Huge penalties on all telcos suggests all is not kosher
If all goes to plan, the finance ministry may well have its way and foreign direct investment levels in telecom may be hiked to 100% from the 74% at present. What’s more critical, however, is whether foreign investors will be enthused enough to want to invest more. Certainly, the government is trying to smoothen things a bit by, for instance, referring the matter of the base price for the 2G auctions back to the telecom regulator. What is worrying, however, is the hostile attitude of the telecom ministry in most cases. The 3G intra-circle roaming case is the most recent example where, despite the government saying this was possible at the time of the auctions in 2010, it has now declared this illegal. But there are many more such cases. All told, including the R25,000 crore that the industry has been asked to pay as a one-time fee for the ‘extra spectrum’ it has, other contingent liabilities add up to another R38,000 crore—this does not include the R20,000 crore the taxman is demanding from Vodafone, including penalties, on its $11 billion deal with Hutch. Were a new foreign investor want to come and buy up a company in India, surely its board would baulk at the thought of buying into firms with large contingent liabilities?
If it was only one firm that had a problem, it would be easy to dismiss it as a rogue element. But when the entire industry, including government-owned companies are being issued penalties, the story looks quite different. It gets worse when you consider these firms have invested over R4 lakh crore in just the wireless mobile space. With an annual turnover of R2 lakh crore, the industry is clearly not a fly-by-night one. In the case of the ‘extra spectrum’, the largest holders are the state-owned MTNL and BSNL—their share of the penalty here is over R10,000 crore. It’s difficult to argue that the state-owned companies were bribing telecom ministers/officials to get the extra spectrum. In other cases, such as the notices given for what is called subscriber-local-dialling violations, the penalties go back to something that happened around a decade ago, and the penalty charged is many multiples of the volume of the business itself. Perhaps the best example of how such penalties are levied is the one where a PIL was filed alleging telecom minister Kapil Sibal favouring one firm which had shut down the telecom towers it had set up in rural areas using subsidies from the USO Fund. Though the benefit to the company was much less, the officials chose to levy the highest penalty—R50 crore—which Sibal then reduced to R5.5 crore. With the fear of the CAG/CVC/CBI telecom ministry officials seem to be choosing to levy the maximum penalty, leaving it to the courts to decide on the final outcome. That’s hardly encouraging for anyone trying to do business in the country.