Antrix-Devas deal: A deal that did not make commercial sense

How are commercial deals being undertaken by corporations such as Antrix, which are wholly owned companies of various departments of the Government? How is spectrum allocation between various departments being managed? Can each department, which has been allocated spectrum for its specific needs, reach its own commercial deals treating this spectrum as its “private” property? The Antrix Devas shows failure on all these counts. It was commercially a bad deal, The spectrum that ISRO was giving away through this deal is a valuable one, and was not its to sell. This spectrum is also increasingly being used for land-based wireless broadband services. DoT and TRAI had been asking the Department of Space (DoS) to release a part of this spectrum for this purpose. ISRO never disclosed to DoT and TRAI that they were commercially selling this spectrum to private parties for the same services. The problem for the Government is once the looting of public resources for private gain is accepted as the policy of the Government, each department will turn entrepreneurial. Therefore Armed Services are looking at how to “sell” defence land (Adarash), railways are talking about building malls and other commercial “use” of railway land and Space is “selling” spectrum.  All this is a part of the neo-liberal ethos of the current brand of capitalism. This is the “animal” spirit of Indian capitalism that Manmohan Singh extolled in his 1991 Budget Speech. What he forgot to tell the country is that this animal spirit of capitalism needs a state that allows for larceny on a grand scale. This is what we’re seeing today. A huge transfer of nation's scarce resources to the capitalist class, in which politicians and bureaucratic class are becoming prominent.

Rough Transcript

Srinivasan Ramani (Srinivasan): Hello and welcome to Newsclick. A commercial deal between the Antrix Corporation, the marketing arm of the Indian Space Research Organization and Devas Multimedia was in the news recently. The deal was scrapped after The Hindu first reported irregularities in the deal and the department of space had already recommended cancellations somewhere mid last year. The deal actually involved the design, building and launch of two commercial satellites by ISRO for Devas Multimedia and the lease of transponders and therefore S band spectrum to Devas Multimedia. We discussed the issue with Newsclick’s own Prabir Purkayastha who is an expert on telecommunications and who’s been working on this sector for, about the sector rather for past two decades.

Prabir Purkayastha (Prabir): Thank you.

Srinivasan: Prabir, tell us in brief, why was this deal cancelled at all and what were the aspects of the deal that you think necessitated its annulment?

Prabir: I think this deal does show that Antrix as a space arm of ISRO really does not have a clear commercial sense of what it is doing. If you leave out the issue of spectrum for the time being, just take the deal as lease of transponders as Devas is pointing out which it all it was according to them then let’s take that itself as the issue. Here, Devas was going to pay them something like 300 million dollars over 12 year period which works out at current market rates to about 1,200 odd crores for which up front ISRO would have to spend somewhere like 776 crores to launch the two satellites. If you take the net present value of the money that Devas was going to give them over a period of 12 years, it appears that at the end of the day Antrix received less money from Devas than 776 crores that it was going to pay upfront. So effectively commercially it did not seem to have much sense as far as the deal goes. The second part of it is the question of the spectrum and of course spectrum is a big issue because it was not only that this was just lease of transponders, it was also taking over 70 Mega Hertz of S band spectrum and that was proposed to be use for essentially broadband purposes which would of course mean that the spectrum price was not just the transponder lease, we really also have to look at the spectrum price

Srinivasan: When you first initially mentioned that just by simple commercial sense the deal between Antrix and Devas would not have made the, would not have made sense, then why did ISRO go about this deal in the first place, what do you think were the dynamics behind the deal at all?

Prabir: Well let’s put it this way, if there is a commercially bad deal, the deal which commercially makes no sense and if it is struck with parties who have your ex-employees on all those companies in leading positions, one could always suspect that there is a sweetheart deal in this. Now I’m not really going by what the, whether this was a sweetheart deal, how was it a sweetheart deal. On the face of it, it’s a deal which makes no commercial sense and if it makes no commercial sense, there was no reason why Antrix or ISRO should’ve entered into it. The question to my mind is a bigger one, what is the mechanism by which we can regulate this activity? Because space has a today a commercial arm, we have a commercial arm of for instance atomic energy, we could have commercial arm of different government organizations which originally was set up only to provide public good. Once they enter into commercial deals, what is the basis of which these deals are, what is the charter, how should they look at it? I think that’s one of the biggest failings of these kind of organizations. They neither have the ability nor a clear guideline how they should commercialize and as a result of that, sweetheart deals could very easily take place.

Srinivasan: The CAG in its initial estimates as The Hindu reporter said that the, if you take the 3G auctions as the bench mark, then the presumptive loss from this deal would amount to nearly two lakh crores which is even higher than what was the presumptive loss from the 2G spectrum case. So could you please explain the dynamics behind the spectrum?

Prabir: You see, each part of the spectrum has different values and unfortunately the SATCOM policy which what everybody is referring to, is really extremely spare, meager, not really, doesn’t cover a lot of the aspects of this issues. So the SATCOM policy treats everything at the transponder lease, it doesn’t treat the spectrum issue at all. This is one of the key problems of the SATCOM policy because ultimately what Devas is saying, and in this they’re right, that we must refer to the SATCOM policy for what we are doing. The point is, that having referred to the SATCOM policy, the SATCOM policy really looked at DESAT service providers and directly leasing of transponders for various other services. Everything else, DTH services, VSAT service providers has really come under TRAI and department of telecom as well, so space is but so are these arms. Unfortunately, in this particular deal, this part of the spectrum which space really was sitting on, which in fact has been asked a number of times by TRAI and DOT that this spectrum should be released for broadband purposes. Space not only sat on this but in this case also virtually sold it to Devas Multimedia. Now I think the important part of it is that while Devas multimedia has raised the issue that other DTH service providers or DTA service providers are also getting spectrum so why singling us out. The difference is, the DTH service providers are really using it for a very specific purpose and not competing services for broadband wireless which this spectrum can be used. So this spectrum certainly is a part of the spectrum which can be used for broadband wireless purposes, can be used for other purposes and while space, department of space refusing to part with this part of the spectrum has always raised the issue that this is important for security and various other purposes, we can’t therefore give it. What they didn’t tell anybody till now is that they had also given it for broadband wireless purposes to Devas and this they were sitting on the spectrum not because they didn’t want to release it for broadband but they wanted to release for broadband under their auspices. So there is really a direct conflict of interest or conflict of you know what shall I say, the regulatory apparatus dealing with spectrum on this issue but who effectively is in control of the spectrum.

Srinivasan: Speaking of the valuation again, a comparative metric use for the valuation of S band spectrum can be done by looking at the sale of same spectrum, 20 Mega Hertz of the same spectrum to BSNL and MTNL, right?

Prabir: Similar spectrum.

Srinivasan: That was I think sold for around 12,500 crores all?

Prabir: Yeah. The whole issue is while the space looked upon it as if it was transponder lease, the purpose of the spectrum seems to be multimedia broadband application, terrestrially. Now if it is so, then we have to compare it to similar services which are going to be offered. Now this deal was struck in 2005. Therefore it’s true that the spectrum price which we know in 2010 wasn’t available then. Well it really opens out the issue of how spectrum is allocated, what should be the principal of giving spectrum to private parties. If today we’re looking at spectrum, spectrum has, today is with policies of defense, is with space, is with or at least a part of it also is with information and broadcasting, All India Radio and so on and of course largest custodian of the spectrum is department of telecom using it for mobile services and so on. Now the question is all this spectrum use who regulates that it’s a consistent policy regarding them and that is the huge hole that we have in the policy today. The spectrum allocation, spectrum use is really not being considered in a systematic way or in a consistent way. Therefore we have each part of the agencies who deal with spectrum thinking it’s a private property and they can dispose it off any way they will and that’s in fact one of the major reasons for this kind of fiasco.

Srinivasan: Coming back to the sale of spectrum again, the government in its kind of rationalization of the 2G spectrum sale, the manner it was done, the official sector says that one should not look at spectrum sale as merely a revenue accruing process but rather as a process that unleashes the forces of, that has unleashed the forces of telecom revolution even further. Now this raises a larger story itself of sale of publicly owned resources, the mineral resources or spectrum.

Prabir: You know, the question about spectrum being given cheaply so that mobile services can expand and people have to pay less, this would make sense if there is no resale of the spectrum that the companies receiving it. All you’ve done is really converted what could’ve been a public auction in a private one. So without a lock in, giving away spectrum G doesn’t make sense. Second part of it is that when how you give a spectrum is that just for the benefit of the consumer or is it benefit of the company, that’s the key issue and this is across the board today to look at it. We have an at least three very clear issues we have before us. One is the issue of spectrum which has been given away at low cost to corporate entities, it’s not that it is given away for public good like say low priced rice. It’s being really given away as a benefit to corporate who are selling it again, so this is one part of it. Second part of it for instance you take the gas pricing. Now Reliance at one point was negotiating with NTPC, in fact the binding contract with NTPC to sell gas at dollar to 34 per million BTU. We have the government of India then sets the price at dollar for 20 for the gas which means a huge subsidy to or “Subsidy” to Reliance Industry. So this is a clear transfer of resources from the people who are the ultimate consumers to Reliance Mukesh-Ambani’s group. Third is today of course the huge issue of land. Now whether it’s army, whether its railways, everyone is sitting on prime real estate in the country. Now if they decide that this, what was given to it as a part of railway infrastructure, part of army’s use, if this can be privatized or commercialized then you can have huge windfalls. So in fact that’s a third part of the scams that we are seeing now, Adarsh being an example of this. But there is another element to it of course which is mineral resources, they’re also being given away to private entities in the same way. So what we’re seeing is primitive accumulation of capital on a grand scale and this is what the neo-liberal agenda of privatization, private development in infrastructure has really set the stage up for, we have a new set of capitalists, we have old capitalists coming together, we have a political class coming together and a massive rip off of national scarce resources for private aggrandizement and I think that is the key issue today which is really what is upsetting a whole lot of people.

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