least 5 times that. Besides, 2G is a “basic” service – almost like kerosene or diesel, and hence it cannot be compared with a “premium” service like 3G. So when TRAI recommended that 2G spectrum not be auctioned, what it did was the right thing. Had 2G spectrum been auctioned, telecom prices would have been much higher, and mobile penetration would never reached the levels it reached. Telecom companies passed on cheaper costs of spectrum to their subscribers in the form of cheaper pricing. 2G pricing in India reached a ridiculously low level of half a paise per minute. It’s not as if the telecom companies made huge profits. Airtel’s EBITDA margins are about 30%, which is at best par for the course. Voda – the number two telecom company – turned in its first profit (a small one at that) after being in the country for so many years. Reliance – the number three company – is in losses. Idea – the number four company – has a much smaller profit margin. The new companies are all in a very bad shape.

I have always maintained that the one policy the government got right was the telecom policy. Started in the NDA days and then continued by the UPA, the telecom policy of giving spectrum free resulted in the telecom revolution. Today, there are more than 800 million telecom connections; an estimated 550-600 million of these are live and unique connections. This would not have been possible without free spectrum. But rather than take credit for this good policy, both the NDA and UPA have been wanting to dissociate themselves with it. None wants to accept that they took the smart decisions willingly and voluntarily. The NDA in particular has wanted to exploit the situation politically, lumping charges of corruption on the UPA. The chickens are truly coming home to roost for the NDA, now that the CBI is charging ministers in its tenure – starting from Pramod Mahajan and including Arun Shourie and possibly Jaswant Singh – with complicity.

The second truth that has come out is that the CBI could not find any kickback from Unitech to Raja. There is merely a suspicion that Unitech is somehow involved. Apparently, Unitech was ineligible to apply for 2G licenses and Raja’s tricks allowed it to do so. Unfortunately in law, mere suspicion is not enough to indict someone. In all likelihood, Unitech will be let off with a small charge of cheating…..

The 3^rd truth is about Swan Telecom. Again, the CBI has admitted that there was no trail of any quid pro quo against Reliance Telecom or Raja. Nor does it appear that there was any benefit to the company. The charges against the three executives of Reliance group are merely limited to setting up an ineligible company (Swan). More dirt may come out, but at least so far, the charges appear much smaller than thought earlier.

In the case of both Unitech and Swan, it was alleged that by diluting their equity in favor of foreign companies (Telenor and Etisalat respectively), the promoters had made thousands of crores of profits. Nothing could be far from the truth. Yes, the promoters did dilute their equity stakes – but they did not take anything home as profit. Both companies issued new shares to their foreign investors and all the money that came from the foreign companies came into the companies. This is a usual business practice. If these joint ventures now make a loss (as is quite obvious they will), then the value of the equity will fall and each party will make losses.

In the case of Look Mobile, there is still a lot of confusion. And debate. Was Loop Telecom a “subsidiary” of Essar and was Essar’s holding in Loop more than 10% or not is the crux of the matter. The telecom policy didn’t allow an existing telecom operator to have more than 10% stake in another telecom company in the same circle. This case is still not closed as the CBI is trying to unearth if a “corporate veil” existed between the two companies which is preventing a clear view from emerging. We will have to wait to see what comes out here.

So was there no scam at all in the 2G matter? Of course not. There were scams but they were of a much much smaller order than the CAG or even the CBI has claimed in the past. The CAG put out a fantastic figure of Rs 1.76 lac crores – a number that has stuck in the minds of people. The CBI revised that figure down to Rs 30,000 crores – again a fantastic figure. The real figures are much much smaller.

It appears that the owners of Swan (DB group) paid Rs 200 crores as a quid pro quo to DMK’s TV business, Kalaignar TV. If this is proven, it would be a clear case of corruption against Raja. Then there are charges of process violations in following the first come first serve policy. Raja changed the first come first serve policy to suit a few companies. These charges look like they will stick. Then there are also FEMA violations that CBI has found amounting to some Rs 10000 crores as per today’s papers. Now FEMA violations are different from 2G violations. FEMA violations relate to foreign exchange coming into the country through illegal routes. The money may come into any sector of the economy; it has nothing to do with the 2G scam on hand. It’s early days – the CBI has to show what evidence it has to prove these FEMA charges.The problem is that if nothing substantial against Raja can be established, then it will be extremely difficult to charge him with anything more than small time cheating.

The political damage the the UPA is irreversible. Even if the CBI now comes out and says that there was only a small loss to the exchequer – nothing even remotely close to the Rs 30,000 crores – the UPA will never be able to say “see we said so”. In the minds of the public, the UPA government is the most corrupt government ever – no matter what the truth. Nor will it help the UPA if the NDA is equally indicted by the SC. The charges will stick to the UPA more than they will to the NDA. For one, the NDA rule is largely out of public minds. The UPA rule is fresh. The UPA’s credibility has also suffered because of other scams. But that’s the way politics is played. The truth seldom matters. Suspicions and charges matter more.

The real truth is that we should have held our horses till the CBI finished its investigations; till the SC delivered its verdict. Today, the charges are looking a lot smaller than they looked earlier. The SC may not even be convinced with the evidence that the CBI has unearthed. Of course, politically speaking, the truth hardly matters. Those who are opposed to the UPA ideology will continue accusing the government of being the most corrupt government ever. Those who are aligned with UPA will feel they have been vindicated.…..