2G Spectrum Allotment: A ‘Raja’ of scandal

The CAG report on the allocation of 2G spectrum licences indicts the Department of Telecommunications and former Minister A Raja for gross violations.

The disruption of parliamentary proceedings in November over the 2G spectrum allocation was further proof that the allegations of corruption plaguing the United Progressive Alliance (UPA) government's second term were far from over.

The Union government had to force the resignation of Telecom Minister A. Raja for his alleged involvement in the scam although senior Congress leaders kept saying that the final report of the probe by the Central Bureau of Investigation and the Enforcement Directorate into the improper licensing of 2G spectrum might not come before early next year.

The distribution of 2G licences to telecom companies by the Department of Telecommunications (DoT) has been in question since 2008, but what triggered the recent pandemonium in political circles was an audit report on the allocation of 2G spectrum submitted to the government by the Comptroller and Auditor General of India (CAG). This was subsequently tabled in Parliament.

What the report says?

In its report (http://www.cag.gov.in/html/reports/civil/2010-11_19PA/contents.htm), the CAG has said that the licences were given at throwaway prices, ignoring the advice of the Prime Minister and the Ministries of Law and Finance. The DoT apparently also ignored the recommendations of the Telecom Regulatory Authority of India (TRAI) in August 2003 which had chalked a road map for the allocation of licences. These discrepancies cost a presumptive loss of Rs.1.76 lakh crore to the national exchequer. The audit report also indicates that the DoT did not follow the government allocation rules, ostensibly to benefit a few companies. In this context, the CAG points out that 85 of the 122 new licences issued in January 2008 were given to companies that did not even meet the prescribed DoT eligibility criteria.

Nine real estate companies misrepresented facts to get the spectrum, the report says. A major real estate company, the Unitech group, submitted applications for spectrum under six newly incorporated companies. Some of the beneficiary telecom companies in question are Shipping Stop Dotcom Pvt Ltd (now Loop Telecom), Allianz Infratech (which later merged with Etisalat DB Telecom), Swan Telecom (now Etisalat DB Telecom), Datacom Solutions (now Videocon Telecommunications) and S Tel. All these companies were allocated 2G spectrum despite not having the minimum paid-up capital required to get the licences. Allianz Infratech Private Limited submitted an application that did not even include the telecom sector in its main object clause. So, the CAG report says, its application should have been rejected immediately.

120 licences on a day
The audit covers the period 2003-04 to 2009-10. The report states, “In January 2008, [the] Department of Telecommunications issued 120 new licences for unified access services [UAS] on the same day. These licences were issued at a price which had been discovered in 2001. Issuance of 120 licences in just one day and at a price discovered in 2001 has drawn the attention of media, Parliament and informed members of the civil society. Questions have been raised regarding the transparency in the allocation process and the failure in maximisation of revenue generation from the allocation of spectrum, which is a national asset. This department had been receiving innumerable references from Members of Parliament and other sources repeatedly, questioning the allocation process and the price fixed for such allocation. The claim in each such reference is that ineligible applicants seem to have been granted licences and at a price which appeared far below what has been perceived to be the appropriate market price in 2008. It was in this context that this department felt that there was a sufficient justification to review the entire process of issuance of licences, award of spectrum and the implementation of the UAS regime.”

“Undue favours”

Rekha Gupta, Deputy CAG, told that the Anil Dhirubhai Ambani led-Reliance Communications appeared to have got undue favours in the allocation of licences and the DoT appeared to have sided with existing operators such as Bharti Airtel and Vodafone-Essar by giving them additional spectrum at prices much below the market rates. She said that Swan Telecom, which was also allocated spectrum, appeared to be acting as a front company for the Anil Dhirubhai Ambani group (ADAG). At the time of applying for the licence, the equity stakes of Reliance Telecom Ltd (RTL) in Swan Telecom was 10.71 per cent, which was against UAS rules. (According to rules, companies with spectrum interests cannot have more than a 10 per cent stake in another company.)