With even the division bench of the Delhi High Court ruling that Communications Minister A Raja's decision to come up with an arbitrary cut-off date of September 25, 2007 was illegal, the government is in huge trouble.
The issue is no longer about Raja's favouritism, it is about the government now having to, by law, give licences to almost all the 26 companies that applied for the same instead of just the nine that Raja favoured. The question is what does the government do now?
It can appeal in the Supreme Court but, considering that the division bench is the appellate bench for decisions taken by a single judge, there has to be a really new point of law for it to go to the apex court.
This could be the Telecom Regulatory Authority of India (Trai) saying, as it is expected to, that no new players should be allowed - Trai's consultation process on this matter is on at the moment.
While that can help the government get away from the obligation of giving out new licences when it has no spectrum to give, it still doesn't take care of the original problem - on what basis did these nine companies get their licences/spectrum?
Nor can the government hope to simply ignore the court's orders since at least some of the firms that never got licences due to Raja's arbitrary cut-off will go to court to enforce their rights.
While this may not apply to some of the new entrants that would think several times before taking on the government, certainly the Sivasankaran-owned STel, which got the first court verdict and now the division bench's ruling in its favour, will be one of them.
In which case, it may be time to consider adopting what the NDA did when faced with a similar situation in the case of Reliance [ Get Quote ] Infocomm offering "full-blown" mobile services on its fixed land licence - Tata Teleservices [ Get Quote ] was offering a more "limited" version of mobile services on its fixed land licence.
On the face of things, both situations are similar. When cellular mobile phone firms challenged Reliance's services at the Telecom Dispute Settlement and Appellate Tribunal (TDSAT), the TDSAT chief said the service had to be stopped since it was illegal. The other two members of the tribunal said that while the "full-blown" mobility offered by Reliance was illegal, offering "limited" mobility was not.
So, the TDSAT said, all the government had to ensure was that Reliance didn't offer "full-blown" mobility. Instead of acting upon this, after four months, the government just decided to amend the policy and legalised Reliance's services through what was called the Universal Access Service Licence (UASL).
But there's a vital difference between the Reliance case and the one before the government now. For one, in the case of Reliance, the majority judgment of the TDSAT was not in favour of cancelling the licence.
Though asking the government to ensure Reliance offered "limited" and not "full-blown" mobility was hogwash since there was no way to ever monitor it, yet it offered the government some sort of a fig leaf in the sense that it gave it time to figure out how the TDSAT judgment was to be implemented.
And in the period that the government was reportedly studying how to implement the judgment, it changed the policy.
More important, however, is what the NDA did while changing the policy and bringing in the UASL. It legalised Reliance's services while many would have liked it to cancel them. But, while doing so, the government charged Reliance the licence fee, which was discovered in an auction process two years earlier, and a penalty as well.
The deal was that the government pretended Reliance had been awarded the licence in the auction, but delayed making the payments and so had to pay the interest charge for the interim period. There is little doubt this was a huge fudge, but it restored some sort of parity between the cellular mobile players and the ones like Reliance and the Tatas in terms of the licence fee paid - and the government got around Rs 3,000 crore (Rs 30 billion) by way of additional licence fees.
This is what the government needs to do now. Since it does not have the spectrum to give all applicants licences, it has to either get the new licencees to give back their licences (which is what the court's judgment effectively boils down to), or charge them a premium for what they got dirt-cheap from Raja.
There are several ways to figure out what this premium is. The government can take into account the premium that firms like Unitech and Swan got when they sold equity to Telenor and Etisalat.
Or, it can take into account the value that it gets from the 3G auction and charge these firms extra for their licences on this basis. (Several will argue that firms like Bharti and Vodafone have also got extra spectrum beyond the 6.2 MHz promised in their licence and that they should be charged for this. They should be charged, and this is one of the issues before Trai, but let's not confuse the issues since they are two distinct ones.)
Once the government adopts such a solution, it may be able to weather the storm created by the successive court judgments. Without it, there will be hell to pay.