Ratan Tata has long stood apart from other titans of Indian business. He doesn't mingle with cricketers or starlets, and he doesn't live in a 27-floor, $2 billion home like Mukesh Ambani, India's richest man. Tata has also for the most part remained aloof from the rough and tumble of Indian politics. But that changed in spectacular fashion last week when Tata engaged in an indignant public spat with a member of Parliament, trading allegations about whose company may or may not have unduly benefited during the 2008 allocation of the mobile-phone spectrum.
Rajeev Chandrasekhar, a member of India's upper house of Parliament and a former business rival, accused Tata in a Dec. 7 open letter of getting special treatment in the allocation of GSM spectrum, and then selling equity in Tata Teleservices to the Japanese company NTT Docomo for billions of dollars. Tata replied with a public missive of his own: "Your letter is based on untruths and distortion of facts, and I feel compelled to place the real facts as bluntly as I can before you," he wrote on Dec. 8. "I can hold my head high and say that neither the Tata Group nor I have at any time been involved in any of these misdeeds."
Their war of words is just the latest turn in a widening telecom scandal. In a voluminous report issued on Nov. 10, India's top auditor detailed irregularities in the government allocation of the 2G spectrum to private companies, calling it "arbitrary, unfair and inequitable." The Department of Telecommunications, the report said, ignored its own guidelines and the advice of the Prime Minister's office and underpriced the spectrum, "flouting every canon of financial propriety, rules and procedures." The result was a loss of nearly $40 billion in potential government revenues. India's Telecom Minister, Andimuthu Raja, resigned under pressure on Nov. 14 but denies any wrongdoing.
The auditor general's report focuses on the alleged failings of the Telecom Ministry, but the $40 billion question who might have benefited from the lower prices or jumped the queue to grab a piece of India's booming mobile-phone market is left unanswered. The report estimates the loss based on the underpricing of new spectrum and the allotment of extra spectrum to existing carriers. Tata Teleservices is one of the carriers, but there is nothing in the report suggesting that Raja gave Tata any special treatment. "Raja didn't do anything specific for them," notes Vibodh Parthasarathi, a professor at the Center for Culture, Media and Governance at Jamia Millia Islamia in New Delhi.
Still, fueling the speculation is Tata's appearance in a series of taped phone conversations recently leaked to two Indian magazines, Open and Outlook. In the tapes, Tata talks to his p.r. representative and lobbyist, Niira Radia, who also represents Mukesh Ambani, about her efforts to help Raja outmaneuver a rival politician to win a second term as Telecom Minister. "Does he know that the other guy is gunning for him?" Tata asks. Radia replies, "Yeah. He is fully aware. So I promised him I'll help him. I'm helping him, Ratan, wherever I can."
In another conversation, Radia discusses with an unidentified person the question of who gained the most from the 2G allocation. She agrees that "the younger brother," a reference to Mukesh Ambani's brother and rival, Anil Ambani, is the biggest beneficiary of Raja's tenure as minister. Asked why she is helping Anil when Mukesh is her client, she says, "This is a very complex issue ... My clients, the Tatas, have also been big beneficiaries."
Since the tapes were released, Tata has been on a public relations blitz, condemning the violation of his privacy and seeking to block further publication of his phone conversations, while insisting that nothing illegal or improper has been done on his behalf. Tata told the Indian Express that he had no interest in who became Telecom Minister in 2009 and said that the implication that Radia was trying to influence the appointment was all "innuendos."
Some observers have urged the government to revoke any licenses found to be tainted, but that is unlikely to happen, and would only further disrupt an industry already in flux. The Indian stock market has lost about 8% of its value since the 2G report's Nov. 10 release. A more likely outcome, telecom experts say, is that the 2G allocations will remain in place, while the government may work out a formula for recouping some of its hypothetical losses. Revenue from the privatization of national resources has allowed India to try to narrow its fiscal deficit and bankroll social-welfare schemes.
The focus on lost government revenue depending on how it's calculated, the figure may be as low as $12 billion might be getting in the way of improving telecom policy. Revenue levels are not a good measure of spectrum policy, says Partha Mukhopadhyay, a senior fellow at the Center for Policy Research in New Delhi. A better policy would, for example, unbundle spectrum in cities and villages to encourage carriers to reach underserved rural areas. Increasing the price paid for spectrum (which is, in any case, passed on to consumers) without improving policy "would be a failure," Mukhopadhyay says. "The fear is, we will not take the lessons from this particular deal and improve the way spectrum is allocated."
Paradoxically, irregularities in the telecom market might not affect telecom consumers. Rohan Samarajiva, an expert on telecom policy in South Asia, has studied the mobile-phone market in Bangladesh. There, too, investigations revealed hundreds of cases of spectrum sold and resold in "non-transparent" transactions. Nevertheless, Bangladesh has nearly 100% phone coverage and some of the lowest prices in the world. "How the [phone market] entry was created has not harmed it," Samarajiva says. "The effects are not really in that industry."
The impact of any irregularities in spectrum allocation if such irregularities are ultimately proved may, in fact, be felt in other institutions. Corruption has become the No. 1 concern in public conversation in India, according to a recent poll by the BBC, and opposition demands for a probe have disrupted the functioning of the legislature in the world's biggest democracy. The press, too, has come under fire, with several prominent journalists featuring in the Radia tapes as power brokers and go-betweens. Meanwhile, India's Central Bureau of Investigation has just completed a raid of Raja's home in New Delhi, and says that it expects to complete its investigation of him by early next year. Raja has denied any wrongdoing. Repairing the damage to India's reputation may take much longer.