Sibal's penalty cut for RCom on USOF is back to haunt him

Communications Minister Kapil Sibal’s decision to lower the penalties on Reliance Communications for unilaterally switching off large chunks of its rural telephony operations has come back to haunt him.

In February last year, Sibal reduced the proposed penalties of around Rs 600 crore -recommended by every single official that the file went to - to less than Rs 6 crore. The case, first brought to public notice by _Firstpost_ investigation as early as July 2011, was later the subject of a public interest litigation in the Supreme Court.

Sibal overruled the ‘strong’ recommendations of his Director (Telecom), Advisor (Finance), Member (Finance) and Secretary (Telecom), all of whom had proposed a penalty of Rs 50 crore on RCom in one circle. Under the Unified Access Service Licence (UASL) conditions, penalties for violation of licence conditions can go upto Rs 50 crore per circle. Since RCom had shut off services unilaterally in 12-13 circles, the actual fine could have gone upwards of Rs 600 crore.

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[caption id=“attachment_359907” align=“alignleft” width=“380” caption=“Since RCom had shut off services unilaterally in 12-13 circles, the actual fine could have gone upwards of Rs 600 crore. Reuters”]  [/caption]

But Sibal turned his officers 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 small amount of Rs 5.49 crore in 13 circles. (Read Sibal’s reasons here )

Sibal’s logic was simple: when there was a specific provision under the universal service obligation fund (USOF) to penalise violators of USOF conditions, there was no need to take recourse to the broader UASL rules - which govern the entire licensing of a telecom company. He also pointed out that since RCom had switched on its rural base transceiver stations (BTSs) by the time the file landed on his desk, it was best to treat the violation under USOF rather than UASL.

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However, The Economic Times reported on Thursday that the Access Services (AS) wing of the department of telecom (DoT), has now again recommended that the issue of penalty should be revisited. It has suggested seeking Sibal’s nod to slap the maximum possible penalty of Rs 600 crore - Rs 450 crore against RCom and Rs 150 crore against its subsidiary Reliance Telecom Ltd (RTL) for the alleged violation.

The AS wing has apparently been emboldened in its view by the views of the attorney general in this matter. While upholding Sibal’s decision to levy the penalties under USOF - which is the per-day rate for the number of days in which the services were disrupted in various circles - the AG also held that there was no reason why action should not separately be pursued under the UASL rules.

The AG specifically ruled out the aspect of double-jeopardy - where a company is penalised for the same offence twice, and hence not fair. According to ET, AG Goolam Vahanvati, said: “The concept of penalty is different from an offence relating to criminal prosecution. The Supreme Court, in several cases has held that a penalty imposable is only a civil liability, and therefore, in my view, the principle of double jeopardy does not arise.”

This is what has emboldened the Access Service wing, which oversees operational aspects of the telecom sector, to bring up the matter again, and DoT is likely to seek Sibal’s nod for sending RCom another show cause notice on the USOF service disruption.

Some background is in order to explain the full story. As Firstpost noted earlier, 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 22 November). The notice said that it was switching off 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).

Can deliberate switchoff be called a service disruption? This is what Sibal thinks.

The official response to RCom’s decision then 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.”

When telecom officials found the RCom reply unsatisfactory, this is what happened.

• On 2 February, 2011, Director (Telecom) signed 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 wrote to Kapil Sibal. It is not clear if this letter was circulated to the rest of the telecom hierarchy - but Sibal acted on this basis.

• On 18 February, Sibal referred to the RCom letter that it had restored services and reduced the penalty by treating the infringement as a “disruption of service”.

While Sibal had every right to overrule his officers and interpret the law in line with his judgment, RCom’s claimed that it had switched on all the BTSs it had terminated on 22 November.

Firstpost undertook a 3,500 km investigative trip in Rajasthan to check on RCom’s USOF record since Sibal’s ministry hadn’t carried out any basic due diligence on compliance before reducing the penalty. Our conclusion: RCom’s claims of having restored services are partly misleading. (Read here ).