5G allocation to bulk users would be coal scam redux

The Manmohan Singh government was on the mat over its coal allocation gratis to actual users like power and steel plants. The Supreme Court, in August 2014, had cancelled such allocation to 218 actual users as being arbitrary and illegal and opined that a transparent auction of natural resources was the best course. Indeed, it is lest the government of the day is accused of favouritism or crony capitalism and the exchequer gets to raise resources from non-tax sources.

The SC coal verdict came on the back of its 2G verdict cancelling allotment of spectrum on the basis of the opaque and potentially mischievous first-come-first-served (FCFS) criterion. It was against this backdrop that its fastidious accent on auction almost as panacea, holy writ for selling the nation’s natural resources must be examined.

Also read: No biz case for 5G roll-out if concerns on private captive networks not addressed: Telcos body

The UAE doesn’t have personal taxation as it has sizeable non-tax revenue from nature’s munificence – hydrocarbon. Nature has been unkind to India on this score. All the more reason why it should not pass up whatever opportunities it gets to mobilise funds from non-tax sources. 

The Modi government is driven to exploit fuel tax to the hilt despite knowing that it is regressive. Alas, if it only looks for non-tax revenue without going overboard. It is possible that the CAG report of 2012 pegging the loss of revenue to the government at ₹1.86 lakh-crore due to allocation gratis of coal was exaggerated or unscientifically computed but nobody can deny that the government had then shot itself in the foot.

Top telcos’ pleas

In the event, it would be difficult for the Modi government not to heed the fervent plea of India’s top telcos not to go ahead with direct allocation of 5G spectrum via administrative route to corporate enterprises for private captive networks, saying such a move would give a backdoor entry to private companies, truncate the revenues of licensed telcos, rob the government of valuable revenues and create a non-level playing field.

“There is no need to alienate spectrum directly to companies for captive private networks…The licensed access service providers are fully capable of providing all customised solutions, including M2M / Industrial 4.0 services in the most competitive and economic manner, and are providing such network configurations to private and public sector entities,” said the Cellular Operators Association of India (COAI).

The government should remember that 2G licences were also issued to GAIL and Oil India for their own captive use.

Such direct allocation distorts competition and thwarts successful bidders from fully realising their investments. The COAI had warned that such a proposal, if accepted by the government, could potentially rob telcos of their future 5G enterprise business revenues – estimated at around 40 per cent of overall 5G business revenues – and destroy the 5G business case in India. There is considerable merit in their apprehension. Bulk users are a fecund source of business and revenue for service providers including telcos.

TRAI’s change of tack

The telecom regulator TRAI, which had mooted the direct allocation proposal, should have known that its effusive concern for bulk users would pit the likes of TCS with telcos who have a diametrically opposite take on the issue. It has since changed tack and suggested that private enterprises may have the option to lease spectrum from the telcos. The government is undecided and is reportedly said to have postponed the Cabinet meeting called for this purpose.

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There might be a case for free power to farmers by state governments on the ground that the prices they get are unremunerative. But free or subsidised supply of spectrum to actual bulk users would open the proverbial Pandora’s box.

First, it would be against the law laid down by the apex court in the coal allocation case. Second, it would rob the exchequer of its revenue. Third, it would rob the telcos of a huge sliver of business that should have come their way had the government not waylaid them. Fourth, it would set a bad precedent. Newcomers and latecomers would demand such direct allocation of spectrum, throwing the whole thing pell-mell. 

Fifth and finally, the Modi government may be embarrassed should the UPA-led Opposition, itching to get its back on it, petition the SC for cancellation of 5G direct allocation should it brazen it out unmindful of the law laid down by the court. Remember, both 2G and coal cancellations were made by the apex court not in criminal cases but on policy matters where the potential to play favourites inflicting financial losses on the exchequer is enough to nail the government.

In any case, industrial customers with huge resources at their command and huge requirement of spectrum can be counted upon to enter into a win-win deal with telcos without any hand holding by the government.

(The writer is a CA by qualification, and writes on business, consumer issues and fiscal laws.)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)