Most have been shocked by Telecom Minister A Raja's attempt to favour Reliance Communications [Get Quote] and help the company jump the long queue of 46 companies wanting to get precious spectrum. But what's happening now is, in some ways, even worse.

The Reliance decision was challenged by various GSM-mobile phone firms and there is an attempt to create a split in their ranks -- Maxis Aircel has already withdrawn from the court case, and it is likely another one or two firms will follow as they've been made to believe this improves their chances of getting spectrum.

Minister Raja, of course, created history when, to enable Reliance to jump the queue, he acted on just a part of Trai recommendations (the one that allowed Reliance to offer both CDMA and GSM-based mobile services) while refusing to even take a view on others that affected this -- so, for instance, he failed to consider the fact that, since no telecom firm can hold more than 10 per cent of the equity of another firm in the same circle, there was no way Reliance should have been allowed to have two telecom businesses in the same circle.

The Trai recommendation on charging higher fee once a firm had more than a certain amount of spectrum (as would happen if it had both CDMA and GSM operations) was also not considered -- if accepted, this would raise Reliance's licence fee obligations substantially.

Having picked and chosen from the Trai recommendations, the minister is now bypassing Trai completely. While the law says Trai has to be asked for its recommendations when a new service provider is to be brought in, as well as on the manner in which this player is to be introduced (most assume, incorrectly, that the current policy is "first come first served"), the minister has decided that this is to be referred to the solicitor general.

On October 24, the ministry made out a note to the Solicitor General asking for his opinion on how the government should deal with the spate of applications received by it for spectrum -- the matter may finally be sent to the Attorney General though, since the Solicitor General is defending the government in the Reliance case at the TDSAT. (Interestingly, while the ministry was quick to approve Reliance's application for GSM-mobile services, one of the decisions that legal opinion has been sought on is how to deal with a similar application from Tata Teleservices [Get Quote]!)

The law on how new applicants are to be dealt with is very interesting in the light of the huge spate of applications for telecom licences by firms who believe, as the ministry does, that "first come first served" is the law in operation. To understand this, we need to go back a bit in history.

In 2001, when the fourth cellular operator was to be brought in, the government did an auction � so, till 2001, there was no concept of "first come first served" when it came to allowing newcomers in. The "first come first served" principle applied to giving extra spectrum to existing operators as and when they reached the prescribed subscriber threshold -- so, if Bharti crossed a million subscribers in Delhi before Vodafone did, Bharti would be the first to get the extra spectrum (see 7.29 in the October 2003 Trai recommendations, for instance).

In 2003, it was left to Pradip Baijal as Trai chairman to come up with a solution to help Reliance Infocomm (as it was then known), primarily, to legalise its operations under the garb of what was to be called Unified Licence. Baijal discussed various options. The first was to invite bids (that's right, bids) from existing operators as well as prospective unified licence applicants. He then discussed a few more alternatives and instead opted for a unique model.

He postulated a situation in which Reliance had got its licence in 2001 along with the other bidders, but had failed to pay the licence fee for two years -- in the event, Reliance then paid the licence fee of the fourth cellular operator along with an interest amount!

Trai ended its recommendation saying, "on the issue of introducing more competition, Trai has always been in favour of open and healthy competition" and that this could be done by introducing "additional players through a multi-stage bidding process as was followed for 4th cellular operator". This set of recommendations was accepted by the government.

But, it will be asked, what did Trai say after this? Maybe it plumped in favour of "first come first served" after that? Actually, there has been no occasion after this when Trai was asked for its opinion on the matter.

Indeed, in April this year, when the government asked Trai for its latest recommendations, it was on whether there should be a cap on the number of new players, not on whether or how new players should be dealt with -- this is what the government has sought legal opinion on! In the event, Trai never even gave a new recommendation on how to induct new players. Given the existing Trai position on new players and that no new player can be brought in without Trai's recommendation, the legal opinion should be interesting.

If the final legal opinion, or that of Trai, is that new licensees have to bid for spectrum, the Reliance episode becomes even more interesting since it can (in my view, should) be argued that its GSM-mobile licence is actually a new one. In which case, the company has been given spectrum for a song while others will bid for it.