2G vs AGR Judgment - The Basic Difference

The Telecom Sector has been marred by a barrage of court cases that has shaken its foundation. Of these cases, the most important is the Supreme Court's 2G judgment of 2012 (directed cancelation of licenses) and now the AGR judgment of 2019 (directed payment of unpaid license fees). This note is an attempt to compare the judgments on the "objective of justice", with the aim of achieving desired social outcomes.

The Objective of Justice

There are many objectives of Justice, but its key is to restore the balance between the stakeholders by ordering remedies and invoking actions that are equitable and morally correct. In the case of telecom, there are three stakeholders - the government, the operators and the consumers. Hence, the need was to restore the balance between these stakeholders with an aim to achieve the desired social outcomes, i.e access to airwaves at an optimal value, the meeting of national objectives, and adequate funds for social welfare projects.

2G Judgment of 2012

The Judgment

Did the 2G judgment of 2012 restore the balance between the stakeholders? Let's find out. It declared the licenses granted by DoT on or after 10th Jan 2008 as illegal and therefore subject to quashing (page 92, clause 81(i). It directed that TRAI shall make fresh recommendations for grant of license and allocation of spectrum in the 2G band in 22 Service Areas by auction, as was done for allocation of spectrum in the 3G band (page 93, clause 81(iii)).

The Balance

Hence, the key outcome of 2G judgment was the cancellation of licenses (granted illegally by the government) and unwinding of the earlier FCFS (First Come First Serve) policy. But how did the order restored the balance between the stakeholders? It did so by diluting the executive powers of DoT in the allocation of natural resource (spectrum), thereby enabling the serious players with access to airwaves at an optimal value, and the public with adequate funds to be used for its welfare.

The Contrary Views

Though there could be contrary views that the order failed to achieve these objectives, as of the three stakeholders, two (operators, and public) were directly harmed by the exorbitant prices of airwaves (due to the auction process itself), and third (the government) indirectly, due to its failure to meet social objectives (expansion of services in rural areas). But this contrary view fails to appreciate the fact that the Supreme Court's order did not take away the DoT's flexibility of "designing spectrum auctions" and of setting "reasonable reserve price of airwaves", which if done correctly would have prevented this exponential rise - resulting in harm to all the three stakeholders. Hence, the 2012 judgment was not bad at all, as it tried to prevent the "moral hazard" which otherwise would have happened in case the validity of the licenses was preserved, that too after the discovery of the gross malpractices. And in the end, what is the guarantee the situation would have been different (if the SC did not impose such restrictions) when DoT mismanaged the earlier FCFS policy when they had all the flexibility?

AGR Judgment of 2019

The Judgment

Now, did the AGR judgment of 2019 helped restore the balance between the stakeholders (DoT, operators, and public)? Let's analyze. SC's AGR judgment has directed the operators to pay unpaid license fees loaded with interests and penalties, as the SC believed that the operators deliberately misused its legal remedies to prevent such payments (long due to the government), that too after having taken all the benefits of the "migration package" of 1999 (operator's revenues have increased exponentially after the migration package). Hence, one can argue that through this judgment, SC has restored the balance in favor of the government, and through it in favor of the public at larger. But is this conclusion accurate? Let's find out.

The Balance

The fact is that in 1999 the operators had hardly any leverage. Most were on the brink of bankruptcy - driven by high license fees that they had committed - triggered by a poorly designed auction (in 1995) which prevented the bidders to pay upfront - leading to speculative bidding. In the urge to stay afloat, they had no choice but to accept the migration package which did not define "revenue" on which the government was to claim a share. The government promised the operators that it will decide it later in consultation with the TRAI. But it rejected TRAI's recommendation without assigning any reasons and also did not place the consultant's report (the basics of DoT's definition of revenue share) before it, as it was legally authorized to do so. But what is the point of doing a consultation when no alternate views find into the definition of "revenue", and no reasons are given for not including the same?

The Leverage

Given the above fact, who do you think had the most leverage? DoT or the Operators? Of course, it was the DoT. The balance was totally on its side. And it misused it to the hilt by forcing a most expansive and unfair definition of "revenue" on the operators after having armed itself with a one-sided contract (the migration package). Hence, the fulcrum of this whole case lies in this imbalance. Did the SC even try to investigate the validity of the powers of DoT to act unilaterally? No. In fact, it never considered this an issue. On the other hand, TDSAT in 2007, based its order in favor of the operators after finding that DoT had acted unilaterally and arbitrarily. But SC didn't find this as an issue when we all know that the tenets of democracy calls for correcting such unilateral and arbitrary actions of the executive?

Who Benefited?

The whole basis of SC's judgment is that the operators acted greedily when they chose to not pay the government its dues that too after having enjoyed the benefits of the migration package. Hence they are not worthy of any concessions. But the migration package was in the interest of DoT too. Why? Reason - Without these private players, the GoI had no means of spreading and expanding telecom services in the country - an absolute must for fulfilling its social objectives. Hence, it was wrong to conclude that operators alone have benefited from the migration package. GoI did too. All the waiting lists (for securing a connection) came crashing and mobile phones and the internet became ubiquitous - laying the platform for the government to deliver public services.

The Public Interest

But what about the common man? One can argue that by forcing such payments DoT is collecting much-needed funds that can be put to good use in public welfare. Yes true, but as long as the economics of doing so are balanced and not extortive. As excessive depletion operator's resources will drive serious players out of the market - resulting in decreased competition, investments, and poor quality services - all detrimental in the interest of the common man. Hence, the current judgment also does not restore the balance in favor of the public too.

Conclusion

The act of justice should not rely upon a standard interpretation of legalities. As these legalities can have varied interpretations under different contexts. Legalities like the DoT's right to reject TRAI's recommendation without assigning any reasons should be tested on a case by case basis in the framework of "maintaining the balance" between all the stakeholders. As such a balance is in alignment with the principles enshrined in our constitution. Any break in such balance will result in loss of value for all the stakeholders involved. Unfortunately, in the current AGR judgment, the SC has failed to restore this delicate balance. Also, once such balance is restored (like the 2012 judgment), it is the duty of the stakeholders to play their role diligently within the latitude of flexibility granted. Doing so will reduce the intensity of these unnecessary litigations - saving precious time, resources. And inability in performing such a role will result in a huge loss of value (unrealistic prices of airwaves), like after the 2G order which could have been easily avoided.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other relevant articles in the embedded link.