The arrival of Kapil Sibal in the Communications Ministry has saved Anil Ambani’s Reliance Communications (RCom) a huge sum of money payable as penalty.
Sibal has whittled down the penalty of Rs 50 crore per circle proposed by the administrator of the Universal Service Obligation Fund (USOF) to a few lakhs for violating its contract to provide mobile services in rural areas.
The USOF is a fund used to subsidise rural telephony. Telecom operators can bid for providing this service, and even ask for subsidies. But RCom bid aggressively for many USOF clusters even without subsidies, and later found them unviable and switched off without the USOF Administrator’s permission.
Under an agreement dated 16 May, 2007, RCom had agreed to provide this service from base transceiver stations (BTSs) in 53 clusters (5,118 sites). As on 30 November 2010, RCom and its sister company Reliance Telecom had commissioned 3,205 BTSs.
RCom could have renegotiated its contract and sought a graceful exit, but it chose to act unilaterally by sending a notice dated 7 December, 2010, that it was cutting off services with effect from the previous month (from November 22). The notice said that it was switching of all but 46 BTSs, and even these would be terminated in two or three months, and stop paying power and fuel bills to the infrastructure provider, Bharat Sanchar Nigam Ltd (BSNL).
The official response was hard. In a show-cause notice dated 21 December, 2010, to Devinder Singh, President of RCom —a copy of which was sent to Anil Ambani— the USOF official rejected the arguments put forth by RCom and Reliance Telecom for an abrupt switchoff. “RCL (Reliance Communications) is in clear violation of the licence agreement as well as USOF agreement leading to disruption of continuity of service. Also there is no provision for USP (universal service provider, that is RCom) to unilaterally exit on his own from discharge of its performance obligations and go scot-free without performing.”
The show cause notice proposed the maximum fine of Rs 50 crore. (Firstpost assumed that if the same logic were to apply to all the 13 circles in which RCom had USOF agreements, the fine would rise to Rs 650 crore. However, we have now been told that the fine was Rs 50 crore overall).
The rural telecom operations under USOF were shut in 13 circles — Andhra Pradesh, Bihar, Jharkhand, Gujarat, Karnataka, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh (East), Uttarakhand and West Bengal.
Reliance sought six weeks’ time to reply to the show cause, but the USOF Administrator was in no mood to give it time unless it switched on the services first.
But this is where Kapil Sibal worked his magic. Despite the fact that it was RCom that had unilaterally switched off its BTSs, he decided to treat RCom’s action as a mere “interruption” of service and lowered the penalty.
In doing so, he overruled the ‘strong’ recommendations of his Director (Telecom), Advisor (Finance), Member (Finance) and Secretary (Telecom). All of them had proposed a penalty of Rs 50 crore on RCom in one circle. But Sibal turned it down, arguing for a ‘simple penalty’ based on the number of days of service disruption at Rs 500 a day. Thus what could have been an exemplary fine for unilateral breach of contract was turned into a paltry amount of Rs 5.49 crore in 13 circles.
Explaining the reasons for his decision, Sibal cites a 16 February, 2011, letter from RCom saying that “they (RCom) have already switched on the sites in the earliest possible timeframe after mobilising their resources.” This letter was not part of any previous communication with the Department of Telecom.
The sequence of events is suggestive:
• On 2 February, 2011, Director (Telecom) signs an internal order proposing a penalty of Rs 50 crore from RCom in one circle.
• By 9 February, everyone up the chain, up to the Telecom Secretary, had signed on the internal order endorsing the Rs 50-crore penalty.
• On 16 February, RCom writes to Kapil Sibal. This letter was not apparently circulated to the rest of the telecom hierarchy – but no independent confirmation was available to Firstpost.
• On 18 February, Sibal springs a surprise by strongly referring to the 16 February letter of RCom and reducing the penalty.
While Sibal may be within his rights to overrule his officers and interpret the law in line with his judgment, RCom’s claims that it had switched on all the BTSs it had terminated on 22 November were not verified.
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