The Indian Telecommunications industry is taking some heavy blows these days thanks to the currently unraveling fiasco of a recently launched corruption probe into 122 telecom licenses issued in 2008 by the Indian Ministry of Communication and Information Technology under the administration of Andimuthu Raja. Apparently, the spectrum bandwidth licenses, sold to companies such as Bahrain Telecommunications, Emirates Telecommunications Corporation and Bharti Airtel Ltd among 15 other telecoms companies, were given away at deep discounts and under conditions of preferential treatment in exchange for bribe payments to select figures in the Telecom ministry and other agencies. As of recently the Indian government has cancelled all 122 licenses and is claiming revenue losses of more than US$30 billion dollars.
The 2G Spectrum Scam Discovered
The spectrum bandwidth licenses, issued in 2008, were handed out to a number of foreign and domestic Telecom giants operating in India as 2G mobile phone subscription vendors. However, according to the current investigation of what is now called the 2G spectrum scam, the companies in question received these licenses at reduced prices that were far below their supposed market value, and did so with the bribed collusion of various key figures in the Telecom ministry and government.
The bribery scandal first unraveled in 2010 when an examination by the Indian Auditor General revealed that the auction revenues of 3G and 4G spectrum bandwidth for that year were much higher than they had been in 2008. This in turn prompted the full blown probe that has now led to the arrest and criminal indictment of Andimuthu Raja and a number of other bureaucrats and industry executives on fraud and conspiracy charges.
The list of suspects charged with criminal offenses in the scandal also includes Kanimozhi Karunanidhi, who is accused of conspiring with Raja in corporate dealings revolving around Kalaignair TV; Siddarth Behura, then Telecom secretary at the time the licenses were granted; RK Chandolia, Raja’s private secretary at the time, and also a large number of corporate executives from companies such as Essar Group, Kalaignar TV and Unitech Wireless.
Impact of the 2G Spectrum Probe on the Indian Telecom Industry
Naturally, the accused parties all deny any criminal wrongdoing, despite the Auditor Generals claim that the entire 2008 sale “lacked transparency”. Regardless, in February of this year the Indian Supreme Court — also calling the 122 license sales “Unconstitutional” and accusing Raja of having gifted away a national asset – cancelled all 122 bandwidth permissions and decided on holding a new series of auctions at much higher and more market reflective prices than those of 2008.
The license fee recommendations come from the Central Board of Direct Taxes, which has made recommendations to increase the fees for frequency allocation licenses 11 fold in light of estimated tax losses of nearly US$35 billion. However, the 35 billion quantity, based on calculations done by the Comptroller and Auditor General of India, is disputed by some parties — the Central Bureau of Investigation, for example, claims a much lower loss of US$16 Billion.
Despite the hope that an anticorruption probe should make major business interests more comfortable about investing in India, the opposite effect is being felt throughout the country’s telecommunications industry and around the world. Several major domestic and foreign communications companies working in India have seen their share prices drop significantly, leading to domestic and international losses on asset management funds invested in the country. Worse still, several companies, such as Bahrain Telecommunications Co, Emirates Telecommunications Corp and Russia’s AFK Sistema have had to shut down their Indian operations.
Possible Consequences of the Indian Anticorruption Probe
The government of India believes it has to look harsh on corruption and boost revenues from increased license fees. However, the bottom line is that sudden, extreme moves like these are bound to send shock waves through a still fragile developing industry. In addition to the damage already done by the shut downs and stock price drops, a great deal of new business may simply not decide to invest in Indian markets for fear of stumbling over what are often seen as very heavy handed regulations and arbitrary moves from the government itself.
The questions have to be asked; were the efforts to recoup between 16 and 35 billion dollars in lost taxes worth the inevitable economic costs caused by scaring away infrastructure investment in the economy? Could the authorities have maybe done things a little more smoothly?
About the Author: Steven Chalmers is an active blogger in the telecommunications industry. When he is not at his day job hardwiring videoconferencing or traditional conference calling services, he is writing passionately on the subject.