The spectrum cost that has emerged today is about 20 times that of the 2001 cost, while the customer base has gone up by 240 times. Yet, there was a deliberate attempt by media to frustrate true market forces and let narrow interests determine the price of a scarce natural resource
Information dissemination is occasionally throttled to ensure fairness to one and all. Especially with respect to information that has a direct bearing on the financial health of a country, there are regulations that mandate a delayed release to public. This is done to enable stakeholders who are directly involved in a transaction to take independent decisions on their investments. These decisions are therefore based on internal merit and capacity to analyse trends and make projections. Any external influence would – in these cases - open up the floor to no less than retrospective accusations of fraud or duplicity. Two clear examples of this kind of information management are observed when enterprises are raising funds through depository receipts and when management boards meet and discuss forward-looking strategy for their enterprise. On both these occasions, it is a criminal offense to directly or indirectly reveal non-public information in order to manipulate investors’ minds.
Looking at initial public offering (IPO) related regulation in the US, we find that as per American securities law, there are two time windows commonly referred to as "quiet periods" during an IPO's history. The first one is from the period following the filing of the company's S-1 but before US Securities and Exchange Commission (SEC) staff declares the registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO according to the Securities Exchange Act, 1934. The other "quiet period" refers to a period of 40 calendar days following an IPO's first day of public trading. During this time, insiders and any underwriters involved in the IPO are restricted from issuing any earnings forecasts or research reports for the company. It is only when the quiet period is over that the underwriters will initiate research coverage on the listed entity. Additionally, the NASDAQ and NYSE (New York Stock Exchange) have approved a rule mandating a 10-day quiet period after a Secondary Offering and a 15-day quiet period both before and after expiration of a "lock-up agreement" for a securities offering. Thus, during a Quiet Period, a publicly listed company cannot make any announcements about anything that could cause a normal investor to change their position on the company's stock. The same applies in the UK, where the Prudential Regulation Authority and the Financial Conduct Authority mandate non-disclosure. In fact, in June 2011 the internet company Groupon was forced to amend its IPO filing after Bloomberg News published a statement from Groupon’s co-founder and Executive Chairman saying that “Groupon was going to be wildly profitable.”
In India, similar regulations with respect to price-sensitive information are put in place through trade windows by the SEBI (Prohibition of Insider Trading) Regulations, 1992. But, unfortunately, such is the vindictive nature of India’s business culture that press information is now being used to influence other critical investment as well. It seems the time has come to extend the scope of Quiet Periods to other transactions such as spectrum auctions.
Earlier, the Department of Telecom (DoT) auctioned spectrum in the 900MHz and 1800MHz bands over 10 days and 64 rounds. The auction pulled in about Rs60,000 crore for the government, of which close Rs18,000 crore will enter the coffers this fiscal itself, through upfront payments. By all means, it was a successful auction and with the bright prospects of data driven services, it is likely that the buyers of spectrum will roll out robust and profitable services for the 88.1 crore mobile subscribers in India. However, a peculiar trend was also noticed during the auction. The media left no stone unturned to influence opinion of transacting parties and manipulate investors’ minds in real time, while the auction was ongoing. The so called analysts’ first response in the media was to call the then ongoing auction “winner’s curse”, without bothering to explain the basis of this judgment. They raised hue and cry over spectrum pricing that was being determined through a transparent auction process and claimed that the companies had quoted high bids. This was followed by a number of other rhetoric statements that smelt of nothing but vested interests.
In 2001, when the customer base was only 25 lakh and tariff was Rs6 a minute, the spectrum contributed only 80 paise per minute to the tariff at the best. The same spectrum is being used even now when the customer base is anything between 50 and 60 crores. This is nearly 200 times of the then customer base in 2001. Therefore, the spectrum cost that has emerged today is about 20 times that of the 2001 cost. However, the customer base has gone up by 240 times. Therefore, if the operators pass on the cost of spectrum to subscribers, increase in tariff will not be more than a few paise. Thus, when Marten Pieters, the CEO of Vodafone, says that the mobile telecom industry has reached a point where annual tariff increases are needed to sustain itself. It is important to focus on the quantum of increase and not the superficiality of increasing tariffs in an industry where they have only decreased over the last 18 years.
None of the involved players entered the auctions without the required knowledge and understanding to participate effectively. However, newspapers such as Economic Times clearly implied so. In fact, in one particular article, the newspaper went to the extent of advising Bharti Airtel (India’s largest and most professionally managed telecom company) to pull out of race 900MHz at extant price points. This created much panic among small investors and could have even been published with the aim of misleading Ministry officials. There was a deliberate attempt to frustrate true market forces and let narrow interests determine the price of a scarce natural resource. The media houses running this propaganda should either allow their conscience to operate for the benefit of India’s poor for whom revenue is raised, or clearly label such “analysis” as “paid news”.
Considering, neither of the above two alternatives will be adopted before an ideal world order is miraculously created, there is a clear need for regulation that mandates dissemination of information in a phased manner. While spectrum auctions are ongoing, no information should be released on a day-to-day basis and no “reportage” on the proceedings should be allowed. The minutest details of the auction may be dissected, analysed and presented before the public only when the whole process is over. But allowing rookie journalists to influence transactions that involve such phenomenal wealth would be allowing for a loophole that we would be daft to not address immediately. We must bear in mind that a single spectrum auction could significantly alter the fortunes of the telecom industry, or the country’s poor, or both. In the light of this, a blackout period should be mandated for the media for the sake of fairness and inclusive growth.
(BK Syngal is former CMD of erstwhile Videsh Sanchar Nigam Ltd (VSNL). He is a B Tech (Hons) and M Tech from IIT, Kharagpur, C Eng (UK), MIEE (UK) and Sr MIEE (US). He is also a member of the London Court of International Arbitration.)
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