Vodafone calls auctions illegal, discriminatory; DoT under SC directions, plans to proceed regardless

Vodafone, arguably India’s largest foreign investor which has spent roughly Rs. 1 lakh crore in acquisition and other investments and expenses since 2006, is on a collision course with the government on the issue of the coming 2G auctions, for which the Department of Telecommunications (DoT) released fresh guidelines on January 22, 2013.

In a letter to the DoT, Vodafone has called the auction guidelines “illegal” and “discriminatory,” while accusing the government of acting to “benefit one set of players.” Vodafone executives told The Hindu that they would consider “all possible remedies, including legal recourse” in the event the situation is not resolved amicably.

However, the government remains unfazed. DoT Secretary R. Chandrashekhar said: “The government does not believe there is any legal infirmity in the auction guidelines, especially since the decision to hold auctions has emanated from a court direction in the first place.”

Vodafone has asked for a revision of the auction guidelines in the 900-1800 MHz band. It has argued that the spectrum is being used extensively in its existing network, so it cannot be put up for auction in the manner stated in the guidelines. It further highlighted that the extension of licenses had to be done on mutually agreed terms, alleging that the auction guidelines for the coming March auction for 2G spectrum “are contrary to DoT’s own decisions on earlier occasions.”

According to Mr. Chandrashekhar, operators are required to simply pay the auction-determined price for their spectrum holding and not vacate spectrum. “As for licence renewal, if operators do not accept the renewal terms, there will be no renewal of licence.”

Apart from accusing the DoT of discrimination and partisan behaviour, Vodafone has alleged that “auction guidelines have arbitrarily fixed reserve price at levels that are higher than international benchmarks.”

While Vodafone has not named any specific company as beneficiaries of the government’s policy, industry experts clarify that the comment is targeted at Reliance and Tatas.

The British multinational telecommunications company has already been in the eye of the storm with its tax- related litigation where a demand for over $2 billion was made by the government. Vodafone bought out Hutchison for over $11.2 billion (Rs. 60,000-crore) in 2005-06 and has invested over Rs. 51,000-crore since 2007. It serves 150 million subscribers on a pan-India basis, of which it says nearly 50 per cent are rural customers.

This confrontation comes at a time when Minister for Communications and Information Technology Kapil Sibal is overseas to promote investments in the electronics manufacturing sector among other related areas of telecom and IT. Given that the auction is less than two months away, a complete overhaul of the process appears impossible. “The government is required to comply with the order of the Supreme Court and we have no reason to alter course at this stage,” Mr. Chandrashekhar said.

The coming 2G auction is the tail end of the corrective executive action flowing from the February 2, 2012 Supreme Court order cancelling 122 licenses and linked 2G spectrum granted illegally by the former Telecom Minister, A. Raja. Unlike previous disputes, rival industry associations COAI and AUSPI have not begun taking aggressive public positions on this issue yet, though COAI director general Rajan Mathews has on a few occasions hinted at the legal validity of the license renewal process and its impact on investor sentiment.

Unless resolved, the situation could lead to litigation, a development that both sides can ill afford. At stake is Rs. 30,000 crore of potential auction revenue. This negative sentiment casts a shadow on the efforts of both Finance Minister P. Chidambaram and Mr. Sibal, who have been working to seek fresh domestic and international investments.

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